Procurement & Government Contracting Compliance

[music] Thank you and thank you everybody for joining us for procurement and government contracting compliance. My name is Dan Carter and I have the pleasure of being your moderator today. This webinar is part of the financial poise webinar series corporate and regulatory compliance. Slide seven of the slide deck provides a summary of the series and slide six summarizes this episode. Thank you to our co-producer, the National Law Review, and to sponsor Max Xass Asset. Please read about them and their services on slide three in the slide deck. Speaking of the slides, there's a lot of slides 50 plus, but you should understand from the get-go that we are not going to step through the PowerPoint in order. We may try to have on display while we're uh speakers speaking a relative slide. Uh but you also won't have to hear us read any slides. This webinar, like all of Financial Poison's webinars, is a conversation and not just a recitation of what you can already see in front of you. But keep the PowerPoint handy. You can take notes and we'll try to indicate what slides our conversation is touching on as we proceed. So you can take notes. Our panelists today of experts are Aaron Felix partner at Poselli, Habib Alahi, partner at Shler Honororado Me and Sears LLP, and Teddy Arnold, partner at Safearth Shaw LLP. And my name is Dan Carter. I'm a partner at Aronberg Golden and the author of this compliance series. We appreciate that you're not spending your time and money to attend this webinar to hear infomercials about us. You can read more about us on slides 44 through 48 in the slide deck. We truly have a great panel of experts today uh in terms of breath and experience, varied practices within the government's contract area and perspectives from both lawyers working for law firms. Uh this time I think it's all law firms and no in-house but people that have broad experience in both. This webinar as mentioned is a production of financial poise. To sign up for our great weekly newsletter, go to www.financiallpoise.com or shoot an email to info@financiallpoise.com with the word subscribe and the subject line. If you are attending the live premiere of this webinar, you can submit your questions using your web portal. If you're watching this on demand or have any questions after the webinar, you can always send an email to info@itfinanipoise.com. Just include your question and the name of the webinar episodes and we will do our best to get you an answer. Now turning to this episode. The volume and complexity of transactions related to procurement are some of the reasons that transactions with the government are most vulnerable to corruption. State and federal regulatory compliance can be tough to navigate and the process can make even routine sales and marketing practices vulnerable to civil and criminal liability. This webinar analyzes the regulatory framework including identification of some of the legal risk and solicitations, pre and postawward bid protests, contract compliance, change orders, and contract claims and disputes. The webinar also discusses defense strategies of a company that is accused of fraud or civil non-compliance. And I'm going to start getting into the questions now. Oh, and again, we've we've got three experts here uh that are going to answer and we may uh end up running out of time, but we'll do our best to get through all the questions that uh we've spent a lot of time preparing for this. So, turning to the questions, compliance pervades all aspects of a company's life in the market for government contracts is significant. For example, the Department of of Defense was the largest government purchasing agency in the last fiscal year, procuring everything from aircraft components to vehicles to electronic equipment. Its procurement spend was well over 100 billion dollars based on public data. While all government agencies, both federal and state, generally engaged in procurement, both for products and services. And there's also a great deal of subcontracting that goes on across all the sectors in which you see procure procurement activity. Hhabib in terms of compliance and procurement where do we find the sources of law that govern the area of compliance? >> Thanks for having me Dan. Uh so I just want to clarify that my response isn't limited to to sources of law because I view law um uh synonymous with a statute. uh at at the top of the the framework is the US code. It's it's the source of law that governs compliance with with government contracts. Following um the US code would be authorities that are outside of statute uh such as executive orders or office of monetary budget uh or OM memoranda. We've seen a lot of EO activity affecting government contractors lately, particularly in the DEI space. So it's important for um to understand those. Third and importantly, you have the federal acquisition regulation or the FAR and the FAR actually collects and implements statutory and other requirements for federal contracting. And it it's it's really the primary source of binding authority on how federal executive agencies acquire goods and services. and it establishes or or tries to establish uniform policies and procedures uh everything from um uh compensation uh requirements to to contract administration. And so if you're working in in federal procurement, the FAR is really your baseline. Layered on on on top of the FAR are going to be agency specific regulations and these supplement the FAR to to the FAR to address unique uh missions that a partic and risks that a particular agency might have. So for example, the department of war has the defs and civilian agencies have their own supplements uh to these rules that can add uh additional requirements uh that can impose stricter standards or or clarify how the FAR is applied uh in in that particular agency context. Um below that you'll find um agency directives uh different memoranda and internal policies. These aren't always codified in regulations, but they can be highly influential in in the day-to-day compliance uh as they might interpret uh higher level rules or establish, you know, tighter internal controls or or set different approval thresholds. So even though they're internal, failing to follow them could uh could create additional compliance risk. And then also you have to look at state and local law which can come into play especially when you have areas like labor and employment um like taxation and different environmental requirements that different states have. So even in federal contracting these laws could apply unless they're preempted. So it's important um to take a look at those as well. And and finally, not really it's not really a source of law or authority, but we've got the specific terms and conditions of the individual contract which you know create legally binding uh obligations for the parties. And so these could include um you know tailored clauses, negotiated provisions or flowown requirements uh that could create obligations beyond the statutes, the FAR agency guidance or or any other um standard rags. Yeah. So, a lot of already a lot of layers and complexity and it's why folks listening to this or involved in this stuff should be contacting one of you three as experts because it uh sounds like a lot of uh of ramps to to get in trouble uh against that landscape. Erin, generally speaking, what are the areas of compliance that involve procurement or dealing with the government? >> Yeah. And and thank you for having me today as well, Dan. Um, so from a subject matter perspective, there there's a laundry list of of functional areas that are touched by compliance and I think we'll touch on those more later on in the conversation. Um but in terms of just sort of stepping back and think about it thinking about it categorically you really have three major buckets of times when compliance comes up and and really becomes front and center from uh from a framework perspective. The first is during and around the contract award process. The second is during the contract administration process, during the life of the contract and then both during the life and and towards the end of a contract often you can find uh disputes around issues after the contract has has been awarded or or after it's its performance is is significantly in process. So just touching on each of those briefly during for issues that arise in and around the bidding process you have essentially compliance issues that arise during bidding. So prior to award in the pre-awward process um this is requirements that show up in a solicitation understanding both from a again subject matter perspective you know what requirements are in the contract as well as from a procedural standpoint is the government following the process and doing the things it's supposed to do uh in order to properly make the award of the contract. So you see that show up prior to award in the solicitation process. You also see that show up once the government has made its selection and and essentially decided to whom it's going to make the award. There can sometimes be compliance issues and questions raised around the propriety of that process and whether the government considered all the things that it was required to consider, whether it didn't consider the things that it was required to ignore, etc. So there's there's that pro award process side of things. Um and then again in in the contract administration process once the contract is awarded performance is ongoing that's really where you see the bulk of what we we really think of as compliance. It's where as as Hhabib said, you look to all of these different sources of of law, regulation, procedure, and then the contract terms itself that impose various requirements on the the contract performer, awardee, and making sure that they are meeting performing and and executing all of the obligations in the contract that it has signed up to. And then and then as I mentioned a a third bucket is where there are disputes and this often comes down to a question of either contract performance the contract is clear and has the the contractor or one of the parties not met its clear obligation under the contract. This can arise in terms of a dispute around what does the contract actually mean? Is there an interpretation issue around whether a party has signed up to do something or not in the performance of that contract as well as during the the close out or termination process has has the company again or the government followed the right processes or procedures around that. So you you really see it in those three big um procedural and timeline buckets over the life cycle of a contract. And again, I think we'll touch a little bit more in a little while around the the more substantive functional areas that we tend to see. >> Thank you. That's great. Teddy, I want to turn to you and and want to start getting into what drives compliance and government procurement and how's it different uh from the private procurement practice that uh most people are probably more used to. >> Thanks, Dan. uh you know that I think that the the short answer might might be what drives compliance is fear. Um but we're going to we're going to touch on that later. I I think but the the technical answer is what drives compliance in government procurement. It really is driven by public policy imperatives. You know not not simply by sort of freedom to contract that you would be familiar with in the private sector. So you know in the private sector compliance is usually about allocating business risk between you know willing counterparties. Parties can walk away. can renegotiate or they can accept risks sort of based on commercial judgment. But in the world of government procurement, government contracting, those dynamics change because the government is spending public dollars. And thus because of that, they're constrained by statute, by regulation, and by by oversight bodies. So, one of the major drivers of compliance is transparency and competition. Two words you hear about a lot when talking about public policy and government contracting. agencies are required not just to make good decisions but they have to be able to prove you know after the fact that the process they utilized was fair uh it was competitive and it uh it was lawful right that they followed the law. Um that explains why procurement decisions are so heavily documented and why disappointed biders, you know, those biders who bid on a contract and did not get the award, they have formal avenues to challenge awards in the in the form of a bid protest that we're going to touch on later. Um, another driver is, you know, accountability beyond the contracting officer. The contracting officer is uh the representative of the government who has the authority to bind the government to the contract. Um, a procurement decision isn't just reviewed internally. Uh, it can later be examined and often is examined by auditors, by inspector generals. Each agency has an IG by the Government Accountability Office, which is a legislative uh outfit that not just hears bid protest, but also has an investigative function. The Department of Justice, you probably all know them, Congress, and then oftentimes the press will get involved in the game, too. um you know scrutinizing government decisions and how they spend taxpayer dollars. That external scrutiny drives a level of formality that doesn't exist in commercial contracting. Um there's also a reality of a a layered compliance obligation. You know, even when a contract is fixed price, which is very common in the commercial world, um even a fixed price contract with the government, contractors still face audit rights, but the government has, you know, certification requirements that they're required to certify to. Mandatory disclosure obligations, which we're going to touch on later. Cyber security obligations, that's a big topic right now. Um there's labor rules, pricing restrictions that all sort of feel disconnected from traditional commercial concepts. Uh you know also of note the government does retain certain sovereign rights that override commercial expectations. So one classic example the termination for convenience. The government retains the right to terminate a contract for convenience uh for its own convenience. When it when it checks the certain the boxes as to check not usually found in a commercial contract. a commercial contract. One party terminates, that's going to be a breach and would would allow the non- breaching party to sue and recover all their lost profits. Um, but not limited to TE to termination for convenience. The same is true for audit access. There's suspension and dearment authority. It's administrative process, mandatory disclosure. These are all sort of structural features of the system rather than there sort of this negotiable risk allocation that private entities would would would find themselves in. And then, you know, last is another compliance driver. I mentioned fear at the beginning. Uh the government often will penalize conduct that would be normal in the private marketplace, but because you're operating in the government arena, uh there's a lot of rules and red tape that can get you in a lot of trouble really quickly. So things like sales incentives, discounts, gifts, you know, informal communications, relationshipbased selling, um, which are all routine commercially. Those actually can create significant, you know, not only civil but criminal exposure in, uh, the government context. So, you know, compliance obligations are going to vary dramatically based on contract type, dollar thresholds, what agency you're in front of, you know, what the contractor's role is. Where are you in the supply chain? Um, are you a prime, are you a sub, you know, but the the key takeaway really is that, you know, it's not just about following the rules. It's sort of about operating inside this system that's built around these ideas about public trust and, you know, risk aversion and sort of this post-awward accountability. Thank you. Yeah, a lot of lot of stuff that you covered in that uh brief period. So, thank you. As a as a followup, do the procedures differ? You mentioned you're talking about the federal level right now, but do they differ uh for state and local contracts? >> Yeah, I think I think the answer is yes, they do differ materially, although, you know, you see a lot of similarities and sort of how they're set up. Um they they do have a lot of overlap. Uh but but the differences can surprise contractors who who are in the federal world and who dip into the state and local world. Um many state and local agencies, they borrow the federal concepts like competition and ethics, but there's nothing comparable to the federal acquisition regulation that creates this uniformity across jurisdictions. The the state and local level, the the procurement regimes are sort of fragmented and idiosyncratic and and sort of their own sort of ecosystem that that all are governed by different rules. Um so one one of the key differences is you know in discretion right so state and local procurement officials have have you know often a broader discretion than federal contracting officers um especially in negotiated procurements that that discretion will make it more difficult uh to predict how an award's going to go and often will make it more difficult for a disappointed bidder to protest an award decision. Um protest procedures to that end also vary widely. filing deadlines can be much shorter than they are at the federal world. Um, procedural protections can be limited and the remedies often are narrow. Um, and you know, some jurisdictions don't have automatic stays or sort of meaningful interim relief that you would find uh in federal regulation. Uh, another another trap are ethics rules. State and local gift bans can be stricter. They can be less intuitive than federal rules uh particularly around things like meals and travel and interactions with elected officials. Um, you know, so like a lunch that would raise no federal issues could be prohibited locally. Depends on whatever the local jurisdiction says. Um, you know, in addition, uh, and I know Habib is going to talk about the Federal False Claims Act later, but many states have enacted their own version of the False Claims Act that that is often mirrored on the federal uh, statute, but but it does a lot of the state level false claims statutes have broader definitions of liability. they've got different materiality standards, different penalty structures um than the federal statute and that can sort of meaningfully alter enforcement risk. So the the practical compliance takeaway I think is that you know if you're a contractor to abandon the idea that there's a one-sizefits-all model um you know each jurisdiction has you know tailored policies or may require tailored policies and training and risk assessments for contractors who want to enter into those uh those spaces. Thank you. That again a lot of complexity and I know there's also a lot of contracts that are can it can involve both federal government and state and local and and a lot of so again you get those various layers like you said it could be very very uh timeconuming to understand what your limits obligations etc are. So Erin, turning to uh you again, what what are the main procedures the federal government uh uses to award these contracts that we've just heard about? >> Sure. Uh and as Teddy alluded to, there are a lot of different factors that go into how the government procures. You know, we like to talk about government procurement as a monolith, but really there as as Teddy mentioned, you different agencies, different types of products, different types of um of funding being used. So that all of these things sort of play into the different ways and the different methods that the government can and does use to procure. So breaking these down into a couple of different buckets. Um the first is thinking about competition and whether a procurement is competitive or non-competitive. Uh the the foundational expectation as as both Aviva Teddy have have talked about is that the this idea of public trust and accountability. And so the the foundational starting point is that procurements should be competitive uh unless there is a designated and approved reason for it to be non-competitive and that there there can be reasons to go what's called sole source or single source non-competitive sourcing. uh you hear all of those terminologies and you know th those legitimate reasons could be for example that there is only a single source available for for something in particular and that has to be heavily justified and and such but that that can be a legitimate basis. It can be that there's a national security imperative in which waiting for a competitive process to occur would would compromise national security. Um there there can there can be various types of of exceptions as I said but but starting with the fact that competition is the baseline starting point and and should always be the assumption. Um the next factor that we think about in terms of layering on how the government procures is the level of complexity of the award process. So for very simple low dollar lowrisk procurements uh we the government can use something called simplified acquisition procedures where the idea is the government doesn't need to necessarily go full boore into understanding costs and understanding risk and understanding qualifications at the same level and in the same way that it does for more complex procurements um because the risk is lower. And so there are streamlined procedures that can occur at for for what what we call simplified acquisitions. Um similarly there there's a a different type of procurement called a sealed bid that can occur where really where you have the the primary if in fact the the really the only acceptable selection basis is price or price related factors. Quality is not going to vary significantly between biders. the specifications of what the government is going to buy is highly certain and highly defined. Uh and in those instances, the government can use what's called a sealed bid process. And that's, you know, you can back in the old back in the old paper days, uh, you know, you, it was literally companies would, you know, get a get a solicitation from the government and their job would be to write their bid on a piece of paper or a handful of pieces of paper, slide it into an envelope that gets sealed, submitted to the government, and then the government showed up in a public location on the designated date and time, and publicly opened all of the bids and said, you know, yep, as long as it meets the compliance requirements of of the solicitation, lowest price ws. And so it's a very it's a very straightforward process with very little discretion given to the government once the solicitation is issued. These days it's all electronic so we don't have the sort of the very dramatic you know public envelope opening. Uh but but the concept is the same. And then for for the mo more complicated most complicated types of contracts and awards we have what's called contracting by negotiation. And in this instance it is it is more like a a commercial process where uh where the government issues a solicitation, companies submit their bids and then they are essentially you know counting on a competitive process to determine uh what who the government is going to enter into cont a contract with and oftentimes preceded by entering into meaningful negotiations and giving offerers an opportunity to revise their bids based on those negotiations. Um in contracting by negotiation you still have some very unique government processes. Um one is that in terms of the award process and the award criteria that has to be well understood and well clarified in the solicitation so that offers know exactly the basis for what is going to be considered you know more or less advantageous from a competitive standpoint. and they can and then the government also um has certain limitations on how it conducts the negotiations. For example, if it enters into negotiations or what are called discussions with offer with an offerer, it has to do so with all offerers that are still in what's called the competitive range. So, you can't just say, "Oh, I want that guy. I'm going to negotiate with just him." So there there are some rules still that have to be followed but it is a more um substantive interchange between the parties with typically multiple rounds of proposals that get submitted before the final decision is made. Uh another bucket of of factors that we think about in terms of what what shapes how the government procures is the nature of what's being procured. So in addition to complexity, in addition to sort of dollar value and competition, uh we also have a a delineation within uh government procurement for what's called commercial products and services and non-commercial products and services. And these are terms of art that are defined in the regulations. But the idea again if you think about risk allocation and how much you know effort and information the government needs to make sure that it's spending taxpayer dollars wisely. If the government is going out and buying something that has a commercial analog in the market and the commercial market is therefore helping to regulate the legitimacy of the pricing, the warranty terms, the terms of sale and offer, um, all of those things, then the government doesn't necessarily have to go out and get as much into detail about the cost of a fixed price product, for example. Whereas if the government is procuring something that is being specifically designed or tailored or or whatnot for the government a government purpose and there isn't a good commercial analog out there to say the market is going to help regulate this automatically then then the government's rights and level of information that it gets into in the proposal process goes much much deeper. So that's that's the I would say those three major buckets are what we think about in terms of framing government procurement. Thank you Teddy. We sometimes see the terms responsive and responsible in the context of government procurement. Could you elaborate on those principles and tell the viewers what the difference is between those two? >> Yep, happy to. So yeah, I mean that these are concepts, you know, responsive responsible are are they're sort of fundamental to government procurement. They're also frequently misunderstood. Um and unfortunately those can be costly misunderstandings. So the easiest way to keep the distinction straight is is this responsiveness is about the actual bid, the piece of paper. Responsibility is about the bidder. It's about you, the contractor. Um, a bid is considered responsive if it complies with all the sort of quote material requirements of the solicitation as submitted at the time of the deadline. So that's sort of a threshold determination that the government would have to make. they receive your bid. Number one question is is did they respond the country to respond appropriately to all the material terms uh that being asked in the solicitation in the RFP. So these questions that the government will be asking, you know, these sort of typical responsiveness questions include, you know, was the bid submitted on time, right? There's there's going to be a time and place in the RFP uh that is is going to be designated and did they meet that? Was it signed by an authorized representative? Were the prices submitted for all the required line items or did the contractor, you know, omit certain line items? Did they include the required certifications and representations that were were asked of the contractor in the RFP? Um, you know, was a bid bond or other guarantee provided if if in fact it was required. Those are the types of questions that will be asked when reviewing when sort of doing this threshold determination of reviewing a a bid to make sure it was responsive. So key point, you know, is that about responsiveness, it's sort of largely objective and unforgiving. um like if a bid takes exception to a material term uh or conditions of the government's requirements or if it omits a required element, you know, the agency generally can't wave uh the defect or allow the bidder to fix it after submission. In large part, it's just going to be outright rejected. Um, so you know, in other words, even a contractor that's fully capable of performing the contract and may in fact be the lowest price maybe the maybe the or maybe the best value for the government, they can be eliminated from consideration based on a responsiveness defect that might appear technical or trivial. Responsibility by contrast focuses on whether the bidder is capable, reliable, and trustworthy enough to perform the contract. So it's looking directly at the bidder itself. So these responsibility determinations are going to look at factors like financial resources, technical capacity, past performance, uh you know, integrity and business ethics. Um these are all governed by regulation. Uh but they also involve a degree of agency judgment. Um which makes them sort of you know salailable if you will. Sometimes government will come under scrutiny as to whether they should have deemed someone responsible and whether they were in fact responsible. So, um, you're not looking like responsiveness solely at the face of the bid. Agencies can rely on information that's developed over time, contractor's performance history, audit results, uh, disclosure history or compliance record. Um, and so from a compliance perspective, this distinction is is very important. So if you have weak internal controls, uh you know, if you've got a prior suspension or a termination or an unresolved investigation or a poor ethics record, um all those things can undermine your your responsibility as a contractor, you know, even if the bid itself is is pristine. So practical takeaway really is that uh compliance failures don't just create sort of enforcement risk which we're going to cover at length today but they can also directly affect your award eligibility. So company can lose tomorrow's contract because of yesterday's you know compliance decision. >> Excellent. And staying with you Teddy once a contract has been awarded what kind of compliance issues may arise during its performance? >> Uh all right well how I don't know how much time we have. Um we could spend all day on this topic. I'll try and cover it uh quickly here though. So you know post award I mean this really is where uh the the contractor is going to assume you know that the that that most of the performance and enforcement risk. Um so the hard work kind of begins once you get the contract uh because the attention is going to shift from the proposal uh to you know the staffing the schedules the margins things like that that arise you know during the performance of the contract. That shift uh in focus can often lead to a loosening of compliance controls you know um even though the exposure is is really going up it's really increasing. One of the most common risk areas um is labor charging and timekeeping uh particularly on cost type or time and materials contracts. misallocating labor, you know, even where unintentionally can quickly become an allegation of mischarging if the employees are charging uh the wrong contract or cast cash category or if they're just overcharging generally. You know, they're they write down that they worked eight hours, but it turns out they only worked four hours, but the government got build for eight hours. Sort of your classic labor mischarging cases. Doesn't usually start with with bad intent. Um they they often start with operational pressure. It could be inadequate training, weak oversight at the project manager level. There's a number of factors that go into this. It's not that they're always just bad people. Um, so that's one. The billing accuracy and cost allowability are recurring sources of risk. Contractors sometimes assume that if a cost is incurred to perform the contract, it has to be billable. Um, not true. Uh, allowability depends on a number of things that are outlined in the FAR. uh that can include the contract terms, agency guidance, but it's not just intuition. So, you know, travel, consulting, marketing, legal costs are frequently problem areas in large part because those are generally unallowable costs. Um uh mod modifications and change orders um are especially uh you know sort of sensitive areas. Price changes are often developed quickly because they're based on assumptions that evolve later. Um, and then the real the real risk arises when those assumptions include certifications. Anytime you're certifying something, you know, you really want to be careful that what you're certifying to is true and accurate to the best of your knowledge and it's supported by accurate data. Uh, because from the government's perspective, you know, inaccurate certifications can, you know, convert a pricing dispute um into a false claim. It can it can it can catch up pretty quickly. Another area is subcontractor compliance. um another you know post-awward area uh primes have to flow down required clauses that are in their prime contracts to subs and then they have some obligation to monitor um you know compliance even where subs are unfamiliar with government requirements and you see this a lot in supply chain headaches where you've got new entrance to the market who are in somewhere in the supply chain and they're getting flow downs and they don't know what they mean and you as a prime can sometimes get trapped in the middle where you've got subcontractor non-compliance other areas, cyber security, um sourcing requirements, domestic sourcing, labor rules, and ethics provisions often break down, you know, downstream. Um when they do, the exposure will then bounce back upstream. Uh that's sort of one reason why primes need to think long and hard about how they're policing uh their supply chains. Um I guess, you know, I just wrap it up because I could just keep going. Um, another just important issue I think Khabib is going to get to this mandatory disclosure under the FAR. Uh, it's a contractual obligation where where it is in your contract. If you've got problems arising under your contract, sometimes it may trigger you to go to the government and tell them about it. Uh, that's where you've got certain violations of certain laws. And if you don't go to the government or if you delay disclosing, that can make your situation a lot worse. Uh, and then can you know it can come up in audits and whistleblowers and all sorts of stuff. So, with that said, you know, I think I'll probably I'll call it short there. But lots and lots of sort of post-awward uh you know, compliance definitely need more than written policies. You need training. You need, you know, coordination across legal and finance and operations to make sure everyone is on the same path. Uh you know, that that you're on track to, you know, essentially meet your compliance obligations. >> Thank you, Erin. If you don't win an award, is there a way to challenge the contracting process or results and how and how successful are these challenges? >> Yep. No, absolutely. So I I mentioned at the outset that one of the the areas compliance comes up in is in the awarding award process and and you're exactly right that if if a if a bidder either doesn't like before the award how the process is being run or how the solicitation is drafted uh or doesn't like the outcome of the award. There's something called the bid protest process that that that is available to offerers and um and what are called interested parties and we'll talk about that in a second. Um but there are two basic types as I mentioned. There's what's called a pre-awward protest where you're you're essentially protesting defects in the solicitation or in the process. And then there are post-awward protests that occur when you are challenging the way the government made its award decision after the the bids were submitted. Companies file bid protests for various reasons. I mean certainly because of the the purity of their of their principles and and believing that that things are are not being done properly. You sometimes also see incumbent biders uh for for a cont company company has an existing contract, the government goes out to recompete the follow-on contract. Uh and there can be some benefits to the incumbent from a business standpoint to challenging the award if they don't win. Um even if you know their their grounds may be less than than entirely solid. Uh so you sometimes see businesses business judgments being made for for protest reasons. Uh but structurally there are really three primary places to file a bid protest. Um one that you can file with the agency itself that that that uh ran the procurement there. You know companies often think that you know this has less um effectivity because you're essentially asking the same agency that just decided against you to reconsider its own decision. Uh it can have its place but but it is something that tends to be used a little less frequently. Uh probably the the the primary uh first place that that companies go are to the government accountability office. As Teddy mentioned, GAO has both an oversight um arm as well as a bid specific bid protest arm. And there are certain uh jurisdictional differences between GAO and the court of federal claims which we'll talk about in a minute. But one of the big benefits of going to GAO is that a company that files in a timely manner gets the benefit of what's called the automatic stay where the the government can't proceed with the awarded contract while that protest is pending. And so you don't have to necessarily fight for a temporary restraining order or something along those lines like you would at the court. The third the third venue is is the court of federal claims. that is a a proper federal court subject to to um federal rules of evidence, federal rules of of procedure, and that um also can can hear pretty much almost all of the same cases that GAO can hear. Again, there are some jurisdictional differences um as well as the court has some expanded jurisdiction in in in certain areas. So, there are some strategic reasons to go to to some of the venues as well as some structural reasons to go. Um from a structural perspective um in terms of filing a protest there are really three mandatory elements. The the party has to have standing. It has to be what's called an interested party. It has to be an actual offerer and one whose economic outcome is affected by the by the uh the award decision. Uh there has to be a demonstrable violation of law or regulation or at least a colorable allegation of that. And then there has to be what's called competitive prejudice. Meaning if there were 10 biders and I was the 10th in line to behind the awardee, it's probably unlikely that the government that fixing the the alleged errors I'm I'm going to claim is going to move me up 10 spots so that I can win. So I have to show that not only were there errors, but those errors kept me from being the likely awardee. So and and that can that that can be challenging at times. I think the last thing I'll point out is is that the relief with respect to a bid protest is is interesting. Um, a lot of companies who are new to the process think that if they go through the bid protest process that they can essentially force the government to give them the award that they were denied and and that's while occasionally a directed award happens, that is an incredibly rare outcome. Uh, most of the time you get what's considered to be a puric victory. uh you you get the the jud the judge or the GAO to say, "Yeah, the government made a mistake and and therefore go back and re-evaluate and and all you're really doing is reopening the solicitation process or the bidding process or the evaluation process uh and giving yourself another bite of the apple as opposed to a directed award." So >> great. Thank you. B is one of the most significant policy considerations when developing a compliance framework to govern public procurement. >> Well, I don't know if if there's just one, but but as you heard from um Teddy and Aaron, you know, ensuring transparency um integrity and fair competition to maintain public trust. I think that's the um that's the overarching goal if if you had to call one. And because this involves um spending taxpayer funds, you know, the framework's got to be designed to prevent fraud or or any type of favoritism uh or corruption. And but at the same time, you want to provide equal access to potential suppliers. So, you know, as a result, um, ethics are going to be heavily regulated, as they should be, and government contractors and those doing business with government contractors need to be mindful of of the government's kind of key anti-fraud statute. And that's really the the Federal False Claims Act or the FCA. And it's a federal law that imposes liability on persons and companies who defraud government programs. Basically, it it prohibits contractors from knowingly submitting false claims to the government or making a false record to get a claim paid by the government. Not only can the government get back uh the amount that they paid, which is known as the damages amount, but they can get up to three times that amount under the FCA, plus uh in addition a per claim penalty that um can range anywhere from $14,38 to a maximum of $28,619. So if you have multiple false claims submitted under a particular contract, say for example, you know, hundreds of task orders uh that were that were false, you could see how this damages and penalties number could get extremely high very quickly. And the problem for a lot of contractors is that under the FCA, you can act knowingly under the statute by acting with what they refer to as reckless disregard of the truth or falsity of the information, meaning that you acted with a form of gross negligence plus. And that's where a lot of well-meaning and good intention contractors run a foul of this statute. It's not the type of intentional conduct that you normally think of when they hear the term fraud, but it is a fraud statute. Um, and and one of the most important parts of the SCA FCA is its whistleblower provisions, which incentivize whistleblowers to come forward with information um by awarding them a percentage of whatever the government's recovery, damages recovery is. And in fact, the majority of FCA cases arise from whistleblowers. And and pretty much everything that Teddy listed as compliance risks uh could be uh areas of uh enforcement for the government such as, you know, defective or non-conforming goods or cost misrepresentations, defective pricing, etc. Um, another uh uh FCA enforcement area are going to be organizational conflicts of interest and and I wanted to touch upon uh these also known as OCIs because again the government wants to make sure they're awarding the contracts fairly and that contractors don't have conflicting uh roles or interests and that they don't have they're not privy to information that would give them um some sort of unfair advantage. So it's it's a aware of contractors to be aware of this pre and postawward um OCIs uh or the potential for them. So back to you Dan. >> Thank you. And I think the Lincoln during the Lincoln's time it was uniforms for the military wasn't it for the North I think. Uh >> yes >> that was the >> Yeah, there there were other as well. >> Yeah. So, and uh like you said, a lot of whistleblowers and the the uh I think you mentioned it, but the whistleblowers in some cases can they they get a kind of a finder fee type of thing. It's almost uh better than being a class action plan sometimes because if they're big enough, they can get some significant uh cash. And uh again, so um uh can you tell us what what basic penalties are available both civil and criminal uh for these procurement violations that that we've been talking about? Yeah, I mean, you know, we we've been focusing on more kind of civil and administrative, but I I like to think of penalties in terms of an enforcement spectrum where you begin with administrative penalties, which happen at the agency level and could involve anything from changes to the contract due to incorrect information uh provided to the government or to the recision of a contract and the process of being awarded or terminating an existing contract. All all of which could involve, you know, significant monetary damages. Um, but they could also potentially result in a suspension in debarment, I think, which which was referenced earlier. And while this is an administrative uh agency decision, it could be fatal for a business that relies heavily on uh on government business. So, it's it's a serious concern and the suspended or debarred contractors would be prohibited from receiving uh a prime or subcontract award from any agency uh unless a particular agency had determines that there's some compelling reason to to deviate from that suspension or debarment order. Um so, moving over to the middle of the enforcement spectrum, you move into the civil enforcement. uh and you know the big one here is the FCA as we discussed and again calculating damages in government contracts matters is is complicated and it's a hotly contested area in the courts there's no universal formula but you have to start with you know what the government what damages resulted uh because of the defendants's act. So for example, if the conduct involved the delivery of defective goods, the damages would be the difference between uh the value of what was received and the value of what uh should have been delivered. Uh but in the case of a fraudulently obtained contract, the damages could be the claims could be all the claims for the payments made under the contracts even if even if the the claims themselves weren't false. So these these types of payments penalties can be extremely large in the hundreds of millions of dollars. Uh so it's critical to keep that in mind. But finally we get to the the criminal penalties and these penalties are generally come into play when the conduct is willful which is a heightened knowledge standard. Uh there are a variety of criminal statutes that the government uses to address fraud uh in the procurement arena uh with the main one being the criminal false claims act. It's uh similar to civil false claims act except the knowledge standard requires the defendant to have known that the conduct would that he or she was violating the law and intended to do so. Again, this is this is punishable up to 5 years and a fine of up to 250,000. Uh there's also 18USC 1031 which is major fraud against the against the US. It's similar to the criminal false claims act except here if the value of the fraudulent contract is more than 1 million which in most cases it is the maximum sentence increases to 10 years. Another criminal statute that's uh that's used quite often is the federal wire fraud statute. That's 18 USC 1343. It's a longtime favorite of federal prosecutors. Uh the wire fraud statute prohibits using electronic communications such as emails, faxes or wire transfers which is what everybody uses these days to commit fraud in government contracting. And it applies applies broadly to all types of fraud schemes to obtain money or property by false uh through materially false pretenses. pretty much all the same uh ones that we discussed earlier in the FCA section, just a a different um heightened knowledge standard. And just last last week, there was a contractor that was sentenced to 24 months in prison for violating the statute by defrauding the government of more than $800,000 worth of providing non-conforming parts through nearly through nearly 150 uh Department of War contracts. So often times um the government will use the false statement statute as well which is 18 USC 10001. It's another one of the prosecutor's favorite tools. It applies to any materially false statement made to federal agencies which includes um fraudulent invoices uh any kind of misrepresented qualifications or false compliance certifications. So you'll see, you know, you'll often see these 101 warnings in documents, uh, where the certifications are being made. Um, it also applies in the context of investigations when a false statement is is made to a particular agent, uh, or a prosecutor. Uh, can carry up to 5 years of imprisonment and $250,000 and fine. So, these are some of the criminal statutes that come into play and and I think we'll we'll uh cover a couple of more at the end. you and uh turning to to Teddy, do you want to briefly tell us more about ethics and compliance in the world of government contracting? >> Yeah, and this is probably my favorite topic of all the topics that that we deal with in government procurement for for the for the reasons that Habib just outlined that the the consequences of failure are severe. And so I think ethics and compliance plays an outsized role in government contracting. Um, and it really serves, you know, and we're talking about a program, right? Your ethics and compliance program that you should have if you're contractor at some level at some scale based on your size. They serve two related purposes. The first is preventative. So, you think about uh detecting and preventing fraud, waste, and abuse before it occurs. You you you want to know about it internally so you can deal with it before the government does. Uh and then second, it's remedial and it in other words, it'll help mitigate harm and demonstrate good faith when issues inevitably rise uh that reach the government's radar. So for many federal contractors, these expectations are formalized in the mandatory disclosure rule 52203-13. That's going to require you to have a compliance program. In a large part, that's going to be a written code of ethics, compliance trainings, internal controls, and then of course the disclosure piece where you have to go to the government and tell them where you've got certain violations, including the False Claims Act, credible evidence that is. Um, but even where that clause, you know, doesn't apply technically to the contract, uh, you know, enforcement agencies such as the IG's and the SDOS's, you know, consistently treat strong compliance programs as a mitigating factor when deciding your punishment, right? um firms with credible programs uh where where bad stuff happens are often viewed uh very differently than firms that merely react after the problems had surfaced versus ones who have been proactive. So um at a high level, you know, effective programs share common elements. You think about starting with tone at the top. So visible commitment from senior leadership uh that they commit to compliance, they take it seriously. You want to have a clear code of conduct. You want to have procurement specific policies and trainings that actually reflect your real operational risk rather than sort of abstract rules because because everyone's risk profile is slightly different and you want to train to your risk reporting mechanisms. So think about hotlines that's also required by the rule and it's just a best practice. Employees want to feel safe raising concerns and companies have to you know proc have to have processes to investigate issues promptly you know consistently and fairly. um any kind of retaliation, real or perceived, will quickly undermine your entire program. So, you want to get the message out that it's, you know, retaliation is not acceptable and you will not be retaliated for reporting. Um regulators really aren't aren't impressed by programs that exist only on paper. A lot of contractors at the smaller end think, if I got a paper program, I'm good to go. Not true. DOJ will look at your program and ask, you know, is it well-designed? Is it implemented in good faith? Is it effective in practice? you know, does it actually work? Those are the questions government's going to ask. Paper program is not going to pass muster. So, you know, from a strategic perspective, ethics and compliance programs not just about avoiding penalties. They're about they they reduce FCA exposure. They protect you against suspension and dearmment risk. They'll improve your credibility with auditors, with contracting officers. Um and and critically they create sort of an internal early warning system that you as a company can deal with before the issues actually reach a a purported whistleblower or a government enforcement agency. >> Thank you. We're running out of time so I'm going to ask Hhabib one more question and there and I'll finish it off. So Habib please talk about the types of conflicts of interest. I think this is a big area that arise under the revolving door of public and private life. >> Yeah. I mean, look, the the revolving door between public and private life is is very common in the procurement world, especially here in in the Washington DC area where I practice, you have a lot of federal agencies and a lot of public and private companies that do business with the federal offices in the area. And when these employees leave the federal government, particularly if they served in in a procurement or procurement adjacent role in the government, they can be very valuable to companies um given their experience and contacts. And so um whenever these employees leave government and join the private sector, however, uh there are particular statutes that govern what they can and cannot work on. And the statute that covers this is 18 USC 207 for postgovernment employment restrictions and 18USC 208 which governs what current government employees uh must do if they're seeking employment. And let's say you're a contractor or company that does a lot of work for the Air Force and you hire a former technical expert from the Air Force to work on a procurement for you. If that former Air Force employee participated personally and substantially on a particular contract, project or matter, she would not be allowed to participate or work on that same contract or project as an employee of your company. Now, there are some exceptions and it's possible that you could get a waiver, but that's the general rule. Additionally, if she was working on a contract or matter on behalf of the Air Force and your company already obtained the contract or was bidding on the contract um from your company and either uh she would have had and and she would have had to disclose to the Air Force that she received a job offer from your company and either not continue to work on that contract uh while with the Air Force or reject the job offer. So, there's requirements on on current employees as well. And the whole point of these restrictions is so the government employees don't have a conflict of interest to do something that might not be in the government's best interest because they'll soon be compensated by a company that's doing business with the government. Um its purpose is to maintain again maintain the integrity of the procurement process but also to make sure that the government isn't being taken advantage of. Um, one thing to keep in mind is both 207 and 208 carry civil and criminal penalties and often times uh defendants can get convicted of the criminal offense and then be required to pay civil damages in a in a separate action. These restrictions are are very detailed and there aren't many scenarios that the regulations don't take in account. So, it's critical to keep those in mind. >> Thank you, Erin. In addition to policybased and legal compliance requirements we've discussed so far, what would you say are some recent hot button compliance challenges facing government contractors today? >> Yep. Um, so it's funny we're we're I know we're short on time, but I I got to say this this is such an interesting area right now. The government contracting drone, one of the things I love about it is that it's always dynamic. You've got this sort of baseline set of requirements and rules like like we've talked about, but it is also a highly dynamic area. And the the past I would say 18 months or so has been uh an exceptionally active time in terms of developments and changes and policy um implementation. So just I'll I'll just I'll name them off really quick just so people are aware and then I'll touch on them very quickly as well. Happy to talk to anybody in more detail about these. I love geeking out about this stuff. Um but one one thing that's going on is something called the revolutionary FAR overhaul. There is the, you know, you've heard references to the federal acquisition regulation. It's the baseline body of regulations that government that the government and contractors use to implement and comply with and and evaluate the compliance obligations we're talking about today. Um, that is undergoing what's called a revolutionary overhaul right now where they are being completely rewritten, consolidated, streamlined, and the intent is really to bring it back to its statutory roots and try to narrow down the regulations. uh we are very much in the middle of that right now which makes it an interesting time from a contract compliance and requirements perspective and so you know trying to juggle both the real time change and implementation of these things while while two different sets of rules coexist is is very interesting. Um the second thing I want to flag for folks is uh Teddy had mentioned earlier the the cyber security requirements. So the Department of Defense, Department of War, uh, has has after many years of planning and sort of pre-ruulemaking finally begun its formal implementation of what it calls its cyber security maturity model certification program or CMMC. And that is it's again in the rollout process now. So we're in an interesting world of kind of the rules exist and kind of apply but not always. And so so knowing what your contract says or your solicitation says is critical, but ultimately once fully ruled out, CMMC is going to be a pre-qualification requirement for any defense contracting at any level of the supply chain. So it's it's it is a major requirement that companies in the defense space need to be well aware of. Uh the next topic is are some changes that came about in the FY26 National Defense Authorization Act. uh as as we've talked about, there are streamlined rules that exist when the government is acquiring commercial products and services, products and services that you don't necessarily need as much go government oversight. there uh Congress took things a step further in that direction uh in in the 26 NDAA and implemented a number of of provisions for what are called non-traditional contractors that both roll back and streamline requirements for companies that that are in in a a particular uh meet that definition of of a non-traditional contractor. So, a lot of things going on that's that's only a short version of the list. Um but uh keep keep you know the more things change the more they say the same. So >> well thank you and uh the audience on behalf of all of you and on behalf of myself I want to thank Aaron Teddy and Hhabib today. Uh as we talked about at the beginning uh we we knew we would run out of time because there's so much information and so it's such a complex area. Uh you've got three of the best here. So if you do have questions, please reach out to them and their information is in the slide deck. Uh if you have questions for them uh or for us, you can send it to the info@finanipoise.com. At this point audience, this concludes our webinar. Uh thank you for joining another entertaining and informational yet educational production of financial poise. And until next time, be well. >> [music]