high risk audit areas2[6] (read-only) - dhg€¦ · government contracting 2 speaker information...

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High Risk Audit Areas In GSA Schedules: Issue Prevention, Detection and RemediationMatt Koehl, Partner Pepper HamiltonBill Walter, Partner DHG


Speaker Information @mstockbridgelaw@DHG_GovCon

BillWalter,PartnerDixonHughesGoodman,LLP(703)[email protected]

MattKoehl,PartnerPepperHamiltonLLP(202)[email protected]


• 5“HighRisk”AreasinMASContracting– UnderstandingtheRequirement– IllustratingKeyConcepts– CommonProblemAreas– RealLifeExample– RecommendedBasicStepsforCompliance

• ContractingrulesapplybothtoGeneralServicesAdministration(GSA)schedulecontractsmedicalsupplyandservicescontractsadministeredbytheDepartmentofVeteransAffairs(VA)

• MAScontractcompliancehaslongbeenafocusareaforGSAandVAOfficeofInspectorGeneral(OIG)

• AttachmentA– FederalContractsReportarticle

Outline @Pepper_Law@DHG_GovCon


High Risk Issue Number 1 –Commercial Sales Practices Disclosures

(CSP)


• TheRequirement– Mandatorycontractordisclosureofpricing/salesanddiscountpractices

– GSA/VAtooltoachievemostfavoredcustomer(MFC)pricing

– CSP-1Formatbeforeinitialcontractaward+each5-yearcontractextension

– MFCspreadsheetsforsomeSchedules– ExceptiontoCSPsubmissionrequirementsforMAScontractresellerswithoutsubstantialsalestothegeneralpublic

Commercial Sales Practices (CSP) Disclosures @Pepper_Law

@DHG_GovCon


• KeyConcepts– SubmitCSPforallSpecialItemNumbers(SINs)– CSPChartdefinitions:• Customers• Discounts• Concessions

– MFCspreadsheets


@DHG_GovCon


• KeyConcepts– CSPdisclosuresmustbe“current,accurateandcomplete”to

avoid“defectivepricing”exposure• “Current”:allpracticeswithin14daysofaward• “Accurate”:noestimatesunlessidentifiedassuch• “Complete”:inclusiveofpricingpracticesforallnon-federaldomesticcustomers

– SalestransactiondatakeytopreparingproperCSPs• Salestransactiondataoftendoesnotmatchcontractpricinganddiscountandpricingpolicydocuments

• 12monthspriortoCSPdate=OIGPre-AwardAuditstandard


@DHG_GovCon


• CommonProblemAreas– Incompleteresearchofsalespracticesinformationandsales

transactiondata– Failuretoarchivesalespracticesandtransactiondata– Useofgenericcustomertypesvs.actualcustomercategories

employedtoprocessorders– Undisclosednon-standarddiscounts– Undisclosedrebateprogramsandotherpartneralliance

benefits– Undisclosedcustomersatisfactionremedies


@DHG_GovCon


• Real-LifeExample– OnDecember26,2012,theDOJannouncedthatW.W.GraingerInc.agreedtopay$70milliontosettleallegationsofdefectiveMAScontractpricingdisclosures

– Grainger’sCSPdisclosuresallegedlyunderstatedthediscountsitgrantedtoothercustomersonhardwareitemsandothersuppliessoldthroughGrainger’sMAScontract

– http://www.justice.gov/opa/pr/2012/December/12-civ-1545.html


@DHG_GovCon


• SuggestedBasicStepstoAvoidProblems– Reviewinternaldiscountingpoliciesandprocedures– Reviewcontractsforall“Customers”– Reviewrawsalesdata– Involvesalesexecutivesandemployeeschargedwithapprovingdiscounts• InterviewandinitialCSPnarratives

– Archiveforpre-awardduediligenceefforts


@DHG_GovCon


• SuggestedBasicStepstoAvoidProblems– Documented/enforcedpracticesforstandardandnon-standarddiscounts

– Broaddisclosureanddescriptionofnon-standarddiscountingpractices

– ConformingCSPcustomerdesignations– Certifyto“current”and“accurate”butnot“complete”


@DHG_GovCon


High Risk Issue Number 2 –Price Reductions Clause (PRC)


• TheRequirement– Basisofaward(BOA)establishedatawardand5-yearextension

– Benchmarkingtocommerciallistprice– BenchmarkingtoBOAcustomers– ThePRCistriggeredifdiscountstoBOAcustomersorreductionstocommerciallistpricing“disturb”GSA’srelationshiptotheBOA

Price Reductions Clause (PRC) @Pepper_Law@DHG_GovCon


• TheRequirement– IfthePRCistriggered,youmustreduceMASContractpriceon“samedate”andfor“sameduration”asthetriggeringdiscount• Designatedexceptions,e.g.,salestofederalagenciesorsalesabovetheMaximumOrderThreshold

– PRCcomplianceisespeciallyimportantb/ctheOIGsregularlyauditpost-award PRCcomplianceduringpre-award reviewsof5-yearextensionproposals• Statedpurposeofpre-awardOIGreviewsareanalysisofpricingproposalssubmittedfor5-yearcontractextensions



• CommonProblemAreas– FailuretomonitorsalestransactionswithBOAcustomersandcommerciallistpricereductions

– Useofgenericcustomercategorydescriptions– Untrainedsalesstaff– Post-awardmergersandacquisitionscreateambiguityaboutPRCtriggeringevents

– Poorcommunicationbetweensales,financeandcontractmanagementfunctions



• Real-LifeExample• OnOctober6,2011,theDOJannouncedthatOracleCorp.andOracleAmerica,Inc.(Oracle’)hadagreedtopay$199.5milliontosettleallegationsthattheyfailedtopasson“triggering”discountsthatOraclehadgrantedtoitscommercialcustomers

• http://www.justice.gov/opa/pr/2011/October/11-civ-1329.html



• SuggestedBasicStepstoAvoidProblems– Negotiaterealistictrackingcustomers– AlternativePRCcompliancemechanisms

• Averagediscountmonitoring– NegotiatedexclusionstoPRCapplication,e.g.,

• Spotdiscounts• Newcustomeracquisition

– Extensionproposal- reviewproposalandawarddocumentsforcorrecttrackingcustomersanddiscounts• Ifnecessary,clarifydefinitionsoftrackingcustomers

– M&A- considerimpactofmergersandacquisitions• Clarifyingletter,e.g.,salesbyNEWCOemployeescannottriggerPRC



• SuggestedBasicStepstoAvoidProblems

– PricemonitoringproceduresforPRCtriggeringevents– Discountapprovalpoliciesandcontrols(enforced)– Trainingforcommercialsalesandbiddeskstaff– CloselinkfrombiddeskstafftoMAScontractmanagementstaff



High Risk Issue Number 3 –Trade Agreements Act (TAA)


• TheRequirement– TAAimplementsseveraltradetreatiesgrantingequaltreatmenttoproductsfrommembercompanies

– TAAexemptsproductpurchasesfromBuyAmericanAct– Nopricingpreferencefactorsareimposed-- youeithercomplyoryoucan’toffertheproducts

– TAAappliestoallMAScontracts• Limitedwaiverfor“set-aside”SpecialItemNumbers(SINs)

Trade Agreements Act (TAA) @Pepper_Law@DHG_GovCon


• TheRequirement– FARdesignatedcountrylist(FAR52.225-5)– FARTAACertificate(52.225-6)– “Substantialtransformation”testforproducts– Wherecontractoris“established”forservices



• KeyConcepts– ProductsareeligibleforpurchaseifsubstantiallytransformedinaTAA-DesignatedCountryintoanewanddifferentarticleofcommerce

– Substantialtransformationtestisnotsatisfiedbysimplemanufacturingefforts

– ProductssubstantiallytransformedinTAANon-DesignatedCountriesineligibleforMAScontracts



• CommonProblemAreas– Manufacturinglocationsfor“commercialitems”

• Especiallyhighriskproductcategories– Changestocountryoforigin– Multiplecountriesoforiginforsameproduct– Internalcompanysystemsdon’tarchivehistoricalinformation

– Imprecisetestsforcertainproductcategories– Badcountryoforigindatafromdistributors



• Real-LifeExample– OnMarch29,2012,CableExpressTechnologyagreedtopay$2milliontosettleallegationsthatitsupplieditemsunderitsMAScontractfromnon-designatedTAAcountries,includingChina,Taiwan,Indonesia,MalaysiaandThailand• Note:TaiwanisnowaTAA-DesignatedCountry

– http://www.bizjournals.com/prnewswire/press_releases/2012/04/16/PH87986

– Othermulti-milliondollarofficeproductMAScontractTAAsettlements



• SuggestedBasicStepstoAvoidProblems– ProceduresthatmonitorandupdatecountryoforiginstatusforallMAScontractproducts

– Closelinkbetweencontractmanagementandprocurementandoperationsfunctions

– SKUmanagementproceduresforproductswithmultiplepossiblecountryoforiginlocations

– Archiveforhistoricalcountryoforigininformation– Manufacturercertificationandindemnification– Periodicinternalcompliancereviews



High Risk Issue Number 4 –Professional Employee Qualifications


• TheRequirement– MAScontractswithhourlyanddailyserviceofferings– MAS-approvedlaborcategoriesidentifyemployeerequirementsforeducation,experience,etc.

– EmployeesbilledunderaMAScontractmustmeetlaborcategoryrequirements

– Complianceisregularlyexamined• OIGPre-AwardandContractSystemsaudits

Employee Qualifications –Professional Services @Pepper_Law

@DHG_GovCon


• CommonProblemAreas– Failuretoestablishprocedurestosupplyqualifiedpersonnel

– Useoflaborcategoriesanddefinitionsfromothersources• E.g.,cut/pastefromcompetitor’sMAScontractpricelist

– Useofoutdatedandincompleteresumes– Failuretoarchiveresumes– Useofsubcontractoremployees


@DHG_GovCon


• Real-LifeExample– December2005,ScienceEngineeringAssociatesagreedtopay

$9.5millionforbillingunqualifiedemployeesunderanITservicescontract

– http://www.gao.gov/new.items/d06547.pdf• OIGReport:

– OnMarch8,2013,theGSAOIGissuedareportstating:One-thirdofFY2011MASpre-awardauditsfoundthatGSAcustomerswereoverchargedforprofessionalservices[because]employeescontractedtoprovidetheseservicesdidnothavetheminimumeducationaland/orexperiencerequirementsrequiredbytheircontracts


@DHG_GovCon


• SuggestedBasicStepstoAvoidProblems– Internalprocedurestoverifypersonnelexperienceandlaborcategorieswhenassigningpersonnel

– Procedurestocollect,verify,updateandarchivecompanyemployeeresumes

– Procedurestocollect,verify,updateandarchivesubcontractor employeeresumes

– Regularexaminationandmodificationoflaborcategoriestomatchactualemployeeskills,experienceandcertifications


@DHG_GovCon


High Risk Issue Number 5 –Unapproved Item Sales


• TheRequirement– StatutorystatusofMAScontractprogramallowssimplifiedorderingproceduresinFAR8.405• GSApreviouslyallowedagenciestopurchase“incidental”amountsofopenmarketitems,butoverruledbythecourts• StandardFARcompetitionrequirementsnowclearlyapplyto“unapproved”itemsincludedonanorderforMAScontractitems• Usuallyproducts,butcanalsorefertounapprovedservicesandlaborservicecategories

Unapproved Item Sales @Pepper_Law@DHG_GovCon


• CommonProblemAreas– SalesstaffunawareofapprovedMAScontractitems

• Trainingfailures– Noprocedurestodistinguishapprovedvs.unapproveditemsinquotesandproposals

– ReliancebysalesstaffonoutdatedMAScontractpricelists– Infrequentmodificationsubmissions



• CommonProblemAreas– DelayedGSA/VAapprovalofmodifications

• “2week”standardoftennotmet– “Mixed”quotesandproposals

• MASandnon-MASitemsonasinglequote– Salesstaffnotsegmented,e.g.,samesalesemployeeservicescommercialcustomersandsomepublicsectorcustomersinhisregion



• Real-LifeExample– OnApril30,2007,theGSAOIGannouncedthatGovConnectionhadagreedtopay$2.55milliontoresolveallegationsthatithadsoldunapproveditemsandfailedtopayrequiredMAScontractfees

– GovConnection’sMAScontractwasalsocancelled– http://www.gsaig.gov/?LinkServID=D309E74C-0AA4-7D09-AF296A1F0CAC924B&showMeta=0



• SuggestedBasicStepstoAvoidProblems– InternalprocedurestoclearlyidentifyanyunapproveditemsinMAScontractquotesandproposals

– Largercompanies– automatedquoteandorderentrysystemforapprovedandunapproveditems

– WebsitepricelistidentificationofapprovedandunapprovedMAScontractitems

– RegularMAScontractmodifications– Seektomodifyor(possibly)rejectMAScontractordersthatcontainunidentifiedopenmarketitems



Questions?

Issues in Focus Webinar Series

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high risk audit areas2[6] (read-only) - dhg€¦ · government contracting 2 speaker information...

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