Recent criminal antitrust risks for government contractors

The business of government contracting is a high-risk, high-reward activity. Many contractors, large and small, relish the opportunity to profit while also directly providing critically needed products and services to the government.

That opportunity, however, comes with a risk many would-be government contractors may be unaware of: the increasing presence and aggressiveness of the U.S. Department of Justice (DOJ) in prosecuting bid-rigging, collusion, and price-fixing cases in this area. These criminal cases often result in jail time for the executives of these companies.

This article will focus on the Sherman Act (15 U.S.C. §1), specifically the criminal antitrust considerations that government contractors face. The Sherman Act prohibits competitors from agreeing to fix prices or rig bids. A violation of the Sherman Act is a felony and may be punishable by a fine of up to $100 million and/or ten years in jail.

The implications of the Sherman Act are critical for government contractors to understand because of the unique aspects of their business. Also, these characteristics of the business of contracting with the government make the antitrust analysis more complex. This article will focus on recent cases in this area and the ramifications for contractors. The article will conclude with some practical tips for antitrust and government contract counsel.

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How bid protests are slowing down procurements

The Navy announced June 27 it was awarding Hewlett Packard a potential five-year, $3.5 billion contract to develop a computer network to serve up to 800,000 Navy and Marine Corps personnel.

Three weeks later, the inevitable happened: The losing party, a team of Harris Corp. and Computer Sciences Corp., filed a protest, potentially delaying the contract award by more than three months.

This came as no surprise to Sean Stackley, assistant secretary of the Navy for research, development and acquisition.

“There is no defense against a protest, but there is absolutely preparation to ensure that in the event of a protest that the government prevail, and we took every measured step to do that,” Stackley said.

Last year, losing bidders deluged the Government Accountability Office with 2,475 bid protests — a 50 percent increase since 2008. And although GAO upholds only a small number of bid protests, they still have a big impact. They have become so common that agencies expect them, build them into their contracting timelines, and regularly train their procurement staffs on how to minimize them, according to agency officials and outside experts.

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RFP-EZ delivers early value

RFP-EZ has been touted as a faster, easier way for tech companies to compete for the federal government’s IT contracts, and now data suggests the pilot program also has the potential to save big taxpayer dollars.

A Small Business Administration analysis found bids received under RFP-EZ’s platform for four common IT projects came in 30 percent lower on average than bids for the same projects through the standard procurement portal FedBizOpps, and showed less variation.

Overall, RFP-EZ attracted more than 270 new businesses to federal IT procurement, and though initial contracts through RFP-EZ are not expected to be finalized until June, Federal Chief Technology Officer Todd Park said it’s clear the new system will save money and open up the government marketplace to a wider range of companies.

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‘Industry needs profits and margins to be successful’ — DoD deputy secretary

Lowest price will no longer rule the day in federal contracting at the Defense Department, as the latest iteration of its procurement strategy recognizes the need for industry to to make money, said Deputy Defense Secretary Ash Carter in a speech Thursday.

In comments made at D.C.-based Center for Strategic and International Studies, Carter was referring to Better Buying Power 2.0, the Pentagon’s effort to be more efficient and productive in the way the department buys goods and services.

The first version, introduced by former Defense Secretary Robert Gates in September 2010, sought to increase affordability in defense programs, provide incentives for productivity and innovation in industry through profit and partnership, promote competition, improve the effectiveness of services acquisition and reduce nonproductive processes and bureaucracy.

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Pentagon says 20 vendors can meet its electronic health record needs

The Defense Department has found 20 commercial software vendors capable of modernizing its electronic health record system, Frank Kendall, undersecretary of Defense for acquisition, technology and logistics, told reporters at the Pentagon today.

Yesterday, Defense Secretary Chuck Hagel backed the use of commercial software in a memo to Kendall. Hagel said he supported competitive procurements for undefined “core” EHR commercial software systems. Kendall said these procurements will provide a modernized Defense health record to replace the department’s existing Armed Forces Health Longitudinal Technology Application system, known as AHLTA.

Kendall said the department’s market research identified three out of the 20 commercial vendors who could provide versions of the Veterans Affairs Department’s electronic health record, the Veterans Health Information Systems and Technology Architecture, known as VistA. While acknowledging VistA could be a candidate for the Defense EHR, Kendall emphasized throughout his briefing the Pentagon wants a modern, “smart” commercial EHR that meets its needs.

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Shrinking budgets, acquisition workforce mistakes drive bid protests, experts say

Data from the Government Accountability Office clearly show an upward trend in the number of bid protests, and procurement analysts told BNA there several explanations for the increase.

Chief among these, they said, are smaller federal budgets that allow for fewer overall contracts, along with a shrinking, less skilled acquisition workforce prone to mistakes.

Total federal spending on contracts fell to $516.8 billion in FY 2012 from $538.6 billion in FY 2011, according to Spending rose only 19.6 percent from $432.1 billion in FY 2006.

At the same time, contractors filed 2,475 protests, cost claims, and requests for reconsideration with GAO in fiscal year 2012, a five percent increase from FY 2011 and a 94 percent increase from the 1,274 protests filed in FY 2006.

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DoD contractors lobby Congress against competition

As the Army prepares to choose the new builder of its handheld digital radios, the incumbent contractors are tryiing to convince Congress to keep other companies out. The incumbents are General Dynamics, which publicly apologized to the Army over its half of the program last year, and Rockwell Collins. The Army’s own chief of acquisitions, Lt. Gen. William Phillips, told the Senate Armed Services Committee just yesterday that “the industry partners that were not a part of the program of record” — i.e.  the troubled JTRS (Joint Tactical Radio System) program, which had contracted Rockwell and GD — provided “radios that were cheaper, better capability and met almost all of our requirements in most cases”. The service, he said, was committed to “full and open competition.”

We saw a similar play already last year, albeit slightly later in the legislative process, when Reps. Dave Loesback and Trent Frank offered an amendment – later withdrawn – that would have required competitors to meet stringent conditions that effectively ruled out radio-builder Harris and other outsiders, thereby protecting General Dynamics. This time it is co-incumbent Rockwell Collins, which splits the current contract with GD, that’s leading the charge.

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OFPP brings no predisposed notions to strategic sourcing

The Strategic Sourcing Leadership Council delivered a set of proposals for how and where to expand the Federal Strategic Sourcing Initiative.

But not every suggestion sent to the Office of Federal Procurement Policy in March was about a new contract or expanding a current blanket purchase agreement.

Joe Jordan, the administrator of OFPP, said the council wants to move forward with a number strategic sourcing efforts, including technology hardware and software, laboratory supplies, janitorial and sanitation, mobile and wireless products and services and others.

“We are now working with them to say ‘what is the solution?’ It doesn’t mean in all those categories, there is one governmentwide contract,” Jordan said, after a panel discussion on strategic sourcing at an event sponsored by the Coalition for Government Procurement in Arlington, Va. Wednesday. “We are putting all that commodity under management with an executive agent that has a deep content knowledge and all of the large buyers at the table, along with the Small Business Administration, to figure out what the right solution is. In some cases, it will mean reduced contract duplication, better leveraging our spend and driving volume based discounts. In other cases, it’s more terms and conditions and taking administrative costs out of the approach.”

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Federal IT funds circle the drain due to poor procurement policies

It may seem like a simple thing to fix — if the U.S. government wants more vendors to compete for contracts, just ask more companies to take part. However, those looking to reform the procurement process are running into snags that favor the status quo, and a new survey shows just how much money is wasted. A greater emphasis on open standards and boosting the role of CIOs are two possible solutions now being studied.

Federal agencies routinely pass up opportunities to improve information technology performance, and save money at the same time, by failing to seek vendor competition in the procurement process, according to a recent survey.

Federal IT professionals revealed that their agencies could save as much as $15.8 billion per year — about 20 percent of annual IT spending — by being more aggressive in utilizing multiple vendors in a more competitive environment for infrastructure projects.

The survey of 208 federal specialists was conducted in January by MeriTalk, an online community of public and private sector IT professionals.

Reporting on the survey in early March, MeriTalk said that 95 percent of respondents believe there are benefits to using more than one vendor in an area of their infrastructure, and 44 percent believe that adding a vendor drives down acquisition costs. However, five percent of agencies reported that their entire IT infrastructure uses just one vendor, and another 23 percent use just two or three.

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U.S. acquisition mistakes put Afghan air force’s new fleet at risk

It took an extra year and left the Air Force’s acquisition team with egg on its face, but Sierra Nevada Corp. still ended up with the $427 million contract to provide 20 light support planes to the Afghan air force.

The Air Force had to cancel the initial contract in 2011 awarded to Sierra Nevada Corp. after Beechcraft Corp. protested the award. Following the protest, the Air Force discovered mistakes made in the paper work throughout the acquisition process forcing the Pentagon to re-open the competition.

Air Force officials still chose the Super Tucano offered by Sierra Nevada Corp. and Brazil’s Embraer for a contract that could be worth up to $900 million over the life of the contract.

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