EPA temporarily suspends BP from federal contracts

November 30, 2012 by

The Environmental Protection Agency has temporarily suspended the oil and gas conglomerate BP from receiving any new federal contracts, according to a statement released Wednesday.

Citing the environmental disaster following the Deepwater Horizon oil spill in 2010, EPA said BP’s “lack of business integrity” will bar the company from receiving any new contracts with the government until the company meets “federal business standards.” EPA said the government still will adhere to its existing agreements with the company. BP currently has major fuel contracts with the Defense Department

As part of a deal announced in mid-November that settled criminal charges with the federal government, BP will be paying nearly $4.5 billion in damages and could still face civil lawsuits in the future. In a statement released Nov 15, BP said companies “convicted of certain criminal acts can be debarred from contracting with the federal government” but it had not been “advised of the intention of any federal agency to suspend or disbar the company.”

Keep reading this article at: http://www.govexec.com/contracting/2012/11/epa-temporarily-suspends-bp-federal-contracts/59793/?oref=govexec_today_nl.

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Contractor suspensions and debarments on the rise, says White House

September 24, 2012 by

Suspensions and debarments of companies that violate federal contracting rules have increased across the government over the past three years, rising from just over 1,900 in fiscal 2009 to more than 3,000 in 2011, according to a new report.

In a blog post scheduled for release on Sept. 18, 2012, White House Administrator of Federal Procurement Policy Joe Jordan wrote,“while the vast majority of government contractors compete fairly to deliver the best value to the American people, it is critical that the government take a hard line against those who would defraud taxpayers. This report shows the Obama administration has made significant progress in cracking down on bad actors. Just as significant as the progress are the management actions that underlie it, and indicate an increased agency commitment to protecting taxpayer resources.”

The report, from a coordinating body called the Interagency Suspension and Debarment Committee, follows up on a November 2011 memorandum from then-Office of Management and Budget director Jack Lew directing 24 departments and agencies to step up efforts to combat waste, fraud and abuse, in part by appointing a senior official to be accountable for progress.

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Justice fails to flag contractors with a criminal history

July 30, 2012 by

The Justice Department is not fulfilling its requirement to update procurement databases with information on contractors with a history of criminal activity, the department’s inspector general has found.

The Bureau of Justice Assistance has neglected its responsibility to obtain and update databases with contractors “convicted of fraud or any other felony arising out of a contract with the Department of Defense” or involved in drug trafficking, according to the IG. The bureau also failed in its statutory requirement to train U.S. attorneys to use these databases, the report said.

Keep reading this article at: http://www.govexec.com/contracting/2012/07/justice-fails-flag-contractors-criminal-history/56941/?oref=govexec_today_nl.

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Suspension and debarment often misunderstood, contractors told

April 12, 2012 by

Though viewed by industry as a punishment, the government’s suspension and debarment procedure for errant contractors is designed to be an “instantaneous” way to protect taxpayers from irresponsible spending, a panel of procurement officials agreed on Thursday. They parted company, however, on whether the current rules afford sufficient due process to affected companies.

Speaking at the first Acquisition Excellence conference staged jointly by the General Services Administration and the American Council for Technology and Industry Advisory Council, current and former procurement officials expressed concern that suspension and debarment has become “a hot topic” in Congress. Government Executive was one of four media partners for the conference.

It’s being used to go after “bad actors in all sorts of endeavors, from failure to pay taxes to fraud convictions,” said William Woods, director of acquisition and sourcing management at the Government Accountability Office, which in October 2011 published a study comparing frequency of suspensions and departments at 10 agencies. Most of the contractors tagged as suspended on GSA’s Excluded Parties List System are there for reasons unrelated to federal contracting such as drug trafficking or violations of export controls, he said.

Seven of the fiscal 2012 appropriations bills contained language requiring use of suspensions and debarments, added Rob Burton, a top White House procurement administrator during the George W. Bush administration and now a partner at Venable LLP. But the purpose of suspension and debarment is “not complicated,” said Dan Gordon, former administrator of procurement policy for the Obama White House who is now associate dean for government contracts law at The George Washington University Law School. “The purpose is to protect the taxpayers, not to replace or supplement the Justice Department’s administration of justice — they take care of the bad guys,” he said. Gordon warned that many misread the GAO report to imply that the more an agency suspends and debars, the better, as if “what this country needs is to hang more contractors high from a tree.”

What the process requires is “a matter of checking, of being careful,” Gordon said. “The system works pretty well,” and doesn’t require new legislation or regulation. The interagency committee on suspension and debarment can help by sharing best practices among specialized staff at agencies, he added.

Burton disagreed, calling the current regulations “flawed in a fundamental way because they allow for no due process.” He described how his private sector clients can suddenly receive a letter informing them they can’t do business with the federal government and “they get no opportunity to present their own information or defend themselves.” He added the current rules “would not pass constitutional muster.”

Joseph Neurauter, GSA’s top suspension and debarment official, stressed that the tool is not intended as punishment for contractors, though he acknowledged it can jeopardize an individual’s job. “It’s about minimizing risk for the federal government,” which is why the suspension is “instantaneous,” he said. His job is to view the problem from the point of view of agency acquisitions teams, Neurauter added. But he does regularly send letters to individuals who are suspended and invite them to meet informally and “show cause” as to why they should regain eligibility for government contracts.

Asked about new legislation that would impose suspension and debarment consideration for war zone contractors involved in human trafficking, Woods said “that’s a policy call for Congress.” Gordon said he is “always concerned when Congress sets up an automatic system of suspension and debarment because it undercuts the process by precluding discretion by officials looking at the full picture.”

At other sessions of the all-day conference that assembled several hundred federal employees and contractors at the Grand Hyatt in Washington, GSA chief Martha Johnson opened proceedings by stressing the value of sustainability as a key to reframing procurement in an age of limited budgets. A related session was titled, Sustainable Acquisition: Is It a Dream or Is It Real?

At lunch, Lesley Field, acting White House administrator for federal procurement policy, and colleagues presented achievement awards to federal contracting professionals in categories of buying smarter, effective vendor communication and strategic sourcing.

In a nod to the challenge of preparing the next generation of acquisition officers, Steve Ressler, founder of the social networking tool GovLoop, moderated a panel of young federal contract specialists from several agencies who are in the Rising Acquisition Professionals program. It was set up in 2010 by the Office of Federal Procurement Policy and the Federal Acquisition Institute.

Other sessions focused on how tight budgets are affecting ongoing relationships among agency contracting officers, program managers and industry. Speakers stressed the importance of engagement and dialogue early in the acquisition process, and many complained that too many agency staff members are fearful of tapping the expertise of contractors for fear of violating the Federal Acquisition Regulation and favoring one potential bidder over others, possibly provoking a bid protest.

“Government and industry too often talk past each other on early engagement,” said Mark Day, director of the Office of Strategic Programs at GSA’s Federal Acquisition Service. “Government asks the wrong questions, asking about prices before we know the cost drives, and then they write requirements that drive costs up.” Contractors, in turn, too often target the title not the role, Day added, and he recommended they talk to the official actually writing the requirements. “Early engagement is a mystery to the government side, and they’re scared of it,” Day said. “But it is an opportunity to find the sweet spot between what the government needs, what the contractor can provide and what the FAR allows.”

– by Charles S. Clark, Government Executive, Mar. 30, 2012 at http://www.govexec.com/contracting/2012/03/suspension-and-debarment-often-misunderstood-contractors-told/41638/.

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GAO sets new policy on debarments, suspensions

February 29, 2012 by

As a legislative-branch agency the Government Accountability Office does not have to comply with Federal Acquisition Regulations on suspension, debarment and ineligibility of contractors, but it is choosing to adopt the rules.

The new policy comes out on the heels of the proposed debarment of Booz Allen’s San Antonio office by the Air Force. Published on the Excluded Parties List System (EPLS) on Feb. 6, the action was related to a former government employee hired by Booz Allen who inappropriately retained and shared sensitive information about a pending government procurement.

GAO’s new policy, published in the Federal Register as a notice, took effect on Feb. 13, 2012.

GAO now will not solicit offers from, award contracts to, or consent to subcontracts with, contractors who are listed on the EPLS, according to the notice. Additionally, if GAO debars, proposes for debarment, or suspends a contractor, it will list that contractor in the EPLS.

The office first proposed and solicited comments on the policy on Sept. 30 and received only positive comments.

GAO’s Acquisition Management office , which is responsible for the majority of its contracting activities, will be the unit with primary responsibility for investigating and referring potential debarment and suspension actions to the debarment/suspension official for consideration.

As the debarring and suspending official, GAO’s Comptroller General, “will also be responsible for deciding whether to solicit offers from, award contracts to, or consent to subcontracts with contractors who have been debarred, suspended, or proposed for debarment, and whether to terminate a current contract or subcontract in existence at the time the contractor was debarred, suspended, or proposed for debarment,” the notice said.

About the Author: Alysha Sideman is the online content producer for Washington Technology. This article was published Feb. 13, 2012 at http://washingtontechnology.com/articles/2012/02/13/gao-debarment-policy.aspx?s=wtdaily_140212.

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Lawmakers, OMB push to ban more ‘bad-actor’ contractors

November 23, 2011 by

Procedures for disqualifying dishonest or incompetent federal contractors are too rarely exploited, according to a consensus of several senators, the White House and cross-agency watchdogs. But there is disagreement over whether the solution is improving application of the rules or whether Congress should make some suspensions and debarments mandatory.

At a Wednesday hearing of the Senate Homeland Security and Governmental Affairs Committee, Chairman Joe Lieberman, I-Conn., expressed alarm that a series of reports from the Government Accountability Office and inspectors general have shown a reluctance of many agencies to refer unsatisfactory contractors to the Excluded Parties List System maintained by the General Services Administration.

A Pentagon report “just last month shows that over a 10-year period, DoD awarded $255 million to contractors who were convicted of criminal fraud; and almost $574 billion to contractors involved in civil fraud cases that resulted in a settlement or judgment against the contractor,” Lieberman said. “Last year, the Department of Homeland Security’s inspector general found 23 cases where the department had canceled a contract because of poor performance, but in none of those cases did DHS suspend or debar the contractor.”

The Federal Emergency Management Agency, despite the existence of an anti-fraud task force following Hurricane Katrina in 2005, has not sent a single name to the list, Lieberman added, noting that the rarity of suspensions and debarments has been a concern of the committee as far back as 1981.

Sen. Claire McCaskill, D-Mo., said she got angry about the issue when a U.S. soldier was killed in Iraq by a negligent truck driver working for a U.S. contractor. The U.S. military continued using the contractor. “It’s a matter of character for our nation,” said McCaskill, who is preparing related legislation to implement recommendations of the recently disbanded Commission on Wartime Contracting.

She regretted that proposals to require more suspensions and debarments founder because of a fear of litigation, because it’s “too much trouble,” some contractors are seen as “too big to fail,” or “it is unclear who is accountable for a failure” to pursue that course, she said. “We need to draw a line in the sand.”

Dan Gordon, the departing administrator of the Office of Federal Procurement Policy, said the Obama administration had made significant progress on the issue over the past three years, but the system’s “weak link” is ensuring that a fraudulent contractor is flagged for action in a timely way. “Sometimes the referral takes too long, as historically agencies have been very bad about sharing, either because officials didn’t check the list, checked it too late, or because of problems in the spelling of an entity’s name,” he said.

He pointed to a memo to agencies released Tuesday by Office of Management and Budget Director Jack Lew that requires agencies to appoint a senior accountable official to “assess the agency’s suspension and debarment program — including the adequacy of available training and resources — review internal policies and procedures,” ensure databases are checked before grants and contracts are awarded, and “take corrective action if an award is improperly made to a suspended or debarred contractor.”

Gordon said OMB has been working with its Interagency Suspension and Debarment Committee to improve training and create detailed agency guidance. But he expressed skepticism toward any prospective legislation making certain referrals mandatory, saying agency cultures differ and mandatory referrals that take away discretion could undermine the role of suspension and debarment officials.

Allison Lerner, the inspector general of the National Science Foundation who co-chairs an IG working group on the issue, said suspensions and debarments “could be used more frequently and effectively.” The resistance comes from misconceptions among agency contracting officials, she said. Some fear jeopardizing investigations by disclosing negative information on contractors and some hold the incorrect beliefs that a decision must be based only on facts uncovered in a judicial process and that IG investigations cannot be cited as evidence against contractors.

Panelists agreed that the model policy is that practiced by the Air Force. Steven Shaw, deputy general counsel for contractor responsibility at the Air Force described two recent suspensions, one involving the Boeing Co.’s launch systems units and the other involving programs within L-3 Communications. Sixty-two percent of his suspensions and debarments are “fact-based,” he said, meaning his team doesn’t wait for the Justice Department to bring criminal charges. “We take a broad view of the type of misconduct, not just criminal fraud but as it relates to business integrity, tax issues, the Foreign Corrupt Practices Act or commercial fraud,” he said.

The Air Force also uses a “carrot-and-stick approach that is aggressive at the front end” but still allows contractors to prevent fraud through risk management and ethics programs.

Ranking committee member Sen. Susan Collins, R-Maine, who as a staff director worked on the 1981 hearing chaired by then-Sen. William Cohen, R-Maine, reminded the hearing that the goal of suspension and debarment is “not to punish contractors but to protect” the taxpayer, and that allowing “bad actors” to win new contracts is “not fair or ethical to the honest contractors.” She said she is considering legislation that would force agencies — she mentioned the Justice Department — to step up use of the tool.

Such a move is opposed by Alan Chvotkin, executive vice president and counsel of the Professional Services Council, a contractors trade group. He praised this week’s OMB memo as good “cross-agency coordination to bring attention” to the appropriate use of suspension and debarment. But he stressed the “very limited circumstances” under which “automatic exclusion” should be applied to a contractor.

“The government has wide flexibility to assess each individual situation to determine whether the government is at risk, including built-in due process procedures,” he said. “Doing it in an arbitrary way would be a mistake and convert it into a punishment, which it is not.”

– by Charles S. Clark – Government Executive – November 16, 2011 at http://www.govexec.com/story_page.cfm?articleid=49355&dcn=e_gvet

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Air Force suspends three firms for bad, unfinished work

November 4, 2011 by

Air Force officials have suspended three IT companies after they left their work unfinished on two buildings at Andrews Air Force Base in Maryland and have been unwilling to provide information on source-code data so officials can fix their work, according to a government document.

The suspended companies are Advanced C4 Solutions, Inc., a Florida-based company, which was the prime contractor, and two subcontractors, Superior Communications Solutions Inc., based on Georgia, and Iron Bow Technologies, based in Virginia.

Air Force officials are also considering debarring the companies from doing business with the government any longer, according to the Air Force report from Oct. 24 on the proposed debarments. The three companies have been listed on the Excluded Parties List System since then.

None of the companies returned calls and emails today for comment. Representatives from Iron Bow Technologies have said they are working to resolve the problems.

The suspensions, and possible debarments, stem largely from unfinished work.

In June 2010, the Space and Naval Warfare Systems Command Systems Center Atlantic awarded Advanced C4 Solutions with a multi-million dollar task order associated with a major IT and furnishing project for the Jones and Smart Buildings, which are at Andrews, according the document.

Advanced C4 Solutions, and the two subcontractors, were supposed to provide mission-critical IT to more than 2,200 personnel within the first two months after the buildings reopened. They failed to meet the requirements of the task order, according to the Air Force. The IT that was installed didn’t work well.

During a review, an unaffiliated contractor discovered 14 critical findings, 19 major findings and seven minor findings that affected the overall security and the access to the technology systems.

There were also more than 145 customer-generated trouble tickets, identifying incorrectly configured network equipment, bad installation work, and a disregard for regulations on critical network security and information protection, the Air Force said.

Despite all of that, the companies stopped their work and left the job site without finishing the job. Since then, they have been unwilling to provide operational manuals or source-code data, so Air Force officials can begin to fix the work. For example, the audio-visual and teleconference systems are not working because of the IT installation work isn’t done, the Air Force said.

There was also a conflict of interest among the companies. Executives from the three companies assisted in developing requirements and cost estimates for the project. They participated in conducting market research. The law doesn’t allow that, the document states.

“Even though [the companies] improperly developed their own contract requirements, the subjects failed to meet their own requirements,” the document states.

In all, it’s caused substantial harm to the Air Force, according to the document.

“This failure provides a basis for each of their debarments,” Steven Shaw, deputy general counsel at the Air Force, wrote in the document.

Even more so, these companies have histories of failing to do their work, and their performance on other contracts has not been good. Shaw wrote that it’s more evidence for possible debarments.

An Air Force spokesman today said this is a pending administrative action and therefore limited in providing further details.

About the Author: Matthew Weigelt is a senior writer covering acquisition and procurement at Washington Technology.  Published Nov. 1, 2011 at http://washingtontechnology.com/articles/2011/11/01/advanced-c4-solutions-iron-bow-technologies-superior-communications-solutions-air-force-suspensions.aspx?s=wtdaily_021111.

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Fraud continues in small business preference programs

October 31, 2011 by

Contractor fraud in small business set-aside programs is difficult to detect and prove, but its annual costs to government are significant in dollars and damage to legitimate business that deserve the work, two federal watchdogs told a House panel Thursday.

In fulfilling the Obama administration’s goal of giving 23 percent of prime federal contracts to small business, agencies need to do better at making a public example of “bad actors” and at vetting contractors that misrepresent their qualifications for minority advantages through self-certification, according to Peggy Gustafson, inspector general for the Small Business Administration, and Brian Miller, IG for the General Services Administration.

They spoke at a hearing of the House Small Business Subcommittee on Investigations, Oversight and Regulations called by Chairman Mike Coffman, R-Colo., who sought to learn why much contractor fraud goes unpunished and unprosecuted.

“Just as we all benefit from small business prime contracting, we all suffer when fraud rears its ugly head,” Coffman said. “Legitimate small businesses lose the ability to perform when contracts go to firms that do not qualify for, or who are not following the rules associated with, the small business contracting program. The government suffers from this fraud because bad actors give all small businesses a bad name, so contacting officers are more reluctant to use the small business programs, which in turn results in less competition and a less vibrant industrial base.”

The set-aside programs consist chiefly of preferences for section 8(a) business development, Historically Underutilized Business Zones, women-owned businesses and the service-disabled veteran-owned program. Both inspectors general testified that their own agencies had fallen victim to fraud. SBA and the HUBZone certification program played a role in the sensational case exposed with the arrests earlier this month involving $20 million in fraud allegedly committed by contractors and two employees of the Army Corps of Engineers, Gustafson noted.

Miller described a recent $6 million contract awarded to a company that claimed to be run by a disabled veteran whose documents said he served three tours of duty during the Vietnam War and received medals and citations. It turned out, Miller said, he was a mechanical engineer serving stateside in the National Guard.

“It’s difficult to prove a monetary loss to the government because it did receive the goods and services,” Miller said. “But the real loss is to program integrity, to the legitimate small businesses that didn’t get the contract.” He added that fraudulent self-certification is difficult to detect and agencies rely on such information in the majority of the preference contract awards because their resources are limited.

“Strong penalties are needed to deter” the fraud, he said. “The tougher it is to detect, the tougher penalties must be,” though the rules should avoid punishing innocent companies simply because of a clerical error, he said.

Gustafson said each type of set-aside has its own level of vetting and the Section 8 program is the hardest for contractors to qualify for. She agreed that agencies could deter more fraud by publicizing their reviews of such programs, which in one instance prompted “contractors to drop out in droves.” It is acknowledged by all IGs, she added, “that the federal government doesn’t use suspension and debarment enough — that hits contractors in the pocketbook.”

Miller noted that GSA has an interactive map on its website providing other agencies with links to state databases reporting contractors that have been suspended or debarred.

Coffman asked whether agencies should take more responsibility for policing fraud. “It’s hard to draw simple rules,” Gustafson said. “Overburdened” agencies focused on awarding contracts are “not expected to know all the ins and outs” of the set-aside programs. Also, “the more difficult the rules are to administer, the harder it is to present the case to a jury,” she said.

But the issue “needs more discussion in the executive branch and guidance from Congress since it’s not always clear who’s minding the store,” she said. “If the programs don’t have integrity, we might as well throw them open to open competition.”

– by Charles S. Clark - Government Executive – October 27, 2011 – http://www.govexec.com/story_page.cfm?articleid=49156&dcn=e_gvet

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Agencies can improve suspension and debarment process, says GAO

October 13, 2011 by

Too many federal agencies are insufficiently protecting against contractor fraud or incompetence by using the suspension and debarment process, the Government Accountability Office reported Thursday. Agencies with records of scant use of the practice should beef up dedicated staff and commit to greater use of the interagency committee designed for this purpose, the auditors said.

“Agencies that fail to devote sufficient attention to suspension and debarment issues likely will continue to have limited levels of activity and risk fostering a perception that they are not serious about holding the entities they deal with accountable,” William Woods, GAO’s director of acquisition and sourcing management, told a hearing of the House Oversight and Government Reform Subcommittee on Technology, Information Policy, Intergovernmental Relations and Procurement Reform. But “we need to keep the process informal to avoid red tape, because agencies need to move quickly to protect the government’s interest,” he added.

GAO examined the number of suspensions and debarments imposed under the Federal Acquisition Regulation of 10 major contracting agencies over five fiscal years. Most active were the Defense Logistics Agency, the Navy, the General Services Administration and Homeland Security Department’s Immigration and Customs Enforcement.

Agencies with little or no use of the procedure were the Commerce, Health and Human Services, Justice, State and Treasury departments, as well as DHS’ Federal Emergency Management Agency.

“The mountains of federal forms are frustrating” for many good contractors, said panel chairman Rep. James Lankford, R-Okla., “but certain contractors try to defraud, or are chronically poor performers. We need to find out why some agencies uncover the abuse and others don’t” so the government can enforce a process that “strengthens the integrity of overall contract system.”

The Defense Department has far and away the highest raw number of suspensions and debarments (1,616 over five years), but when viewed as a percentage of contracting dollars, as ranking member Rep. Gerry Connolly, D-Va. noted, the Environmental Protection Agency has a far higher rate.

HHS, Connolly and Republican members pointed out, did not post a single contractor suspension or debarment in the past five years, despite a 2010 budget that included $368 billion in grants and $19 billion in contracts.

GAO’s Woods said he was surprised by the numbers at HHS. His report does not recommend any new legislation on suspensions (which are temporary) and debarments (which are long term), but calls for the agencies deemed inactive to mimic the organizational approaches of the active ones. That means assigning full-time dedicated staff and resources, developing detailed implementation guidance, and promoting a case referral process.

In addition, GAO recommends that the administrator of the Office of Federal Procurement Policy issue governmentwide guidance to ensure that agencies are aware of the elements of an active suspension and debarment program and the importance of cooperating with the Interagency Suspension and Debarment Committee. Witnesses at the hearing suggested that many agencies lack full commitment to that panel, which was created in 1986.

Under the Federal Acquisition Regulation and a parallel set of rules for nonprocurement contracting, agencies are responsible for examining contractors and uncovering fraud or nonperformance and then posting the companies on the website of the Excluded Parties List System maintained by the General Services Administration. Contractors’ rights are supposed to be protected through established procedures for challenging the listing through a timely meeting with top agency officials and a “mini trial” in which they can present evidence defending their record.

Nearly 84 percent of suspensions and debarments are required by statute — such as past violators of the 1970 Clean Air or 1972 Clean Water acts — according to GAO, which focused its study on the 16 percent that are discretionary.

The agencies deemed inactive generally accepted GAO’s conclusions. Nick Nyack, chief procurement official at Homeland Security Department, said, “We get this. We’re going to get it right and will be a best practices agency in short order.” Under questioning, he said it could be done within three months.

Three months was also the estimate for making changes the members elicited from Nancy Gunderson, suspension and debarment official at HHS. She said the department had terminated numerous grants and contracts for reasons such as questionable scientific integrity. But HHS efforts thus far on the issue have focused on promoting an electronic desk reference, staff training and looking at other agencies’ procedures, she said.

Agencies considered models were represented by Richard Pelletier, a suspension and department official at EPA, who said his agency since 1981 has maintained a “robust” approach that involves two offices with full-time staff.

Steven Shaw, deputy general counsel of the Air Force, stressed the importance protecting contractors’ rights by having officials who aren’t in the procurement chain “examine evidence, not just the fact of an indictment.” He favors a carrot-and-stick approach that includes regular meetings with important contractors and not mandatory debarments. The overall dollar figures, rather than the number of suspensions or debarments, he added, might be a better metric on agency activity than raw numbers.

–  by Charles S. Clark - Government Executive - October 6, 2011 – http://www.govexec.com/story_page.cfm?articleid=49011&dcn=e_tma

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Suspension and debarment could discourage rebate schemes

October 12, 2011 by

The federal government should consider suspending and debarring food service contractors who exploit invoice loopholes to overcharge the Agriculture and Defense departments, witnesses told a Senate panel Wednesday.

Agriculture Department Inspector General Phyllis Fong suggested threatening to prevent contractors from doing business with the government either temporarily (suspension) or over the long-term (debarment) to deter rebate schemes, in which companies that receive rebates from food manufacturers for large-volume purchasing leave them off invoices and pocket the difference. The IG has been investigating contractors providing food purchasing services for the National School Lunch Program since 2002, and has found omitting information on rebates to be a frequent issue.

Withheld rebates account for between 5 percent and 50 percent of the price charged to the school districts participating in the lunch program, John Carroll, assistant attorney general for New York, told the Senate Homeland Security and Governmental Affairs Subcommittee on Contracting Oversight.

“Every dollar that’s being lost through rebate schemes is a dollar we cannot use to feed our soldiers and our children who need nutrition,” said Sen. Claire McCaskill, D-Mo., chairwoman of the subcommittee.

Previous USDA audits found a service management company overcharged school districts more than $8 million through inflated invoices in 2003, and another company received $1.3 million in hidden rebates in 2005.

Agriculture’s inspector general is starting a new investigation this month to assess the effectiveness of the recommendations issued after previous audits.

Similar fraud occurs with contractors working with the Defense Department to provide food to soldiers serving overseas, witnesses said.

Public Warehousing Co. is reportedly in talks to reach a settlement with the Justice Department after allegedly violating its prime vendor contract with the Defense Logistics Agency, overcharging the agency for food costs by $8.5 billion in 2009.

Charles Tiefer, a former member of the Wartime Contracting in Iraq and Afghanistan Commission and a law professor at the University of Baltimore, suggested revising contracts to allow auditors more access and requiring companies to identify any rebates on invoices. Tiefer also recommended conducting a survey of contractors to determine the extent of rebate schemes.

McCaskill announced that the subcommittee intends to submit document requests to investigate the issue more. “I think there’s real money here if we pull this thread,” she said.

- by Caitlin Fairchild – Government Executive – October 6, 2011 – http://www.govexec.com/story_page.cfm?articleid=49010&dcn=e_tma

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