Navy | The Contracting Education Academy

October 13, 2011 By AMK

Agencies can improve suspension and debarment process, says GAO

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

April 29, 2011 By AMK

Contracting authority suspended at Naval Undersea Warfare Center

The Naval Sea Systems Command announced April 26th that it had suspended all contracting authority at the Naval Undersea Warfare Center, Newport Division, in Rhode Island in the wake of a $9.2 million kickback scheme over technology services contracts.

The Naval Undersea Warfare Center (NUWC) is a shore command of the U.S. Navy within the Naval Sea Systems Command (NAVSEA) Warfare Center Enterprise, which engineers, builds and supports America’s fleet of ships and combat systems.

After waiting six months for Congress to agree on this year’s federal budget, local companies in Newport, RI thought defense dollars would finally begin flowing back into the area.

Even with the budget in place, their wait may be longer because of the Navy’s decision to take away the authority of Newport’s NUWC to issue both new contracts and delivery orders on existing ones.

Most contractors could deal with a few weeks’ delay, said Gary Bennett, who ran the former Analysis & Technology Inc. in North Stonington, but a longer holdup could mean employers may have to delay hiring new staff or even lay people off.

On Friday, the Navy suspended the contracting authority of NUWC in the wake of a kickback scheme allegedly involving a senior systems engineer at the warfare center accepting bribes from millions in funds from Navy contracts.

The contracts that would have gone through the warfare center now have the extra step of review at the Naval Sea Systems Command in Washington, D.C., which some fear will cause delays in funding allocations.

The timing is terrible, Bennett said Wednesday, because some companies are already operating at thin margins because it took so long to pass a federal budget. These companies are “going to be faced with some tight times,” said Bennett, who in 1999 sold his engineering services company, which employed 1,700 people, and worked extensively with NUWC.

Bennett said it’s a shame that the actions of a few “now affect the whole contracting community.”

U.S. Rep. Joe Courtney, D-2nd District, called the suspension “appropriate but infuriating at the same time” since there were many projects that would have moved quickly with the budget’s passage.

“Any spillover to companies that play by the rules is just so unfair and unfortunate,” Courtney said. “But we’re certainly going to stay in close contact with NAVSEA to ensure that the disruption is minimized to the greatest extent possible.”

Local contractors will inevitably have to wait to receive funding that some may have expected six months ago, since the “contracting activity moved to a Washington office, staffed for Washington contracts,” said John Markowicz, a former president of Sonalysts Inc. and now executive director of the Southeastern Connecticut Enterprise Region.

Several companies with contracts through NUWC said Wednesday they were closely following developments but did not expect major disruptions.

Electric Boat in Groton has contracts with NUWC, primarily for research and development. Company spokesman Robert Hamilton said that because the contracting office at NUWC remains operational, with final review and approval coming from NAVSEA, “we don’t expect any impact on those contracts.”

Yardney Technical Products Inc. had not yet heard anything from NUWC about the suspension, but Kris Johanessen, director of business development, said he believed it would “have little impact on our day-to-day business.” Yardney’s contracts through the center, he said, are “not by any means the majority of our backorders.”

The Pawcatuck-based company is working on a battery for a lightweight torpedo in development at NUWC.

Jane Goldsmith, corporate spokeswoman for Sonalysts Inc., said funding may come through more slowly but the company does not expect a large impact. Sonalysts, headquartered in Waterford, provides analysis of submarine sonar systems and a variety of airborne, surface, subsurface and land-based naval systems.

The warfare center is a command within NAVSEA responsible for submarine warfare systems. This is the first time NAVSEA has suspended the contracting authority of a command, according to the Navy.

It did so because of failures to “sufficiently describe work ordered, effectively account for work ordered and received, and to provide proper surveillance and oversight of that work,” a Navy statement said. To regain its authority, the warfare center must present a detailed plan addressing the issues that led to the suspension.

Joe Marino, president of Rite-Solutions, an information technology company with an office in Pawcatuck that has worked with NUWC, said, “There are still a lot of things up in the air. And we’re still trying to get our arms around what the impact is.”

Anjan Dutta-Gupta, 58, founder and president of Advanced Solutions for Tomorrow, is expected to plead guilty today in U.S. District Court in Providence to paying bribes to Ralph Mariano, a civilian program manager and senior systems engineer at NUWC, and to others, according to U.S. Attorney Peter F. Neronha. Advanced Solutions for Tomorrow had offices in Middletown, R.I., and Georgia.

According to court documents, Dutta-Gupta’s company paid Mariano, Mariano’s family and others at least $8 million from 1996 to 2011, largely through subcontractors. In addition, at least $1.2 million was funneled to a corporation Dutta-Gupta owned, the documents say.

In exchange for the kickbacks, Mariano made sure that millions of dollars in additional funds were added to the contracts, the documents state. Mariano, 52, of Arlington, Va., has been charged with participating in the alleged kickback scheme and is awaiting trial. He remains free on a $50,000 bond.

– from Connecticut’s TheDay.com – Apr. 28, 2011 — and other sources.

January 28, 2011 By AMK

Supreme Court may redraw defense contracts rules

Should the government be allowed to declare a contractor in default and then invoke a secrecy privilege to withhold information the contractor says it needs to dispute that finding in court?

Two decades after the Pentagon canceled the Navy’s A-12 Avenger II stealth aircraft, the fight over who is at fault for the program’s delays and cost overruns has brought that question before the U.S. Supreme Court. Last week, justices on the court sharply questioned lawyers on both sides of the dispute.

The court’s ruling, which is expected before the 2010-11 term ends in June, could have broad implications for any company working for the U.S. on classified technologies—even more so given the intense budget pressures that are leading the Defense Department to cancel more programs.

The A-12 effort began in January 1988, when the Navy tapped a McDonnell Douglas-General Dynamics team to develop a stealthy carrier-based aircraft. The contractors quickly encountered difficulties, especially with the aircraft’s weight. After the first-flight deadline was missed, in the summer of 1990, the Navy extended contract deadlines.

But in December 1990, then-Defense Secretary Dick Cheney effectively ordered that the $4.8-billion project be abandoned. The contractors had never delivered an airplane.

In terminating the contract, the Navy declared the industry team in default. In other words, the Navy said the team had not done the work it had promised to do. So the Navy demanded $1.35 billion in payments back. Settlement efforts failed. And there began a long legal saga that has taken the parties looping through the Court of Federal Claims and an appeals court and even outlasted one of the original companies.

Essentially, Boeing, the successor to McDonnell Douglas, and General Dynamics argue that the government withheld critical information about stealth technologies and that led to delays and cost overruns. They were aware of the B-2 bomber and the F-117 attack aircraft, lawyers say, but they did not realize before entering into the contract that the government’s “superior knowledge” from additional, “special access” programs made it clear the A-12 weight target would be impossible to achieve.

When the contractors sought to prove that in court, the government said it would damage national security to reveal the necessary information, even to a judge. While it is possible the Supreme Court will delve into the privilege to withhold “state secrets,” it is unlikely. The justices posed no questions about that last week. Instead, they explored what to do about a contract dispute when such information cannot be used in court.

The A-12 program could be canceled legally, the contractors concede, but not with the “default” penalties the government is seeking to apply to them. Such a fault-free cancelation is said to be for the “convenience” of the government. The difference between that and a default cancelation could amount to $3 billion or more when interest is figured in.

“They seemed sympathetic,” Carter G. Phillips, the lawyer representing the contractors in oral arguments on Jan. 18, told Aviation Week. Indeed, at least two, Chief Justice John Roberts and Associate Justice Antonin Scalia, seemed to suggest that the law might require that when fault cannot be determined in court, neither side should have a monetary claim on the other.

“Why don’t we call the whole thing off and say nobody’s at fault?” Roberts asked. “It’s the ‘go-away’ principle of our jurisprudence,” Scalia quipped.

Acting U.S. Solicitor General Neal Katyal said it would be fine if the case were thrown out, but that would mean the government’s determination would stand that the contractors were at fault because they did not do the work as promised. But Phillips argued it should be illegal for the government to decide contractors are at fault if the basis for disputing that determination is not allowed in court.

The court’s newest justice, Elena Kagan, reversed the situation in a hypothetical question to Katyal: “Suppose state secrets had kept you from proving default [in court]?”

The contract allows a finding of default without having to prove it in court, Katyal replied. Kagan said that amounts to “tails you win, heads you win.”

But other justices seemed sympathetic to the government’s argument that even if classified information could not be brought into court, the contracting officer’s determination of default must stand. Otherwise, briefs for the government argue, contractors could simply seek disclosure in court of secrets to force the government to back off a default finding.

Speaking of the possibility that the court would rule that any contract dispute involving state secrets being withheld in court would automatically be deemed for “convenience,” Justice Stephen Breyer said: “We are not just throwing a monkey wrench into the gears of government contracting, we’re throwing in the whole monkey.”

Justice Sonia Sotomayor suggested major defense contractors should realize that forcing secrets into the open to defend their work in court would not be an option.

“You always knew the government could do this,” she told Phillips of the default finding.

Contractors are free to negotiate for a clause that would shift the burden of proof for default, the government maintains, but these contractors agreed not to.

Sotomayor also was credulous about Boeing’s and General Dynamics’ claims that the government’s withholding of its stealth expertise is the root of the A-12 problems: “I have to say, it’s an odd thing to bid on a multi-billion-dollar contract on the assumption that they are going to get some technology that they haven’t even specified. I mean, we’re bidding for their research and development.”

The case has attracted interest beyond the contracting community because of the state-secrets aspect and how it could affect cases such as those of suspected terrorists held at the U.S. base at Guantanamo, Cuba. A friend-of-the-court brief by The Constitution Project says classification has greatly expanded since a 1953 Supreme Court ruling on the privilege to withhold state secrets in court. It says history shows that the assertion of potential damage to national security is often unfounded. The group argues that judges should be required to review secret material themselves before accepting the government’s claims.

Boeing and General Dynamics are supported in friend-of-the-court briefs by the U.S. Chamber of Commerce and the National Defense Industrial Association. Indeed, Phillips, who argued the contractors’ side in court, is the lead attorney in the matter for the Chamber of Commerce, not one of the companies.

“Allowing the federal government to gain financially from the [secrecy] privilege at the expense of the government’s contractors is unconscionable,” the chamber asserts, adding that it would turn a “shield” into a “sword.”

— by James R. Asker – Aviation Week – Jan. 21, 2011

January 21, 2011 By AMK

GAO: Army contractors performing inherently governmental functions

The Army has identified more than 4,200 full-time jobs in which contractors are performing either inherently governmental or unauthorized personal services, according to a new watchdog report released on Tuesday.

The Government Accountability Office report, which generally focuses on the Defense Department’s approach to counting service contractor employees and functions, includes previously unreported details on the scope of work being performed by Army contractors.

Since the start of 2009, the Army has completed at least one review of 24 of its 26 commands and headquarters organizations and identified 2,357 contractor employees performing inherently governmental functions, the report said. Examples of inherently governmental activities include awarding and administering contracts, determining budget priorities, and hiring or firing federal employees. Another 1,877 contractors were identified as providing unauthorized personal services that federal employees should be performing. Personal services contracts are contracts that make private sector personnel appear, in effect, as government employees. In both the inherently governmental and unauthorized personal services contracts, the department would typically be required to bring the functions back in-house.

An additional 45,934 Army contractors are performing activities deemed closely associated with inherently governmental functions. These jobs, which include assisting in contract management or evaluating another contractor’s performance, generally are not statutorily prohibited from outsourcing but require strict oversight and management.

Army officials indicated that the reviews help them decide which functions should be performed by military personnel. The GAO report did not provide details on the number of Army positions that have been subsequently insourced, and a Defense spokeswoman did not respond to a request for comment.

Officials at the Army’s Installation Management Command in San Antonio, Texas, told GAO that most insourcing during fiscal 2010 was a result of losing statutory authority to contract for certain security guard functions. They noted that most insourcing in fiscal 2011 will be prompted by budgetary decisions. In August 2010, Defense Secretary Robert Gates announced plans to reduce funding for service support contractors by 10 percent annually from fiscal 2011 to 2013.

Agencies across government are expected to compile an annual inventory to determine the number and type of service contract employees. The Army collected the data on its centralized Contractor Manpower Reporting Application system, which captures information companies report at the contract line item level.

The Air Force and Navy have faced bigger challenges in developing their inventory of service contractor functions. According to the GAO report, the two services have decentralized approaches that rely on their major commands to review the activities of contractors listed in their inventories and report the results to headquarters.

The Air Force completed its initial review in January 2010. But for approximately 40 percent of the contracts, reviews contained inadequate or incomplete responses that could guide a decision to insource those functions, GAO said.

The Air Force Material Command, for example, identified 152 contract actions that potentially involved inherently governmental functions. The official responsible for the command’s review process, however, was unsure of the extent to which these determinations were correct.

The Navy issued guidance to its commands in September, but the results of its initial review were not yet available. The service had previously planned to establish roughly 10,000 civilian positions by fiscal 2015 through insourcing contracted services.

“DoD has acknowledged the need to rebalance its workforce, in part by reducing its reliance on contractors,” GAO said. “To do so, however, the department needs good information on the roles and functions played by contractors, which the department currently does not have.”

Air Force and Navy contracting officials told auditors they rely on processes other than the service contract inventory — such as post-award monitoring — to avoid placing contractors in inherently governmental functions.

According to the Air Force’s fiscal 2010 insourcing plan, the majority of decisions to bring work in-house would be based on analyses of whether the work could be performed more cost-effectively by government employees. Navy officials said their commands review contracts during the pre-award and option phases to prevent the award of contracts that include inherently governmental functions or unauthorized personal services.

The Defense Department reported spending on service contracts leapt from $127 billion in fiscal 2008 to $140 billion in fiscal 2009, although the surge could have been influenced by more thorough and detailed reporting by the military services, according to GAO.

In 2009, Defense officials announced they would cut 33,000 service support contractors departmentwide by 2015. The Pentagon had planned to replace those contractors during the next five years with 39,000 new full-time government employees, many through insourcing.

As of June 30, 2010, more than 16,500 civilian positions were established across the department as a result of insourcing contracted services, Thomas Hessel, a senior analyst in the Office of the Undersecretary of Defense for Personnel and Readiness, told Government Executive in September. More than half of these positions were brought in-house because the work was determined to be inherently governmental, closely associated with inherently governmental, or otherwise exempt from private sector performance, he said.

The Defense Department has halted insourcing at its Pentagon offices and commands because of a fiscal 2011 billet freeze. But the military services are not subject to the freeze, allowing insourcing to continue.

– by Robert Brodsky – GovExec.com – January 19, 2011

January 3, 2011 By AMK

DoD auditors fault Northrop Grumman for BAMS invoices

The Navy gave Northrop Grumman as much as $300,000 in profit for filling out $3 million worth of travel expense forms–and some of those expenses should have never been approved, says the Defense Department inspector general.

In a Dec. 23 report on the Navy’s $1.8 billion Broad Area Maritime Surveillance system development and demonstration cost plus contract, auditors find that Northrop Grumman submitted at least $206,000 worth of travel vouchers for trips to golf outings and air shows in Washington, D.C., Paris and Singapore. While the Defense Department recovered that money from Northrop Grumman, a company official told auditors that they have not reviewed all travel vouchers or other charges related to the BAMS contract.

“There is a potential for additional unallowable expenses charged and paid to the BAMS contractor,” the report warns. BAMS is a unmanned aircraft system based on the Global Hawk meant to perform persistent intelligence, surveillance and reconnaissance within a range of 2,000 nautical miles. Naval Air Systems Command awarded in April 2008 Northrop a BAMS development contract with a fixed base award fee of 3 percent with an additional 7 percent award fee tied to performance. A “fee” is often how the government dubs “profit.”

Although legitimate travel is an allowable cost under cost plus contracts, auditors say they question giving contractors any fee at all tied to travel expenses, since “it is difficult to evaluate the contractor’s performance on travel.” But in the case of Northrop’s BAMS travel vouchers, the performance was arguably bad enough to preclude it from receiving any award fee, the report says. NAVAIR officials told auditors they’ll consider making travel just a cost reimbursement line item in future procurements.

The report also faults Navy personnel for not reviewing Northrop Grumman bills or going through the government acceptance process before issuing payment. Invoices from the company didn’t itemize amounts billed by labor hour, materials and other costs. For example, one invoice for $22.6 million simply stated that it was a bill for a “cost plus item” and that the unit of measure was “each” with a quantity of “one.”

For more: download the report, D-2011-028 (.pdf)

– Jan. 3, 2010, posted at www.fiercegovernmentit.com

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