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Federal rule mandates small business updates, imposes monetary penalties

September 24, 2013 By ei2admin

Small businesses need to pay closer attention than ever to their “small business size status.”

New rules from the Small Business Administration (SBA), recently published in the Federal Register, require that small businesses:

  1. Accurately maintain their size status with the federal government, and
  2. Face substantial financial penalties, if willful misrepresentation of size or socioeconomic status is proven.

What actions are expected to be taken by small businesses?

First and foremost, it’s imperative that every small business update its profile in the System for Award Management (SAM) at least once a year.  A small business failing to perform annual updating will no longer be identified in the SAM database as a small business.  Lack of updating also will cause a firm’s other socioeconomic designations (such as SDB, 8(a), HUBZone, WOSB, EDWOSB, VOSB and SDVOSB) to be dropped from SAM.   Losing these designations in SAM potentially means losing eligibility for federal contracts set-aside for various small business classifications.  Firms not identified as small businesses also will not likely be considered as potential subcontractors by prime contractors who are required to meet small business subcontracting goals.

The possible penalty for a business misrepresenting itself as a small business has never been as severe as now.  If the SBA finds that a business “willfully misrepresented” itself as a small business in order to win a federal contract, the agency can cancel the contract and impose a penalty equal to the total dollar value of the contract.  Previously, when a contractor misrepresented its size or small business status, the contractor had to forfeit its contract and pay back profits associated with the contract.

The bottom line is this.  Businesses should make sure they update SAM at least annually.  In addition, businesses should expect to see a new certification form in bid and proposal solicitations, requiring each small business to certify its status as a small business along with any other socioeconomic classification the firm may hold.  The form must be signed by an authorized official.  If a federal solicitation does not contain a certification section, offerors (bidders and proponents) are expected to prepare a signed certification of their own to be included in their offer.

 

Filed Under: Contracting News Tagged With: 8(a), certification, EDWOSB, federal contracts, federal regulations, fraud, HUBZone, misrepresentation, penalty, SAM, SBA, SDB, SDVOSB, small business, small disadvantaged business, socioeconomic status, veteran owned business, VOSB, woman owned business, wosb

New defense rules might cost contractors money

May 2, 2012 By ei2admin

The final Defense Federal Acquisition Regulation Supplement (DFARS), released in February, is an improvement over its predecessor, but its withholding clause could cause problems and payment delays for many Defense Department contractors, experts say.

An April 25 cross-industry panel of contracting experts agreed that the new DFARS is the most comprehensive change in federal contracting in several years.

But they centered their attention on assessing the new withholding clause, which calls for withholding a percentage of the contract payment if the Defense Contracting Management Agency finds “significant deficiencies” in any of six business systems cited in the new rule.

Timothy Callahan, executive director for contracts at DCMA, said the old rule had a variety of regulations, no consistent language in determining whether a contractor’s work was adequate or inadequate, and what and how corrective actions were to be taken.

“Under the way we were operating if a contractor had a deficiency with a business system, they put forward an adequate corrective action plan; that submittal of an adequate action plan oftentimes was sufficient to change the status from a disapproved system to an approved system,” Callahan said.

“And there really wasn’t the follow-through on either the contractor’s part or our oversight to ensure that that corrective action plan was put into place,” he added.

The new DFARS business system clause normally does not apply to small businesses, competitive fixed price contracts or contracts less than $7.5 million, he said, adding that the agency will issue a withhold assessment on contracts valued at more than $50 million.

Callahan said DCMA now will use a four-phase program to determine if any of six contract business systems are judged to contain “significant deficiencies.”

“If it’s one business system, the withhold [amount] is 5 percent. If it’s two or more business systems that are being disapproved, the maximum is 10 percent,” he said.

“The withholds are against the financing arrangements of the contract,” Callahan explained, including progress payments, performance-based payments and interim cost vouchers.

The contractor then has 45 days to turn in its corrective action plan.

“If it’s an adequate corrective action plan the withhold will be reduced by 2 percent,” Callahan said. “We’re trying to minimize the hurt but still keep the pressure on to get this corrective action implemented.”

When the contractor notifies the government of the implementation, the government has 90 days to validate that corrective action has indeed occurred and that the deficiencies have been corrected.

“If we don’t get out there within 90 days, it’s another automatic reduction in the withhold [penalty] of 50 percent,” he said.

Participants at the Compusearch-sponsored panel “Contracting in a Time of Change” agreed there was a definite need for a new DFARs rule.

But Robert Burton, partner at Venable law firm and former deputy administrator in the Office of Federal Procurement Policy, called the business system clause draconian and hard to implement.

Alan Chvotkin, executive vice president and counsel at the Professional Services Council, said there is a lot of mythology surrounding the rule.

However, he praised DFARS for providing “contractor engagement and response at every opportunity. So it’s really moved to a compliance rule rather than a withholding rule.”

Chvotkin said the attributes in each of the six business systems are more clearly defined now than they were early on in the drafting process “But there’s still a lot of ambiguity and a lot of room for interpretation,” he said.

Addressing the ambiguity and need for interpretation, Chvotkin offered several steps contractors need to take even before winning a contract affected by the rule.

He said contractors should always document their own business systems, be aware proactively of the contract clauses and the risks inherent in DFARS.

Robin Schulze, director of the Government Contractor Advisory Services at accountants Baker Tilly Virchow Krause LLP, said she believed the strength of the new DFARS was its peer review requirement.

But she said, “I believe that when you get the initial determination [of a deficiency] if you were able, in your response to that, provide an action plan you could start at 2 percent [withhold] instead of the 5 percent. And the same thing should be true if you voluntarily disclose a deficiency that you’ve identified and have already started working of it.”

Defending the clause and the remediation process, Callahan suggested that if a contractor knows there is a problem and takes corrective action right away, “we can start out with a withhold of 2 percent, it doesn’t have to be 5 percent,” he added.

“We would like this to be a collaborative operation,’ Callahan said, “where we’re communicating as we go along.”

About the Author: David Hubler is senior editor of Washington Technology.  This article was published on Apr. 25, 2012 at http://washingtontechnology.com/articles/2012/04/25/panel-on-dfars.aspx?s=wtdaily_260412.

Filed Under: Contracting News Tagged With: contractor performance, DCMA, DFARS, DoD, penalty, retainage, small business, wherewithal

Congress could turn heat up on small-biz goals

January 27, 2012 By ei2admin

Under a new bill, a department that misses a set goal to contract with small businesses could lose 10 percent of its budget as a penalty.

Rep. Bill Owens (D-N.Y.) introduced the Small Business Growth and Federal Accountability Act (H.R. 3779) Jan. 18, saying the government’s annual 23-percent small-business contracting goal is regularly ignored by agencies.

He said his bill would “ensure that Washington lives up to its promise to foster an environment of success for small businesses.”

Owens, a member of the Small Business Committee, said federal agencies typically fail to meet their small-business contracting goals and they currently face no penalties for the shortfalls.

Under his bill, if an agency misses the set small-business contracting goal, their budget would decrease by 10 percent in the following fiscal year, with that percentage of funds going to pay down national debt.

“It is critical that federal agencies be held accountable,” Owens said.

The bill also would offer agencies more authority to give “preference” to small companies when awarding contracts. The term “preference” is not defined in the bill.

The bill has been sent to the Small Business Committee for consideration.

It is true that the government struggles to meet its annual 23-percent contracting goal. In the most recent scorecard from the Small Business Administration, the government reached 22.7 percent in fiscal 2010.

That year, agencies awarded a total of nearly $100 billion in contracts to small businesses. However, it was an increase in prime contract dollars going to small businesses for the second year following four years of decline.

SBA gave the government a B on the scorecard for its efforts in contracting with specific types of small businesses, such as those owned by a service-disabled veteran or located in an economically depressed area.

Owens’ bill could have several repercussions though.

In a post on the Government Contracts Legal Forum blog, Tiffany Wynn, an associate at the Crowell and Moring law firm, said agencies may decide to reduce their contracting goals to avoid the 10-percent penalty.

As a result of the bill, officials would have to weigh the penalties for missing the small-business goal against awarding a contract to a large company if the agency could save money.

Wynn also questioned whether this legislation would lead to penalties on companies that don’t meet their own annual small business subcontracting goals.

About the Author: Matthew Weigelt is a senior writer covering acquisition and procurement for Federal Computer Week.  This article appeared Jan. 25, 2012 at http://washingtontechnology.com/articles/2012/01/25/small-business-goal-reduced-budget-penalty.aspx?s=wtdaily_260112.

Filed Under: Contracting News Tagged With: accountability, federal contracting, penalty, preference, SBA, small business, small business goals, subcontracting goals

Move over, FAPIIS – POGO freshens up its contractor database

October 3, 2011 By ei2admin

The federal government’s largest contractors have paid $25.3 billion in fines and penalties for everything from A to Z: from improper accounting practices to selling the government defective Zylon body armor. These and more than 1,400 other misconduct instances can be found in the Federal Contractor Misconduct Database (FCMD), which has now been updated with fiscal year 2010′s top 100 ranking.  [Note: The FCMD is published by the Project On Government Oversight (POGO), a nonprofit watchdog group.]

The top 100 features 7 new contractors, including international accounting firm Deloitte LLP, package delivery company United Parcel Service (UPS), and linguistic services provider Mission Essential Personnel. The FCMD now includes misconduct information on 160 of the federal government’s largest suppliers of goods and services.

The top 100 contractors received $276 billion in contracts last fiscal year,
accounting for slightly more than half of the $536 billion in contracts awarded
that year. As of today, these 100 contractors have accumulated 821 misconduct
instances. Thirty-eight of the top 100 have zero or one instance, a reminder
that misconduct need not be accepted as a cost of doing business with the
federal government.

As has occurred in the past, the USAspending.gov data on which the top 100 ranking is based
contains errors. Therefore, you will see double listings for Booz Allen
Hamilton, Lockheed Martin, and Northrop Grumman.

Among the instances you will find in the FCMD:

  • A Department of Defense Inspector General finding that Boeing overcharged the Army by about $13 million (131.5 percent) for
    spare helicopter parts.
  • A DoD Inspector General audit report issued 4 months later that found United
    Technologies’ Sikorsky Aircraft unit overcharged the U.S. Army by as much as $12 million for Blackhawk
    helicopter spare parts
    .
  • BP’s agreement to provide $1 billion to begin restoration efforts
    following last year’s massive oil spill in the Gulf of Mexico.
  • The assault plea of a former DynCorp employee who stabbed a man in
    Afghanistan in November 2010.
  • FedEx’s agreement to pay the United States $8 million to resolve allegations of overcharging federal
    agencies for package deliveries.
  • The $4 million settlement of claims that Fluor employees defrauded the federal purchase
    card
    (“P-card”) program at the Department of Energy’s Hanford Nuclear Site.
  • Honeywell International’s payment of millions in fines to federal and state authorities for environmental and safety violations at its uranium
    hexafluoride (UF6) conversion facility in Illinois.
  • Humana’s $3.4 million fine for violating Florida’s Medicaid fraud reporting law.
  • IBM’s $10 million settlement of Foreign Corrupt Practices Act
    charges
    that its Korean and Chinese subsidiaries gave bribes to government
    officials.
  • Corruption charges brought against former SAIC employees alleged to have received kickbacks and overcharged New York
    City
    on the CityTime information technology project.

POGO’s FCMD complements the federal government’s contractor responsibility
database, the Federal Awardee Performance and Integrity Information System, or
FAPIIS. POGO was pleased to discover the recent addition of several new useful
features to FAPIIS, which is on its way to becoming an indispensable resource
that strengthens accountability over the more than $1 trillion in taxpayer money
spent each year on federal contracts and grants.

– Neil Gordon is a POGO Investigator.  Published Sept. 29, 2011 at http://pogoblog.typepad.com/pogo/2011/09/move-over-fapiis-pogo-freshens-up-its-contractor-misconduct-database.html.

Filed Under: Contracting News Tagged With: FAPIIS, fine, fraud, misconduct, overcharge, oversight, penalty, POGO, responsibility

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