Top 10 Compliance Risks For GSA Schedule Contractors
Top 10 Compliance Risks ForGSA Schedule ContractorsOctober 31, 201312pm ESTAlbert B. Krachman, Esq.Brian R. DunnPartnerManaging PartnerBlank Rome LLP600 New Hampshire Ave, NWWashington, D.C. 20037Tel: 202.772.5812Krachman@BlankRome.comThe Winvale Group1012 14th Street NW, 5th FloorWashington, D.C. 20005Tel: 202.296.3542BDunn@Winvale.com
Agenda1.2.3.4.5.6.7.8.9.10.Commercial (MFC / BOA) Pricing ComplianceGSA Pricing ComplianceGSA Terms and ConditionsBusiness Size and Type RepresentationTrade Agreements ActEthics and Business ConductHuman Resource RequirementsSmall Business Subcontracting PlanGSA's Contractor Assistance VisitThe Mandatory Disclosure Rule
Federal Contracting: Risks and Rewards!
Commercial (MFC / BOA) Pricing ComplianceOVERVIEWPrice Reductions Clause 552.238-75 Prior to contract award, GSA and contractor will agree onthe customer or category of customers which will be theBasis of Award and GSA’s price or discount relationship tothe identified customer(s). This relationship shall be maintained throughout thecontract period. Any change to the Contractor’scommercial pricing or discount arrangement applicable tothe identified BOA customer(s) which disturbs therelationship constitutes a price reduction.
Commercial (MFC / BOA) Pricing ComplianceCOMMON ISSUES No communication or training to employees regardingGSA’s pricing requirement. Did not update sales policies orworkflow rules. GSA contractors need a system in place to monitor theBasis of Award customer discount relationship Did the GSA contractor offer a better price, discount orconcession to a Basis of Award customer that disturbs thedefined discount relationship?
Commercial (MFC / BOA) Pricing ComplianceRECOMMENDATIONS Conduct corporate wide training on GSA pricingcompliance. Distribute materials, pricing policies, orworkflow rules for reference. Establish and enforce a pricing “floor”. Regular review of sales transactions to ensure compliance.Don’t forget to review “concessions”.– Concessions are a benefit, enhancement or privilege (other thana discount), which either reduces the overall cost of a customer’sacquisition or encourages a customer to consummate apurchase. Concessions include, but are not limited to freightallowance, extended warranty, extended price guarantees, freeinstallation and bonus goods.
GSA Pricing ComplianceOVERVIEW GSA Contractors can only sell to GSA “Eligible Entities” atthe approved GSA price or lower. Schedule 70 (IT) and 84 (Security) include CooperativePurchasing Amendment, which allows state, local, publicschool systems, and tribal governments to purchase fromGSA contractor. GSA Contractors need to demonstrate compliance with thescope of their Schedule and awarded SINs
GSA Pricing ComplianceCOMMON ISSUES No communication or training to employees regarding GSAEligible Entities or awarded GSA pricing. Contractors are putting their GSA contract number onquotes and invoices without understanding contract scopeand awarded GSA pricing. GSA and non-GSA items are being mistakenly groupedtogether within the quote and invoice. Quarterly 72areports are inaccurate.
GSA Pricing ComplianceRECOMMENDATIONS Download and distribute “Eligibility to use GSA Sources ofSupply and 12 Ensure all GSA quotes and proposals are approved by yourGSA Pricing Desk. Review invoicing process to ensurecorrect representation and clear delineation. Self audit records to ensure quarterly 72a sales reports areaccurate and compare against how your GSA buyers arereporting the contract action. www.FFATA.org
GSA Terms and ConditionsOVERVIEWGSA Terms and Conditions are unique to your GSA contractand can be different from your commercial business. Theycan include: Minimum Order Quantity and Volume Pricing Payment Terms and Invoicing Delivery Cost and Delivery Schedule Warranty / Restocking / Return Policies Installation / Maintenance Labor Qualifications Subcontracting Restrictions
GSA Terms and ConditionsCOMMON ISSUES GSA terms and conditions are not accurately representedand supported. GSA Contractors don’t train and communicate differencesto employees. Prompt Payment Term is not being shown on the invoice.
GSA Terms and ConditionsRECOMMENDATIONS Conduct corporate wide training on GSA pricingcompliance. Distribute materials for reference. Self auditproposals and invoices. Understand fundamental differences in Terms / Conditions: Commercial Delivery may be FOB Origin, OCONUS, 30 Days ARO.GSA Delivery may be FOB Destination, 48 CONUS and Washington DC,15 Days ARO (and require a MSDS). Commercial Payment Schedule may be Net 30, in advanceGSA Payment Schedule may be 1% 15 Days, Net 30, in arrears after“Inspection and Acceptance.”
Business Size and Status RepresentationOVERVIEW The SBA typically defines a “U.S. small business" either in terms ofthe average number of employees over the past 12 months, oraverage annual receipts over the past three years. The businessentity should be organized for profit with a place of businesslocated in the United States and which makes a significantcontribution to the U.S. economy. The North American Industry Classification System (NAICS)identifies a business by category /capability. The government willalways identify a NAICS code and size standard with eachacquisition. Under that assigned NAICS code, you are required torepresent your business size and type at the time of proposalsubmission. Contracts may also be set aside for small businesses with certainstatus, such as Small –Disadvantaged, Women Owned, VeteranOwned, HubZone and others.
Business Size and Type Representation COMMON ISSUESFailure to properly calculate revenue leading tomiscertificationFailure to count part time employees against employeelimitsFailure to recognize transactions that are likely to createaffiliationBelief that spin-offs and family connected entities willqualify as smallFailure to comply with the new limitation on subcontractingrulesFailure to act within the 5 day size protest window when acompetitor receives awardFailure to understand the rules on status designations
Business Size and Type RepresentationRECOMMENDATIONS Small business contractors must proactively audit their eligibilityto bid as a small business and review their employee levels andrevenue numbers against the applicable NAICS codes. Theyshould also examine status representations and whether they mayhave inadvertently become affiliated with another entity. Large business contractors must verify the size and/or statusclaims of firms with whom they contract, team with on set asidework, or seek to acquire, and verify limitation on subcontractingcompliance. Any time a contractor seeks and obtains a federal contract orsubcontract through willful misrepresentation of its small businesssize/status, there is a presumption of loss to the government equalto the value of that contract or subcontract.
Trade Agreements ActOVERVIEW Products under GSA schedules are typically subject to theTrade Agreements Act (“TAA”). Under the TAA, the U.S.Government may purchase products only if those productsare wholly the growth, product, or manufacture of theUnited States or another “designated country,” or havebeen “substantially transformed” in the United States oranother “designated country.” Several countries are not “designated countries,” such asChina, India, Malaysia, Russia, and Thailand. You must list a Country of Origin (COO) for each productoffered under your GSA contract.
Trade Agreements Act COMMON ISSUESContractors do not obtain, and periodically refreshconforming letters of supply from manufacturersContractors fail to include appropriate indemnities in theirsupply contracts with the manufacturersContractors do not audit their products and fail to spotcheck, and maintain updated data bases for product origininformationContractors have not done a “year back” spot check audit toidentify risks or exposures that need immediate attentionFailure to appreciate legal exposure for non-complianceContractors are mislead by ambiguous originrepresentationsFailure to timely remove unverified items from your contract
Trade Agreements ActRECOMMENDATIONS Follow best practices administration ofTrade Agreements Act compliance byauditing for common lapses described inSlide 17. No TAA Audit? Sharply increase Officer and DirectorsE&O coverage, and update your LinkedInprofile
Ethics and Business ConductOVERVIEW Government contractors must conduct themselveswith the highest degree of integrity and honesty. GSA contractors are required to exercise duediligence to prevent and detect criminal conduct andpromote an organizational culture that encouragesethical conduct and a commitment to compliancewith the law. All federal contractors should have an updatedwritten code of business ethics and conduct, specificto government contracting, and train each employeeengaged in performance of a federal governmentcontract.
Ethics and Business ConductCOMMON ISSUES Contractors have not updated Codes to cover theMandatory Disclosure Rule Mistaken belief that “generic” corporate ethicscodes are sufficient for federal contracting Training is not regularly conducted, or ifconducted, not documented Contractors do not address disciplinary actionsfor violations
Ethics and Business ConductRECOMMENDATIONS Update and maintain your government Code ofEthics Adjust your organizational structure to insuretrained personnel are assigned to key compliancepositions Do a blind test to see how your system handlesan issue Ask your counterparties about their Codes ofEthics (It takes 2 to Tango) Conduct training and document. Make it part ofthe corporate culture.
Human Resource RequirementsOVERVIEWA GSA Contractor can have a number of compliancerequirements associated with recruitment, minimumcompensation, and employment. Some of which include: VETS 100 EEO – 1 Affirmative Action Program (AAP) Disability Employment E-Verify Service Contract Act Davis-Bacon Act Labor Category Minimum Qualifications
Human Resource RequirementsCOMMON ISSUES GSA Contractors are held to a higher standard. Since thereis a culture shift from normal commercial business, theydon’t understand and follow applicable federal employmentlaws and reporting obligations. Know the requirementthresholds. GSA Contractors are unprepared for DOL Desk Audits. Individual’s resume and previous work experience does notmeet defined labor category qualifications. Contractors didn’t realize Service Contract Act wasapplicable and are liable for past compensation.
Human Resource RequirementsRECOMMENDATIONS Research and review contract requirements as theyrelate to recruitment, minimum compensation, andemployment. Begin by reaching out to DOL’s Officeof Federal Contract Compliance Programs:www.dol.gov/ofccp Compare resumes for individuals against the minimumqualifications defined for their labor category. Don’tforget to review your subcontractors! If you believe you offer non-professional labor, beprepared for Service Contract Act by mapping yourjob categories to the Directory of Occupations andappropriate Wage Determination area.
Small Business Subcontracting PlanOVERVIEWGovernment contractors, who are not a small business,that receive a contract for more than the simplifiedacquisition threshold ( 150,000) must agree in thecontract that small business, veteran-owned smallbusiness, service-disabled veteran-owned smallbusiness, HUBZone small business, small disadvantagedbusiness, and women-owned small business concernswill have the maximum practicable opportunity toparticipate in contract performance consistent with itsefficient performance.
Small Business Subcontracting PlanCOMMON ISSUES The subcontracting plan requires contractors to solicitwritten self-certifications of their subcontractorsregarding their business size and status. If you do nothave a self-certification on file, you must count thesubcontractor as a Large business. 13 CFR 121.411(a) Non-profit organizations should not be classified as aSmall Business. GSA Contractors unaware of differences betweenCommercial and Individual plans and if Indirect Costsare included in goals. CEO does not sign the ISR and/or SSR reports.
Small Business Subcontracting PlanRECOMMENDATIONS Ensure self-certification forms have the requiredcontent and SB misrepresentation disclosure. 15 U.S.C.§ 645 Ensure a completed self-certification from each directsubcontractor, and from vendors / suppliers if IndirectCosts are included. A SBA Compliance Review (audit) will stress theimportance of a compliance program. They willinterview employees, review written policies andsubcontract justification sheet, and evaluatecorporate culture and outreach efforts.
GSA's Contractor Assistance VisitOVERVIEWGSA’s Industrial Operations Analyst (IOA) will conduct aContractor Assistance Visit (CAV), two times withinevery five year contract term. The objective of themeeting is to assess the level of compliance. Topicsincluded are: Sales Reporting Tracking System GSA Pricing and GSA Advantage Scope of Contract Trade Agreement Acts Compliance Basis of Award Customer and Discount Relationship Administrative Accuracy
GSA's Contractor Assistance VisitCOMMON ISSUES GSA Contractors do not adequately prepare for theCAV meeting. Make no mistake - this is an Audit! Don’t make the same mistakes. Learn from past CAVmeetings and ensure previous issues are resolved. If you provide the IOA confidential or proprietaryinformation, GSA Contractors do not submit with anon-disclosure statement. Privileged and confidential under 5 U.S.C. §552(b)(4)
GSA's Contractor Assistance VisitRECOMMENDATIONS Spend enough time to get organized (hardcopies and electronic copes) and ensure staff isavailable. Review GSA IOA Report Card and prepare beforeCAV meeting. https://vsc.gsa.gov/reportcard/ If there are outstanding items after the meeting,give them high priority and follow up with yourContracting Officer with any questions. Request completed IOA copy of your ReportCard.
The Mandatory Disclosure RuleOVERVIEWFederal Contractors are now required to self-disclose credibleevidence of certain violations of law and overpayments in connectionwith the award or performance of a federal contract or subcontract.Failure to disclose credible evidence is grounds for automaticSuspension or Debarment.The Contractor shall timely disclose, in writing, to the agency Office of theInspector General (OIG), with a copy to the Contracting Officer, whenever, inconnection with the award, performance, or closeout of this contract or anysubcontract thereunder, the Contractor has credible evidence that a principal,employee, agent, or subcontractor of the Contractor has committed — (A) A violation of Federal criminal law involving fraud, conflict of interest,bribery, or gratuity violations found in Title 18 of the United States Code; or (B) A violation of the civil False Claims Act (31 U.S.C. [§§] 3729-3733).
The Mandatory Disclosure RuleCOMMON ISSUES Contractors have not updated their Codes of Ethics tocapture the MDR Contractors do not have systems to recognize when apotential disclosable event has occurred When actionable information is received, contractorsdo not promptly investigate the circumstances Contractors fail to do self audits to ascertain whethercurrent practices are creating legal exposure Contractors report issues to the wrong personnel,believing that they satisfied the MDR
The Mandatory Disclosure RuleRECOMMENDATIONS Determine if Ethics Code includes Mandatory DisclosureRule Assess if your organization has the capabilities to detectand recognize a MDR issue if an event occurs Do a blind test of your compliance systems to see how anissue is handled Follow best practices administration of MandatoryDisclosure Rule by auditing for common lapses describedin Slide 32 If you have questions on “credible evidence”, seekprofessional help. There is too much at risk!
QuestionsAlbert B. Krachman, Esq.Blank Rome LLP600 New Hampshire Ave, NWWashington, D.C. 20037Tel: 202.772.5812Krachman@BlankRome.comBrian R. DunnThe Winvale Group1012 14th Street NW, 5th FloorWashington, D.C. 20005Tel: 202.296.3542bdunn@winvale.com
Oct 31, 2013 · GSA Contractors are unprepared for DOL Desk Audits. Individual’s resume and previous work experience does not meet defined labor category qualifications. Contractors didn’t realize
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