Key Steps to Market and
Capture Federal Business
Steve Sorett
June 13, 2012
These materials are copyrighted by the author.
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Overview
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The Basics of Government Contracting
How to Capture Growth
Rules for Writing and Winning Proposals
The Basis of Contract Administration
Handling Audits
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The Basics of Government
Contracting
• Roles of government people and their
authority
• Basic rules about funding and appropriations
• Different ways that the government buys
• Different types of contracts
• Teaming, subcontracting, and nondisclosure
agreements
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Roles of Government People and
Their Authority
• Contract v. Technical People
– Contracting Officers (“COs”)
• Authorized to execute contractual documents that bind
the government and to sign determinations and
findings and other internal documents
• May be referred to as Procuring Contracting Officers
(“PCO”)
– Administrative Contracting Officers (“ACO”)
• Authority to administer contracts
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Roles of Government People and
Their Authority
• Contract v. Technical People
– Authorized Representatives
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Contracting Officer Representative (“COR”)
Contracting Officer Technical Representative “COTR”)
Government Technical Representative (“GTR”)
Government Technical Evaluator (“GTE”)
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Appropriations Law
• Color of Money
– One year funds; usually M&O
– No year funds
– Funds for a contract
• Bona fide needs rule
– Need in year expended
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Appropriations Law (cont.)
• Anti-Deficiency Act (“ADA”) (31 U.S.C. §
1341)
– Contracting Officer may not
• Enter into an obligation in advance of appropriations
• Enter into an obligation in excess of appropriations
• Accept volunteer services
– Critical points in time
• Contract award
• Date of modification
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Appropriations Law (cont.)
• ADA (cont.)
– Significance: Violation of ADA means contract or
modification void
– Critical assessment is whether contract value in
excess of appropriation to agency
– Issues:
• Oral agreements
• Performance in advance of appropriations
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Different Ways that the
Government Buys
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Sealed Bid
Negotiated Procurement
Commercial Items Acquisition
Simplified Acquisition
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Sealed Bidding
• Government agencies must solicit sealed bids if
– Time permits solicitation, submission, and evaluation of
sealed bids;
– Award will be made solely on basis of price and other
price-related factors;
– Unnecessary to conduct discussions with responding
sources; and
– Reasonable expectation of receiving more than one
sealed bid (10 U.S.C. 2304(a)(2); 41 U.S.C. 253(a)(2))
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Sealed Bidding Process
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Preparation of Invitation For Bids (“IFBs”)
Publicizing Invitation For Bids
Submission of bids
Evaluation of bids
Award of contract
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Sealed Bidding Process (cont.)
• Preparation of Invitation for Bids (“IFB”)
– Uniform Contract Format (FAR 14.201-1)
– Standard Form 33 – Solicitation, Offer and
Award (FAR 53.301-33)
• Publicizing IFBs
– www.fedbizopps.gov (FAR Subpart 5.2)
– Bidders Mailing Lists (FAR 14.205)
– Posting in public place (FAR 5.101)
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Sealed Bidding Process (cont.)
• Submission of Bids
– Bid must be responsive to solicitation (FAR
14.301(a))
– “Firm Bid Rule”
• Bidder may not withdraw bid during period specified in
IFB (FAR 14.301-6(j))
– “Late Bid Rule”
• Generally, LATE IS LATE! (FAR 14.304(b)(1); FAR
52.214-7)
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Sealed Bidding Process (cont.)
• Submission of bids (cont.)
– Modifications and withdrawals
• Bidder may modify before bid opening (FAR 14.303)
• Bidder may modify after bid opening only if exceptions
to Late Bid Rule apply to modification (FAR
14.304(b)(1))
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Sealed Bidding Process (cont.)
• Evaluation of bids
– Price evaluation
• Price and price-related factors (FAR 14.201-8)
• Award made on basis of lowest price offered
– Responsiveness evaluation (10 U.S.C. § 2305, 41 U.S.C.
§ 253(b))
• Price: bidder must offer a firm, fixed price (FAR 14.404-2(d))
• Quantity: bidder must offer quantity required in IFB (FAR 14.4042(b))
• Quality: bidder must agree to meet quality requirements of IFB
(FAR 14.404-2(b))
• Delivery: bidder must agree to delivery schedule (FAR 14.4042(c))
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Sealed Bidding Process (cont.)
• Award of Contract
– Evaluation of responsibility of successful bidder
(10 U.S.C. § 2305; 41 U.S.C. § 253(b))
• Contracting Officer must make an affirmative
determination of responsibility prior to award (FAR
9.103)
• General rule: Contracting Officer may only award to
one responsible bidder (FAR 9.103(a))
• Responsibility defined: bidder’s apparent ability and
capacity to perform (FAR 9.104)
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Sealed Bidding Process (cont.)
• Award of Contract (cont.)
– Standards of Contractor Responsibility
• Adequate financial resources to perform contract (FAR 9.1041(a))
• Ability to comply with delivery or performance schedule (FAR
9.104-1(b))
• Satisfactory performance record (FAR 9.104-1(c))
• Adequate management and technical capability to perform
contract (FAR 9.104-1(e))
• Sufficient equipment, facilities, and production capacity to
accomplish work required by contract (FAR 9.104-1(f))
• Satisfactory record of business ethics (FAR 9.104-1(d))
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Negotiated Procurement
• Contracting Officer must demonstrate that sealed bidding is
not appropriate
• Competitive negotiation process:
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Request for Proposals
Exchange with industry before receipt of proposals
Submission of initial proposals
Evaluation of initial proposals
Establish competitive Range
Conduct discussions
Best and Final Offers (“BAFOs”)
Selection for award
Debriefings
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Negotiation Process
• Request for Proposals (“RFP”)
– Major sections:
• Section C: Specifications
• Section L: Instructions to Offerors
• Section M: Evaluation Criteria
• Exchange with industry before receipt of proposals
(FAR 15.201)
– Encourages early exchange of information among
interested parties
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Industry/small business conferences
Draft RFPs
Request for information (“RFIs”)
Site visits
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Negotiation Process (cont.)
• Submission of initial proposals
– Agencies must give offerors at least 30 days after
issuance of solicitation to submit initial proposals for
contracts over simplified acquisition threshold (41 U.S.C.
§ 416; 15 U.S.C. § 637(d)(3); FAR 5.203)
– Late bid rule applies (FAR 15.208; FAR 52.215-1)
– No “Firm Bid Rule”: Offeror may withdraw proposal at
any time before award (FAR 52.215-1(c)(8))
– Confidentiality: Offerors may restrict use/disclosure of
information contained in proposals by marking proposal
with authorized restrictive legend (FAR 52.215-1(e))
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Negotiation Process (cont.)
• Evaluation of initial proposals:
– Evaluation criteria
• Cost or price (10 U.S.C. § 2305(a)(3)(A)(ii); 41 U.S.C.
§ 253a(c)(1)(B); FAR 15.304(c)(1))
• Technical and management factors (FAR
15.304(c)(2))
• Past performance (FAR 15.304(c)(3); FAR
15.305(a)(2)
• Small business participation (FAR 15.304(c)(4))
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Negotiation Process (cont.)
• Establishing competitive range (FAR
15.306(c))
– Competitive range is the group of offerors with
whom the Contracting Officer will conduct
discussions, and from whom the agency will
seek revised proposals
• Conduct discussions (FAR15.306(d))
– Contracting Officer must conduct oral/written
discussions with each offeror in competitive
range
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Negotiation Process (cont.)
• Best and Final Offers (“BAFOs”) (FAR 15.307)
– Agency request final proposal revisions
– Request notifies offerors that discussions are over
• Selection for award
– Agencies must evaluate final proposals using evaluation
factors in solicitation
• Debriefings (10 U.S.C. § 2305(b)(5); 41 U.S.C. §
253b(e); FAR 15.505-506)
– Notice to unsuccessful offerors (FAR 15.503)
– Preaward debriefings (FAR 15.505)
– Postaward debriefings (FAR 15.506)
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Commercial Items Acquisition
• Acquisition of Commercial Items (FAR Part 12)
• Types of Commercial Items
– Commercially available off-the-shelf item
– Sold in substantial quantities in commercial marketplace,
and offered to the government without modification
– Modified commercial item
• Modifications of type in commercial marketplace
• Minor modifications needed to meet government requirements
– Component: Item supplied to government as part of an
end item or of another component
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Commercial Items Acquisition (cont.)
• Policy
– Conduct market research to determine if commercial
items are available
– Acquire commercial items when available
• Description of agency needs
– Specify needs using market research
• Promote full and open competition
• Include restrictive provisions or conditions only to meet minimum
needs
– State requirements in
• Functions to be performed
• Performance required
• Essential physical characteristics
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Commercial Items Acquisition (cont.)
• Description of agency needs (cont.)
– No brand name only or feature only unless
• Essential to government’s interest
• Market research indicates competitors cannot meet minimum
needs, including through modification
• Use of sole source procedures
• Proposals
– If adequate, use existing product literature in lieu of
technical proposals
– Submit multiple proposals with different products
– May allow fewer than 30 days response time
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Commercial Items Acquisition (cont.)
• Contract Award
– Most advantageous offer
• Contract terms
– Only clauses prescribed in FAR Part 12 required
to be used
– Determined to be consistent with customary
commercial practice
– Market research to determine
– Not precluded by law
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Commercial Items Acquisition (cont.)
• General Services Administration (“GSA”)/multiple
award contracts
– GSA awards and administers of the Federal Supply
Schedule (“FSS”) program (FAR Subpart 8.4; FAR Part
38)
– Negotiation objective: “most favored customer” pricing
– Agencies place orders with Schedule contractor
– Base period of 5 years, with three 5-year option periods
– Firm-Fixed-Price
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Simplified Acquisition
• Acquisitions of supplies or services in the
amount of $100,000 or less (FAR 2.101)
• Purpose (FAR 13.002)
– Reduce administrative costs
– Increase opportunities for small business
concerns
– Promote efficiency and economy in contracting
– Avoid unnecessary burdens for agencies and
contractors
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Simplified Acquisition (cont.)
• Procedures
– Small Business Set-Aside Requirement
• Any acquisition over $2,500 but not over $100K is
automatically reserved for small business concerns
(FAR 13.003(b)(1); FAR 19.502-2)
– Contracting Officer may use combined
synopsis/solicitation procedure (FAR 12.603)
– Competition to the “maximum extent practicable”
(10 U.S.C. § 2304(g)(3); 41 U.S.C.
§§ 253(a)(1)(A), 259(c); FAR 13.104)
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Simplified Acquisition Methods
• Purchase orders (FAR 13.302)
– Solicit quotes via oral, electronic, or written methods
(FAR 13.106-1(c); FAR 13.003(f); FAR 13.106-1(d))
• Blanket Purchase Agreements (FAR 13.303)
– “Charge accounts” with vendors
• Government-wide Commercial Purchase Card
(FAR 13.301)
– DoD Contracting Officers must use card for acquisitions
at or below $2,500
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Different Types of Contracts
• Fixed Price (FAR Subpart 16.2)
– Contractor performs contract at a fixed-price, and bears
responsibility to increased costs of performance
– Appropriate for commercial item acquisition
• Cost-reimbursement contracts (FAR Subpart 16.3)
– Payment of allowable incurred costs to the extent
prescribed in the contract
– Establishes estimate of total cost for purpose of
obligating funds
– Establish a ceiling that a contractor may not exceed
without Contracting Officer’s approval
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Different Types of Contracts (cont.)
• Time-and-materials contracts (“T&M”) (FAR
Subpart 16.6)
– Use T&M contracts when not possible at contract
award to estimate accurately the extent or
duration of work
– Direct labor hours at specified fixed hourly rates
that include wages, overhead, general and
administrative expenses, profit, and materials at
cost
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Teaming Arrangements
• Contractor team arrangements (FAR 9.601)
– Joint Venture (“JV”): Two or more companies
form a partnership or JV to act as a potential
prime contractor
– Teaming Agreement: A potential prime
contractor agrees with one or more other
companies to have them act as its
subcontractors under a specified Government
contract or acquisition program
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Teaming Agreement v. Joint Venture
• Teaming Agreement
– Parties relationship will be solely as independent
prime and subcontractor for a given procurement
– Parties maintain a clear line of demarcation as
prime and subcontractor
– Privity of contract between government and
prime, but no privity between government and
subcontractor
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Teaming Agreement v. Joint Venture
(cont.)
• Joint Venture
– Parties create a new entity to perform one specific
project or to facilitate a continuing business relationship
– JV partners share in the revenues, expenses, and control
of the enterprise
– JVs must have written operating agreements with
express terms of relationship
– Risk of being found liable for commitments of the other
and establishment of fiduciary duties
– Teaming Agreements are more commonly used
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Nondisclosure Agreements
• Parties contemplating a Teaming Agreement
should first enter into separate Nondisclosure
Agreement (“NDA”)
• Purpose: Protect and limit use of proprietary
information for
• Prevents disclosure to any 3rd party except
as authorized by NDA
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Nondisclosure Agreements (cont.)
• NDA should include
– Nature and scope of NDA
– Definition of “proprietary information”
– Period of protection
– Standard of care
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Subcontracting
• What is a subcontract?
– Supplies or services required for performance of prime
contract or subcontract
• Contractor must obtain competition to “maximum
practicable extent” in subcontracting work to others
• Government consent to subcontracts
– All subcontracts under cost-reimbursement contracts
– Subcontract under fixed price contracts where
subcontract in excess of simplified acquisition threshold
or 5% of estimated cost of contract
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Subcontracting (cont.)
• Mandatory flowdown clauses (FAR and agency supplement
clauses
– Truth In Negotiation Act
– Equal employment opportunity
– Audit and records - Negotiation
• Necessary flowdown clauses
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Inspection
Government Property clause
Notice to Government of Labor Disputes
Changes
Termination for convenience
• Watch for language incorporating flowdown clauses into
subcontract
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Subcontracting in
Teaming Agreement Scenario
• Subcontractor role generally defined in TA provisions
• Methodology for calculation
– Percentage value of total prime contract
– Specific tasks
• Parties agree to negotiate detailed “work content” at future
date
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If multiple phases to program, detail role in each phase
State in specific tasks, e.g., fabricate x component for fuselage
Define party’s responsibility for incorporation of changes
Limits on use of “Changes’ and “Termination for Convenience”
Clauses
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How To Capture Growth
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How To Capture Growth
• Small business strategy
• Teaming and subcontracting with existing primes
• General Services Administration (“GSA”)
Schedules
• Commercial contracting
• Indefinite Delivery Indefinite Quantity (“IDIQ”)
Contracting vehicles
• Basic Ordering Agreements (“BOA”)
• Time and Materials (“T&M”) Contracting
• Qualified Products Lists (“QPL”)
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Small Business Strategy
• Partnering with small businesses
– Women-Owned Small Businesses (“WOSB”s): 5% of all federal
government prime and subcontract $$
– Service-Disabled-Veteran-Owned Small Businesses (“SDVOSB”s):
3% government-wide goal; contracting officers may award a sole
source or set-aside contract to SDVOSBs
– Small Disadvantaged Businesses (“SDB”s): government-wide goal
of 5% SDB participation
– HUBZone Small Business: 3% government-wide goal; can be sole
sourced or set-aside for HUBZone competition
– 8(a): allows the government to contract, on a sole source or setaside basis, with socially and economically disadvantaged small
businesses
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Teaming and Subcontracting
with Existing Primes
• Why Team?
– Leverage each party’s capabilities to provide the
customer enhanced capability and best value
– Enhance discriminators
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Technical Expertise
Past Performance
Experience
Customer Knowledge
Cost Performance
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Teaming and Subcontracting with
Existing Primes
• Is teaming right for your company?
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What are ADC’s strategic objectives?
What are ADC’s strengths and weaknesses?
Is ADC’s capable of being the Prime?
Who should ADC’s team with and why?
What type of collaborative business arrangement is
appropriate?
– What’s the relationship between the parties?
– What’s the duration? Are there any “off-ramps”?
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General Services Administration
Schedules
• GSA Schedules
– One of the primary ways federal government
purchases commercial items
– 11 million commercial products and services
– 19,000 contractors
– FY 2008 sales totaled more than $36 billion
– Government procurement method most like
commercial contracting
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GSA Schedules (cont.)
• Values
– Builds brand recognition by providing you with “preferred
vendor” status
– A door opener into the government market
– Differentiates you from non-schedule vendors with same
services/products
– A multi-purpose contracting device
– Reduces contract time from solicitation to award (RFP –
268 days to RFQ – 30 days)
– Easier for the government to buy from you
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Mechanics of GSA Schedules
• Obtaining a schedule
– Submit a proposal in response to schedule
solicitations
– Schedule solicitations always open – contractor
may submit proposal at any time
– Multiple contracts awarded: No limit to number of
contracts that can seek and obtain contract
under given schedule
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Mechanics of GSA Schedules (cont.)
• Obtaining a schedule (cont.)
– Pricing schedules
• Contractor required to submit data regarding its “commercial
sales practices”
– Prices proposed for schedule must be fair and reasonable
• Pricing issues:
– Pricing Reductions Clause (“PRC”) clause, GSAR
552.238-75
– Economic Price Adjustment (“EPA”) clause, GSAR
552.216-70
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Mechanics of GSA Schedules (cont.)
• After award
– Government agencies can place orders against
schedule (FAR Subpart 8.4)
– Discounts: Schedule contractor may offer
discounts off its schedule prices
• Discounts do not trigger reduction to prices in
schedule
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Commercial Contracting
• Commercial item acquisition
• Small purchases under $100K using
Simplified Acquisition
– Purchase orders Blanket Purchase Agreements
(FAR 13.303)
– Government-wide Commercial Purchase Card
for acquisitions at or below at or below $2,500
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Indefinite Delivery Indefinite
Quantity (“IDIQ”) Contracts
• IDIQ contracts (FAR Subpart 16.5)
– May be awarded by any agency and are initially awarded on basis of
full and open competition
– After the base IDIQ contract is awarded, agency then awards
subsequent task or delivery orders directly to contractor
• Benefits to government
– Flexibility to place orders for specific products and services, in
specific quantities and according to their required delivery schedule
as requirements arise
• Government required to order at least a stated minimum
quantity of supplies/services (FAR 16.504)
• GSA Schedule contracts are IDIQ contracts available to all
federal agencies
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Basic Ordering Agreements
• Not a contract but a written instrument of
understanding between agency and contractor
• Contractor may not begin work until
– Prices have been established
– Order establishes a ceiling price and either
• BOA provides adequate procedures for timely pricing of the order
early in its performance period or
• The need for supplies or services is compelling and unusually
urgent (FAR 16.703(d)(3))
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T&M Contracting
• Acquiring supplies or services on the basis of
– Direct labor hours at specified fixed hourly rates
that include wages, overhead, general and
administrative expenses, and profit; and
– Materials at cost
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Qualified Products List (“QPL”)
• Manufacturers or distributors provide products which are
examined and tested for compliance with specification
requirements (FAR 9.203)
• Specifications requiring a qualified product are included in:
– GSA Index of Federal Specifications, Standards and Commercial
Item Descriptions, FPMR 101-29.1
– Department of Defense Acquisition Streamlining and Standardization
Information System (ASSIST) at (http://assist.daps.dla.mil).
• Instructions concerning qualification procedures are
included in:
– Federal Standardization Manual, FSPM-0001.
– Defense Standardization Manual 4120.24-M, Appendix 2, as
amended by Military Standards 961 and 962
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Rules for Writing
and Winning Proposals
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Rules for Writing and Winning
Proposals
• Focus on evaluation criteria and instructions
as well as terms and conditions
• Avoid the extraneous
• Get your prices and rates right
• Strive to win 50% - so be selective
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Evaluation Criteria and Instructions
• Have a thorough understanding of all
evaluation criteria
• Answer each factor carefully as agency has
considerable discretion in evaluating
proposals
• Be aware of proposal amendment or
modification restrictions
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Terms and Conditions
• Unique contract provisions
• Standard FAR Clauses
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Terms and Conditions (cont.)
• Unique contract provisions
– Specifications
• Deliverables
• Payment
– Share of Risk/Product Liability
• Indemnification
• Warranties
– Implied/Negotiated
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Terms and Conditions (cont.)
• Unique contract provisions (cont.)
– Intellectual property rights
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Confidential information (NDA/FOIA)
Trademarks
Patent Rights
Copyrights & Technical Data
– Remedies
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Revocation
Actual Damages
Liquidated Damages
Consequential Damages
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Terms and Conditions (cont.)
• Standard FAR Clauses
– Socioeconomic clauses
– Audit rights
– Defective pricing/price adjustments (TINA)
– Intellectual property
– Subcontract Flow Down requirements
• Compare Audit rights, defective pricing, IP
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Terms and Conditions (cont.)
• Standard FAR Clauses (cont.)
– Modification/changes
• Unilateral or bilateral
• Price adjustments
– Suspension of work
– Terminations
• For Clause
• Without cause
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Avoid the Extraneous
• Sell a particular product, not the entire
company
– Proposal should focus on selling the product, not
all the products ADC provide for customers
– Proposal should not include additional materials
about ADC that does not directly respond to
evaluation factors
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Prices and Rates
• Price reasonableness
– Contracting Officers are required to determine price
reasonableness before making contract awards (FAR
14.408-2; FAR 15.404-1(a))
• Get your prices and rates right
– Firm-Fixed Price Contracts
• Must price carefully so that costs of performance will not exceed
the price or else will incur financial loss
– Time-and-Materials Contracts
• Agreed rate will be incurred in contract for each type of labor, so
classifications should not include disparate types of employees or
disparate skill levels
• Lack or clarity in contract can lead to serious disputes over
proper billing of labor-hours
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Prices and Rates (cont.)
• Problems of estimating on a government
contract
– Hidden contingencies
– Hidden profit
– Outdated historical data
– Failure to use historical data
– Failure to use other management data
– Failure to document
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Strive to Win 50%
• Be selective, don’t chase everything
• Proposal preparation takes considerable time
and effort
• Set realistic and reasonable goals as a new
federal contractor
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The Basics of
Contract Administration
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The Basics of
Contract Administration
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Managing scope and handling change orders
Equitable adjustments
Invoicing and payment
Protests and Disputes
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Managing Scope
• Scope of contract morphs and grows
• Contract interpretation issues
– Intrinsic evidence
• Interpret contract as a “harmonious whole”
• Define terms by category
• Order of precedence clauses
– Sets forth which clause trumps if there are inconsistencies in the contract
– Extrinsic evidence
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Pre-award communications
Actions during contract performance
Prior course of dealings
Custom or trade usage/industry standard
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Managing Scope (cont.)
• Contract Ambiguities
– Patent (obvious)
• Contractor must ask clarification or be bound by
government's interpretation
– Latent (hidden)
• Construe language against government if:
– Contractor’s interpretation reasonable
– Contractor relied at bidding to its detriment
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Change Orders
• Changes contract clause
– FAR 52.243-1 (fixed price supply contract)
• Four major purposes
– Provide government operating flexibility with
unilateral right to order changes in work to
accommodate advances in technology and
changes in its needs and requirements
– Facilitate more efficient performance and
improve quality of products by providing
contractor method of proposing changes to work
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Change Orders (cont.)
• Four major purposes (cont.)
– Give procurement authority to Contracting Officer
to order additional work within “general scope” of
contract without using new procurement
procedures or using new funds.
– Provide contractors legal means to process
claims against the government
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Change Orders (cont.)
• Formal Change Requirements
– Actual authority
– Written order
– Price change in advance (if possible, price proposal from
contractor)
– Issue change before final payment to contractor
– Government receives a benefit from contractor
– Proper funding
– Within scope of Changes Clause
– Within scope of contract
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Equitable Adjustments
• Costs + profit
• Related FAR Clauses
– Changes (FAR 52.243-4)
• If any change causes an increase in the Contractor’s
cost, the Contracting Officer must make an equitable
adjustment
– Differing Site Condition (FAR 52.236-2)
• If the conditions materially differ and cause an
increase in the Contractor’s cost, the Contracting
Officer must make an equitable adjustment
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Equitable Adjustments (cont.)
• Pricing formula
(Reasonable cost to perform additional work)
– (Reasonable cost to perform work as
originally required) + (Reasonable profit)
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Equitable Adjustments (cont.)
• Recoverable costs
– Reasonable
• Reasonably prudent person in conduct of competitive business
• Measured from time incurred
• Reasonable in both nature and amount
– Allocable
• Incurred specifically for the contract
• Costs that benefit the contract
• Necessary for overall business operation
– Allowable
• Not expressly unallowable
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Equitable Adjustments (cont.)
• Measurement of costs
– Direct costs
• Direct labor, materials, subcontractors
– Indirect costs
• Overhead (e.g., utilities)
• General & Administrative (“G&A”)
– Profit
• If change has much higher risk performing, entitled to increased
profit
• See FAR 115.404-4 (structure approach/factors)
• DFARS 215-404-71 (weighted guidelines)
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Equitable Adjustments (cont.)
• Accounting Standards
– Cost Accounting Standards (“CAS”)
– GAAP
– Equitably and consistently applied
• Show DCAA how the company tracks costs
and segregate them
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Invoicing & Payment
• Types of payment
– Payment of price for completed items of work
(FAR 52.232-1)
• Payment of contract price due upon completion of
work and submission of appropriate invoices
– Progress payments
• Based on cost incurred (FAR 52.232-16); or
• Percentage of completion of work (FAR 32.102(e))
– Performance-based payments (FAR 32.10)
• Based on completion of segments of work
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Payment Procedures
• Documentation for payment
– “Receiving Report” and “Invoice”
• Invoices
– Prompt Payment Act, 31 U.S.C. § 3901(a)(3)
• “Proper Invoice”: invoice containing substantiating documentation
required by regulation or contract
– Must include information such as:
» Name of vendor; invoice date; contract number, vendor invoice
number, description, shipping and payment terms, etc. (5 CFR
§ 1315.9(b))
• Contractor entitled interest for delayed payments when proper
invoices are submitted (FAR 52.232-1)
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Payment Procedures (cont.)
• “Receiving Reports”
– Document completion of work or receipt of supplies (5 CFR §
1315.9(c))
• Payment authority
– “Disbursing officials” (31 U.S.C. § 3321)
• Overpayments
– Contractor should report overpayment even if not in contract
• Discounts
– Discounts for Prompt Payment clause for fixed-price supply contract
(FAR 52.232-8)
– Applies to other types of contracts, such as cost-reimbursement
contracts
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• Why protest?
Protests
– A bidder has reason to believe
• A contract has been or is about to be awarded
improperly or illegally; or
• Bidder has been unfairly denied a contract or an
opportunity to compete for a contract
• Federal government contract laws are
designed to ensure that federal governments
are conducted fairly
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Protests (cont.)
• Multiple forums
• Agency protest
• Government Accountability Office (“GAO”)
• United States Court of Federal Claims (“COFC”)
• Remedies generally
– Forums cannot direct award of contract and may
not award lost profits
– Important issue: Automatic stay or suspension of
contract work depends on forum
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Agency Protests
• File protest with Contracting Officer
• Bidder may request independent review of protest level
above Contracting Officer (FAR 33.103(d)(4))
• Objectives (FAR 33.103(d))
– Resolve agency protests effectively
– Help build confidence in federal acquisition system
– Reduce formal protests to GAO and other forums
• Agency procedures (FAR 33.103)
– Prior to protest submission, parties must use “best efforts” to resolve
issues by conducting “open and frank discussions”
– Protests informal and flexible
– Bidder not required to exhaust agency administrative remedies
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Agency Protests (cont.)
• Timing:
– Pre-award protests (challenging propriety of
solicitation) must be filed prior to bid opening or
date for receipt of proposals
– Other protests must be filed within 10 days of
when protestor knew or should have known of
the bases for protest
– Untimely protests: Agency has discretion to
consider merits of protest with “significant issues”
(FAR 33.103(e))
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Agency Protests (cont.)
• Pre-award automatic stay
– Contracting Officer cannot award contract if an agency
protest is filed before award (FAR 33.103(f)(1))
• Agency may override pre-award stay
– Contract award justified in light of “urgent and
compelling” reasons; or
– Prompt award is in “the best interest of the Government”
– Override Decision must be in writing and approved by
agency official above Contracting Officer
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Agency Protests (cont.)
• Post-award stay
– If agency receives protest within 10 days of contract
award or 5 days of a required debriefing date offered by
agency, Contracting Officer must suspend contract
performance immediately (FAR 33.103(f)(3))
• Agency may override post-award stay
– Contract performance justified in light of “urgent and
compelling” reasons; or
– Contract performance is in “the best interests of the
Government”
– Override determination must be in writing and approved
by agency official above Contracting Officer
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Agency Protests (cont.)
• Remedies (FAR 33.102)
– Award costs to protestor for prosecution of
protest
• If agency head determines solicitation, proposed
award or award is improper for failure to comply with
applicable law or regulation
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GAO Protests
• Who may protest?
– “Interested Party”: actual or prospective bidder
whose direct economic interest would be
affected by award of contract or failure to award
contract (31 U.S.C. § 3551(2); 4 C.F.R. §
21.0(a))
• What may be protested?
– Protestor must allege violation of procurement
statute or regulation (31 U.S.C. § 3552)
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GAO Protests (cont.)
• Timeline
– Defective solicitation: GAO must receive protest
before bid opening or closing date for receipt of
initial proposals
– Protest based on most other matter must be
submitted within 10 days after receiving actual or
constructive knowledge of basis for protest (4
C.F.R. § 21.2(a)(2))
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GAO Protests (cont.)
• Automatic Stay (“CICA Stay”)
– Pre-award protests: Agency may not award contract after
receiving notice of a timely protest from GAO (31 U.S.C.
§ 3553(c); 4 C.F.R. § 21.6; FAR 33.104(b))
– Post-award protests: Contracting Officer must suspend
contract performance immediately when agency receives
notice of protest from GAO within 10 days of date of
contract award or within 5 days after date offered for
required post-award debriefing (31 U.S.C. § 3553(d); 4
C.F.R. § 21.6; FAR 33.104(c)
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GAO Protests (cont.)
• CICA Override
– Pre-award stay: Agency may override stay if head of
contracting activity finds:
– Urgent and compelling circumstances that significant affect the
interest of the U.S. will not permit waiting for GAO’s decision; and
– Agency is likely to award contract within 30 days of written override
determination
– Post-award stay: Agency may override contract
suspension if the head of contracting activity finds:
• Contract performance will be in the best interest of the U.S.; and
• Urgent and compelling circumstances that significant affect the
interest of the U.S. will not permit waiting for GAO’s decision
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GAO Protests (cont.)
• CICA Override (cont.)
– Agency decision to override may be challenged at COFC
• Remedies
– GAO may recommend agency grant the following
remedies (4 C.F.R. § 21.8)
•
•
•
•
•
•
Refrain from exercising options under an existing contract
Terminate existing contract
Recompete contract
Issue new solicitation
Award of contract consistent with statute and regulation
Other recommendations as GAO determines necessary to
promote compliance with CICA
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CFOC Protests
• Who may protest
– Interested parties (same as at GAO)
• When must protest be filed?
– Currently, no specific timelines requirement.
However, bidder should promptly file protest to
demonstrate immediate and irreparable harm
necessary to obtain injunctive relief
• Defective solicitation: Adopted GAO rule. Must file
prior to bid opening or closing date for receipt of initial
proposals
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COFC Protests (cont.)
• Temporary Restraining Orders and Preliminary
Injunctions
– Four element test (COFC Rules 65(a))
•
•
•
•
Likelihood of success on the merits
Degree of immediate irreparable injury if relief not granted
Degree of harm to the party being enjoined if relief is granted
Impact of injunction on public policy considerations
• Standard of review
– Whether agency acted arbitrarily, capriciously, or
otherwise in accordance with law (5 U.S.C. § 706)
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Disputes
• Contractors can seek relief from actions and
events that occur after contract award
• Contract Disputes Act of 1978 (“CDA”), 41
U.S.C. § 601 et seq. establishes procedures
and requirements for asserting and resolving
claims subject to the Act
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Disputes Process Flowchart
Contractor Claim
Contracting Officer’s Final Decision
COFC
No Appeal
BCA
CAFC
U.S. Supreme Court
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Elements of a claim
• Demand in writing (41 U.S.C. § 605(a); FAR 33.201)
• Seeking
– Payment of money in a sum certain; or
– Other relief relating to contract
• Reformation or rescission
• Note: specific performance Is not available
• Submit to Contracting Officer for final decision (41 U.S.C. §
605(a))
• Certification: contractor must certify any claim exceeding
$100K (41 U.S.C. § 605(c)(1); FAR 33.207)
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Disputes (cont.)
• Settlement
– Agencies are encouraged to resolve claims by mutual
agreement (FAR 33.204; FAR 33.210)
– Generally, Contracting Officers or their authorized reps
may settle contract claims
• Interest
– Accrual of interest on CDA claims
– Interest calculated every 6 months based on rate
established by the Treasury (41 U.S.C. § 611; FAR
33.208)
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Filing a CDA claim
• Routine request converted into a claim
– Voucher, invoice or other routine request for
payment that is not in dispute is NOT a valid
CDA claim (FAR 2.01; FAR 52.233-1)
– Contractor may convert into valid CDA claim if:
• Complies with submission and certification of the
Disputes clause; and
• Contracting Officer either 1) Disputes submission as
to liability or amount; or 2) Fails to act in a reasonable
time (FAR 33.201; FAR 52.233-1)
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Filing a CDA claim (cont.)
• Request for Equitable Adjustment (“REA”)
submission converted into a claim
– Request Contracting Officer’s final decision
– Certify the claim
• Convenience Termination Settlement Proposals
(FAR 49.206)
– Such proposals are nonroutine submissions under the
CDA
– Converted to a claim if parties reach an impasse
attempting to reach settlement
– Interest: government cannot pay interest on proposal
unless it turns into CDA claim and contractor successfully
appeals to ASBCA or COFC
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After Filing a Claim
• Final Decision
– Contracting Officer must issue a written final decision (51 U.S.C.
§ 605(a); FAR 33.206; FAR 33.211(a))
• Appeals to the Board of Contract Appeals (Armed Services
or Civilian Board)
– Contractor may appeal a Contracting Officer’s final decision to an
agency Board of Contract Appeals (41 U.S.C. § 606)
• File suit before the Court of Federal Claims (“COFC”)
– Contractor may bring action after a Contracting Officer’s final
decision
• Appeal to the Court of Appeals for the Federal Circuit
(“CAFC”)
– Jurisdiction over agency BCA and COFC (28 U.S.C. § 1295(a)(3)
and (10))
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Handling Audits
105
Handling Audits Overview
•
•
•
•
•
•
Government’s right to audit
Auditors
Three kinds of audits
Overhead rates (G&A, indirect, etc)
Job cost accounting
Close out of contracts
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Handling Audits
• Government’s right to audit
– Government has broad statutory and contractual
audit rights, both prior to award and post award
– Government generally has right to audit a
contractor’s books and records at any time up to
3 years after final payment under a contract
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Handling Audits
• Who are the Auditors?
– Defense Contract Audit Agency (“DCAA”)
• Department of Defense (“DOD”) relies on DCAA for its
auditing requirements
• Performs pre- and post-award audits
– Office of the Inspector General
• Investigate fraud, waste and abuse uncovered as a
result of internal audits
– U.S. Department of Justice
• Responsible for enforcement of the civil and criminal
statutes involving fraud against the U.S.
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Handling Audits (cont.)
• Subjects of DCAA Audit
–
–
–
–
Contractor’s internal control systems
Management policies
Accuracy and reasonableness of cost representations
Adequacy and reliability of records and accounting
systems
– Financial capability
– Contractor compliance with contract provisions having
accounting or financial significance such as the Cost
Principles (FAR Part 31), the Cost Accounting Standards
Clause (FAR 52.230-2 and clauses pertaining to TINA
(FAR 52.215-10, -11,-12 and -13)
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Handling Audits (cont.)
• What are Auditors looking for?
– Cost mischarging
– Violation of ethics rules
– False Claims Act violations
– Product substitution
– Misuse of property
– Proposal misrepresentation
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Handling Audits (cont.)
• Three kinds of audits
– Pre-award (FAR 52.215-20)
• Commercial Sales Practices (“CSP”) Disclosures
• Defective pricing
– Post-award (FAR 522.215-71)
• Compliance with performance obligations
– “Contractor Assistance Visits”
• An audit by any other name…
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Contractor Goals in Handling Audits
• First, do no harm
• Second, respond to audit requests and
issues as fully and accurately as possible
• Third, create an accurate record of the audit
• Fourth, identify any potential fraud
concerns and findings
• Fifth, begin organizing a response to the
potential fraud concerns
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The Minefield of Potential Harm
• Criminal violations
– False Claims Act, False Statements Act,
Obstruction of a Federal Audit (18 U.S.C. §
1516), Conspiracy
– Civil Sanctions
• Civil False Claims Act
– Administrative
• Administrative fraud
• Unnecessary disallowances, adverse findings, and
penalties
• Bad relationship and Spillover
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Avoiding Harm
• Accurate and complete representations,
information and data
• Cooperation
• Timely access to records
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Accurate and Complete
• Procedure for receiving requests for
information
• Procedure for gathering information
• Procedure for assuring accuracy and
completeness
• Procedure for communicating accurate and
complete information and responses
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Cooperation
• Procedure for receiving requests for
information
• Procedure for gathering information
• Procedure for assuring accuracy and
completeness
• Procedure for communicating accurate and
complete information and responses
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Timely
• “Reasonable” requirement
– Do not have to shut down business
– DCAA will consider if there is an unreasonable
delay, and if so, how often
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Procedures for
Full and Accurate Responses
• Preparation for the audit
– Audit request should be in writing
•
•
•
•
Should state type of audit
Should identify the government audit team
Should provide an estimate of the time
Likely will include a Preliminary Request for files
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Procedures for Full and Accurate
Responses (cont.)
• Entrance Conference
– Identify point of contact to the Auditors
– Discuss procedures for requests for information
– Discuss procedures for copies
– Request an Exit Conference and a copy of the
Draft Audit Report
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Procedures for Full and Accurate
Responses (cont.)
• Procedures for the Audit
–
–
–
–
–
Use point of contact procedures
Respond within reasonable time to requests
Make a record of al information provided to Auditors
Assure that requests are within scope of the type of audit
Negotiate the request if unreasonable, burdensome, or
outside the scope
– Identify potential issues and begin preparation of
response
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Procedures for Full and Accurate
Responses (cont.)
• Exit Conference
– Auditors should summarize results and inform
contractor of procedures for issuance of Final
Report
– Contractor should express its position on issues
– Contractor should request a copy of Draft Report
– Contractor should request an opportunity to
respond in writing
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Written Response to Audit Findings
• Prepare a written response
• As accurate and complete as possible
• First opportunity to present your position in
your words
• Will be reviewed by Contracting Officer,
investigators, prosecutor, and judge or jurors
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Pre-Award Audits Issues
• GSA Schedules
– Commercial Sales Practice (“CSP”) disclosures
• Disclose Most Favored Customer(s) (“MFCs”)
– All customer receiving pricing equal to or better than the
government
• Disclose MFC Pricing
– Discounts
– Concessions
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Pre-Award Audits Issues (cont.)
• GSA Schedules (cont.)
– CSP best practices
• Current, accurate and complete
– Conduct review of CSP within 14 days of proposal
– Conduct 2nd review of CSP within 14 days of the end of
negotiations
• Ensure the contract clearly identifies Basis of Award
Customer or Category, and the pricing relationship
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Recognizing When an Audit has
Become an Investigation
•
•
•
•
•
•
Shift in focus of the audit
Unusual focus on a particular aspect of the audit
Failure to discuss an aspect of the audit
Failure to provide an Exit Conference
Refusal to discuss findings on a particular issue
Failure to include an aspect of the audit in an Audit
Report
• Failure to issue an Audit Report
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Preparation of a Response to
Fraud Allegations
• Include counsel
• Conduct an internal investigation
– Can start with audit records
• Carefully consider and include counsel on
any further response to auditors
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Overhead Rates
• Important and relates to pricing
• G&A costs
– General and administrative costs (e.g., corporate, division, or branch
allocations) attributable to the general management, supervision,
and conduct of the contractor’s business as a whole
• Indirect cost rate (aka overhead rate)
– Percentage or dollar factor that expresses the ratio of indirect
expense incurred in a given period to direct labor cost,
manufacturing cost, or another appropriate base for the same period
(FAR 42.701)
– Final indirect rate: Established and agreed upon by government and
contractor not subject to change (FAR 42.701)
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Job Cost Accounting
• Must understand cost principles
–
–
–
–
Accounting requirements
Identify unallowable (not reimbursable) costs
Determines reimbursement in cost contracts
Affects pricing in firm-fixed-price contracts
• Fundamental concept of unallowable cost
– Reasonableness
– Allocable
– Comply with Cost Accounting Standard (“CAS’) or
Generally accepted Accounting Principles (“GAAP”)
– Prohibited by contract
– Prohibited by FAR Subpart 31.2
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Job Cost Accounting (cont.)
• Contractors often employ computerized job cost
accounting system to allocate and track all costs
– Systems used to compile actual costs incurred for work
under the contract
• Best practices
– Set up job cost account methods to track allowable costs
– Make appropriate allocations among contracts
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Contract Close Out
• After work is completed and accepted,
contractor seeks final payment
– Timely presentation of properly executed and
certified invoice to disbursing official
– Invoice must show agreed amount, less amounts
previously paid
– Final invoice submitted more than 1 year after
completion of performance is too late
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Contract Close Out (cont.)
• Final Payment (cont.)
– Fixed-Price Contracts: See standard Payments clause
(FAR 52.232-1)
• Government shall pay contractor, on contractor’s submission of
proper invoices, prices stipulated in contract for supplies
delivered and accepted, less any deductions provided in contract
– Cost-Reimbursement Contracts: Payments made in
accordance with Allowable Cost and Payment clause
(FAR 52.216-7)
• Allowable cost as determined by Contracting Officer according to
terms of contract and cost principles (FAR 31.201)
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Contract Close Out (cont.)
• Quick closeout procedure (FAR 42.708)
– Contracting Officer must negotiate settlement of
indirect cost for specific contract before
determination of final indirect cost rate if:
• Contract is physically complete;
• Amount of unsettled indirect cost to be allocated to
contract is relatively significant; and
• Agreement can be reached on reasonable estimate of
allocable dollars
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Government Contracts Research
Internet Resources
• Federal Business Opportunities
– https://www.fbo.gov/
• United States Code
– http://www.gpoaccess.gov/USCODE/index.html
• Code of Federal Regulations
– http://www.gpoaccess.gov/CFR/
• Federal Acquisition Regulation (“FAR”)
– https://www.acquisition.gov/far/
• Department of Defense FAR Supplement
– http://farsite.hill.af.mil/VFDFARA.HTM
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Government Contracts Research
Internet Resources (cont.)
• General Services Administration Acquisition
Manual (contains General Services Administration
Regulation (“GSAR”))
– https://www.acquisition.gov/gsam/gsam.html
• GAO Bid Protest Rules
– http://www.gao.gov/decisions/bidpro/new.reg/regulation.h
tm
• U.S. Court of Federal Claims Rules
– http://www.uscfc.uscourts.gov/./sites/default/files/court_in
fo/rules_20100111_v6.pdf
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