Georgia Tech Procurement Assistance Center

CRS report: U.S. government procurement and international trade

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The COVID-19 pandemic has demonstrated that U.S. companies and the federal government rely heavily on global supply chains.  This has prompted congressional interest in better understanding the role of international trade in U.S. government procurement.  As such, Members have sought ways to incentivize U.S.-based production by prioritizing the procurement of domestic goods and services, while upholding U.S. commitments under various international trade agreements.  Separately, the Trump and Biden Administrations have issued executive orders that aim to maximize the procurement of domestic goods and services and increase oversight of waivers that would allow government purchases of foreign goods.

Within this context, Members have raised questions regarding how federal agency acquisitions comply with two domestic sourcing laws: namely, the Buy American Act of 1933 (BAA, 41 U.S.C. §§8301–8305) and Trade Agreements Act of 1979 (TAA, 19 U.S.C. §§2501–2581).  Although both BAA and TAA have provisions that affect trade, there is a critical difference between their respective requirements.  Whereas BAA operates as a price preference for U.S. products, TAA establishes a prohibition on procuring products and services from non-designated foreign countries, unless one of TAA’s exceptions applies.

Continue reading the report:  https://crsreports.congress.gov/product/pdf/IF/IF11580

Where is it from? Domestic preference law in flux after Acetris Federal Circuit decision

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The Federal Circuit struck down an element of the government’s longstanding definition of what qualifies as U.S.-made for purposes of procurement law.  In Acetris Health LLC v. United States, No. 18-2399 (Fed. Cir. 2020), a three judge panel found the Department of Veterans Affairs’ (VA) definition of U.S.-made to be “untenable” and instead found that pharmaceuticals with an active ingredient from India that are manufactured into final form in the U.S. qualify as U.S.-made for purposes of procurement law.  The decision, if not successfully challenged, will have broad-ranging impacts not only in the pharmaceutical industry but for many government contractors with international supply chains.  It also raises important questions about how federal agencies will implement the court’s guidance.

Continue reading at:  Arnold & Porter

How the Navy SEALs wound up buying 450 counterfeit radio antennas

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Last spring, the Pentagon spent more than $165,000 on a set of sophisticated radio antennas for a contingent of elite Navy SEALs.  Unfortunately, they were cheap knockoffs, courtesy of a California vendor apparently looking to secure some extra profit.

A search warrant application recently filed by the Defense Department provides a glimpse into how the alleged scam worked.

In April 2019, the Naval Special Warfare Command solicited bids to buy 450 VHF/UHF antennas for use by members of the Navy SEALs.  The request required the body-worn antennas come from New York-based manufacturer Mastodon Design, and that the supplier qualify as a small business.

The government used to purchase the antennas directly from Mastodon.  However, it no longer could because after Mastodon’s sale to a large multinational defense contractor, the once-boutique company no longer qualified as a small business.  This meant the Navy would have to buy Mastodon’s antennas through an authorized small distributor or reseller.

On May 1, the sales team at Mastodon got an email from the procurement department of a California company called Vizocom.  It said the company was bidding on a Navy contract and wanted to know how much 450 Mastodon antennas would cost.  Mastodon quoted a price: $165,109.50.

Vizocom then submitted its bid to the Navy for the exact same amount.  A source with direct knowledge of the situation told Quartz it was highly unusual that Vizocom wouldn’t want to make any money on the deal.  At this price, the Navy awarded Vizocom the contract.

The company, however, would never actually place the order with Mastodon.  Instead, it would import low-cost antennas from China and pass them off as from Mastodon using fake serial numbers and spec sheets, according to the search warrant application and sources with knowledge of the deal.

Continue reading at:  Yahoo Finance

Firm to pay $545,000 to settle claims it sold Chinese-made equipment to U.S. government

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A Sunnyvale-based network security company has agreed to pay more than a half million dollars to settle allegations it sold Chinese-made equipment to the U.S. government in violation of the False Claims Act, according to federal prosecutors.

According to a settlement agreement made public Friday, Fortinet Inc. acknowledged that between 2009 and 2016 one of its employees directed the relabeling of products to make them appear as though they were in compliance with the Trade Agreements Act.  The act prohibits government contractors from purchasing products that are not entirely from or “substantially transformed” in the United States or other designated countries.

Prosecutors said the new labels did not include the country of origin and featured phrases such as “designed in the United States or Canada” or “assembled in the United States.” A portion of the products were then resold through distributors and subsequent resellers to U.S. government end users.

“Contractors that supply the U.S. government with Chinese-made technology will be pursued and held accountable when violating the Trade Agreement Act,” said Bryan Denny, Defense Criminal Investigative Service special agent in charge, in a statement.

Continue reading at: East Bay Times

Trade Agreements Act enforcement loses a couple more teeth

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Two recent judicial decisions involving the Trade Agreements Act (TAA) build on a trend reflecting a more favorable enforcement climate for contractors grappling with domestic preference regimes.

Earlier this year, the U.S. District Court for the District of Columbia dismissed a qui tam action that alleged fraud in connection with country of origin requirements imposed by the TAA. United States ex rel. Folliard v. Comstor Corp., 308 F.Supp.3d 56 (D.D.C. 2018) (finding the relator failed to adequately plead that the alleged TAA noncompliance was “material” to the Government’s payment decision). The decision marked a welcome early defeat of a False Claims Act case based on the enhanced materiality and scienter requirements of the Escobar decision (more here).

Two recent federal court decisions appear to extend the trend of taking some of the bite out of TAA enforcement, and potential exposure for alleged noncompliance.

Despite this welcome news, domestic preference programs remain a key legal obligation for government contractors (and an area likely to remain under scrutiny with the Administration’s professed focus on Buy American and Hire American initiatives).

Keep reading this article at: https://governmentcontractsnavigator.com/2018/09/17/trade-agreements-act-enforcement-loses-a-couple-more-teeth/

False Claims Act decisions provide insights into Buy American Act and Trade Agreements Act compliance

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Due to the government’s increased focus on domestic preference requirements – for example, through President Trump’s formal policy and action plan for agencies to “scrupulously monitor, enforce, and comply” with the so-called “Buy American Laws,” and Congress’s proposed legislation to make certain Buy American requirements more robust – contractors should not be surprised if there is a corresponding increase in related False Claims Act (FCA) activity.

Notwithstanding, based on a review of recent FCA decisions, whe courts generally have been skeptical of attempts by relators to allege FCA liability regarding a purported Buy American Act (BAA) or Trade Agreements Act (TAA) violation.

These decisions and several key takeaways that will help contractors avoid (and defeat) such FCA lawsuits are discussed in an article that can be downloaded here: https://www.cov.com/-/media/files/corporate/publications/2018/06/seven_takeaways_from_recent_fca_decisions_on_domestic_preference_requirements.pdf?_ga=2.118195274.232753034.1530642563-1639006631.1522784552

Military bought thousands of boots labeled ‘Made In the USA’ — but they were from China

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Five executives with a former leading manufacturer of U.S. military boots have been sentenced in federal court for saying the boots were made in Tennessee when they were actually produced in China.

According to an indictment filed in U.S. District Court, the actual Chinese manufacturer of the boots was told to include “USA” on the label of Wellco boot uppers that were then shipped to the U.S. The “Made in China” tags were removed, the indictment says. Soles were affixed to the boots at Wellco’s plant in Morristown, Tennessee, and elsewhere, according to the document.

From 2006 through 2012, the U.S. Department of Defense paid at least $138 million to Wellco for military footwear, according to the indictment.

Keep reading this article at: https://taskandpurpose.com/wellco-execs-military-boots-china/

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Management of DoD contractor pleads guilty to ‘Made in the USA’ contract fraud

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The former president and CEO of Wellco Enterprises, Inc. (Wellco) and Tactical Holdings Operations, Inc. (Tactical Holdings), Vincent Lee Ferguson, of Knoxville, Tennessee, has pled guilty to conspiracy to commit wire fraud.

Wellco’s former sales VP, Matthew Lee Ferguson, of Geneva, Illinois, and former marketing director, Kerry Joseph Ferguson, of Houston, Texas, also pled guilty to conspiracy to commit wire fraud.  In addition, Wellco’s former VP of government contracting, Neil Streeter, of Warren, Massachusetts, and former operations manager, Stephanie Lynn (Ferguson) Kaemmerer, of Knoxville, Tennessee, pled guilty to smuggling goods into the United States.

Sentencing has been set for Vincent Lee Ferguson, Matthew Lee Ferguson, and Kerry Joseph Ferguson for June 6, 2018.  Sentencing for Neil Streeter and Stephanie Lynn Kaemmerer is set for June 11, 2018.  Conspiracy to commit wire fraud and smuggling goods into the United States both carry a maximum penalty of 20 years in prison and a fine of up to $250,000.  Each defendant was released pending sentencing.

According to information on file with the U.S. District Court, Wellco was a leading manufacturer and supplier of military footwear to the U.S. Department of Defense (DoD) and to civilian (commercial) customers for over 70 years.  From 2006 through 2012, DoD alone paid in excess of $138 million to Wellco for the supply of combat boots.  Wellco pioneered and patented the first practical method for molding and attaching a rubber sole to a shoe upper in a single operation.  During the Vietnam War, the U.S. Army adopted Wellco technology for the manufacture of its hot-weather boots for the jungles of Vietnam, a boot that became known as the “Vietnam Boot” or the “jungle boot.”   In May, 2007, in a deal involving approximately $22 million, Wellco was acquired by two investment firms, Golden Gate Private Equity, Inc. and Integrity Brands, Inc.  Wellco became a wholly owned subsidiary of Golden Gate’s portfolio company, Tactical Holdings.

In March 2006, Vincent Lee Ferguson was made President and CEO of Wellco.  At that time, he discussed a turnaround plan with Wellco’s Board of Directors for the company to increase commercial sales and “aggressively pursue” sales to the U.S. government.  From December 2008 through August 2012, he conspired with his executive team to import military-style boots that were made in China into the United States and then deceptively market and sell those boots to DoD (and other federal departments and agencies), government contractors, and the general public as “Made in the USA” and as compliant with the Berry Amendment and the Trade Agreements Act (TAA).   The Berry Amendment prohibits DoD from buying clothing that is not grown, reprocessed, reused or produced in the U.S.   The purpose of the Berry Amendment is to protect the viability of America’s textile and clothing production base.  The TAA provides that the government may acquire only “U.S.-made or designated country end products” and requires government contractors to certify that each “end product” meets applicable requirements.

By December 2008, Wellco was manufacturing certain military boot model uppers and insoles in China.  In order to conceal this fact, the conspirators required the Chinese manufacturing facility to include the American flag and “USA” on labels of certain boot uppers.  After two shipments of these deceptively marked boots were detained and seized by the U.S. Department of Homeland Security’s Customs and Border Protection, the conspirators ordered the Chinese facility to stitch tear-away “Made in China” labels in Wellco boot uppers.  After importation, the conspirators instructed Wellco factory workers in Morristown, Tennessee to tear out the “Made in China” tags prior to shipping the boots to government and commercial purchasers.

The defendants marketed and sold these Chinese-made Wellco boots as “Made in the USA.”  They also submitted false certifications to DoD and other federal agencies, and to government contractors that these boots complied with the Berry Amendment and TAA and met certain safety standards, including electrical hazard and blood-borne pathogen protections for U.S. troops.  For example, on August 15, 2012, the defendants submitted a signed “Certificate of Conformance” to a government contractor, representing that Wellco’s boot model S161 was “100% Berry Compliant” and “fully protective against Electrical Hazard,” even though the model was imported from China and not safety tested.  The boots were then supplied to troops stationed at Sheppard Air Force Base in Wichita Falls, Texas.   In total, Wellco sold at least $8.1 million of fraudulent boots.

This case was investigated by Homeland Security Investigations, Defense Criminal Investigative Service, Air Force Office of Special Investigations, General Services Administration Office of Inspector General, and Defense Contract Audit Agency.

Source: https://www.justice.gov/usao-edtn/pr/former-ceo-and-executive-management-defense-contractor-wellco-enterprises-inc-pleads

Address to Congress foreshadows increased Buy American Act enforcement

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On February 28, 2017, President Donald J. Trump addressed a joint session of Congress for the first time and outlined his plan for a “new chapter of American Greatness.”

That plan included continued emphasis on protecting United States labor and manufacturing, and can be summarized in a few words often repeated by President Trump: “Buy American and Hire American.”

This rhetoric foreshadows the significant likelihood that enforcement of requirements for domestic sourcing and content, including the Buy American Act,  41 U.S.C. §§ 8301–8305, and the Trade Agreements Act, 19 U.S.C. §§ 2501–2581, will be a priority of the Trump Administration.

Keep reading this article at: https://www.insidegovernmentcontracts.com/2017/03/president-trumps-first-address-congress-foreshadows-increased-buy-american-act-enforcement/

Five indicted in TN for fraudulent ‘Made in the USA’ sales to Armed Forces

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A federal grand jury in Tennessee has indicted five individuals for wire fraud, conspiracy to commit wire fraud, major fraud against the United States, and smuggling in connection with Chinese-made military boots to the U.S. Armed Forces and others.

Justice Dept. sealThese individuals appeared in court on Sept. 15, 2016 and pleaded not guilty.  All were released on bond pending trial, which has been set for Nov. 1, 2016, in U.S. District Court, in Greeneville, TN.

If convicted, they all face a term of 20 years in prison as to each wire fraud charge and smuggling charge, and up to 10 years in prison for the charge of major fraud against the United States.  Additionally, they face fines of up to $250,000 and up to three years of supervised release as to each count.  The indictment also seeks forfeiture of approximately $8.1 million.

Details of this conspiracy are included in the indictment on file with the U.S. District Court, which alleges that these individuals, all of whom were executives and management at Wellco Enterprises, Inc., conspired from December 2008 through August 2012 to defraud the United States government and other purchasers through a scheme to fraudulently import military-style boots that were made in China into the United States and then deceptively market and sell those boots to the United States Armed Forces, government contractors, and the general public as “Made in the USA,” and as compliant with certain domestic content preference laws, including the Trade Agreements Act and the Berry Amendment.

This indictment is the result of an investigation by Homeland Security Investigations, the Defense Criminal Investigative Service, Air Force Office of Special Investigation, General Services Administration Office of Inspector General, and the Defense Contracts Audit Agency.

Members of the public are reminded that an indictment constitutes only charges and that every person is presumed innocent until his/her guilt has been proven beyond a reasonable doubt.

Source: https://www.justice.gov/usao-edtn/pr/five-indicted-fraud-against-us-government-and-other-purchasers-made-usa-marketing

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