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Federal contracts are the mechanism the government uses when it wishes to purchase a product or service, whether that product is a computer program, an antigen or janitorial services. The legal obligations that are imposed on a recipient of contract funds are very different, as is the mechanism by which the obligations are made part of the agreement. Contract conditions, on the other hand, are clearly- if confusingly - set out in the document the client executes. The failure to comply with the terms and conditions of funding can result in more stringent monitoring of your client's activities, the loss of funding, disbarment, which results in a bar to receiving any federal funds, and even criminal charges.
The Federal Acquisition Regulations ("FAR") rules and relevant federal statutes outlined briefly below apply both when a private contractor does business directly with the federal government as a prime contractor, and when it does business indirectly with the federal government as a subcontractor. In addition, separate rules also apply to a private contractor's relationships with third parties, such as teaming partners, vendors, and suppliers, who are working with it to meet the federal government's needs. Federal contracting opportunities are usually advertised on the Federal Business Opportunities ("FedBizOpps") ( www.fedbizopps.gov) website. This article just provides a broad overview of the rules governing federal contracts and the potential minefields.
Acquisition of Commercial Services
The federal government has a policy preference for acquisition of commercial items and services. FAR Parts 10, 11, and 12 prescribe policies for acquisition of commercial items and encourage government agencies to procure commercial items. Under FAR § 12.207, agencies may only use firm fixed-price contracts or fixed-price contracts with economic price adjustment for acquisition of commercial items. Indefinite-delivery contracts also may be used where the prices are established based on a firm fixed-price or fixed-price with economic price adjustment.
Commercial products must meet the "commercial item" definition of FAR § 2.101. Generally, a product will qualify as a commercial item when the item is provided to the general public for non-Governmental purposes. Under the FAR definition, a "commercial item" is any item, other than real property, that is of a type customarily used for non-Governmental purposes. It is generally an item that has been sold, leased or licensed to the general public or an item that has been offered for sale, lease or license to the general public.
FAR § 12.503 lists the laws that do not apply to commercial item prime contracts: the Walsh-Healey Act, Contingent Fees, Drug-Free Workplace, Contract Work Hours and Safety Standards Act, Clean Air Act, and modified clauses relating to the Truth in Negotiations Act (TINA) and Cost Accounting Standards (CAS). For a complete list of those laws and clauses that do not apply to subcontracts for commercial items, see FAR § 12.504. The Department of Defense ("DoD") also includes in the DFARS, Subpart 212.5, a list of defense-related laws and regulations that are not applicable to commercial-item contracts and subcontracts.
The following representation and certification clauses are frequently included in solicitations and contracts for commercial items and services:
The Subcontracting Relationship
A private contractor's purchasing and subcontracting relationships are governed by FAR Part 44, applicable laws, and the terms of applicable government contracts. Among other things, government requirements can affect the types of contracts used, the amount and type of competition employed, and the terms and conditions that are required to be flowed down to subcontractors in written agreements.
A contractor's purchasing and subcontracting program needs to ensure it operates in a reasonable and fair manner with suppliers and vendors. In this regard, they must avoid any actual or potential conflicts of interest (including a financial stake in the outcome) in awarding or administering subcontracts and purchase orders and they must not receive personal benefits from suppliers in exchange for favorable treatment (that is, "kickbacks"). To ensure the interests of the government and a contractor are preserved, purchasing and subcontracting should be accomplished at arms length, preserving market competition, thereby reducing the use of kickbacks and other fraudulent practices.
The process of evaluating vendors' proposals should be well documented and consistently applied to avoid any allegations of improprieties or preferential treatment. Bids and proposals should be evaluated and rated on the basis of the best value to contractor, which can include, where applicable: (1) past performance on prior similar jobs; (2) past experience on prior similar jobs; (3) price reasonableness; (4) record of timely performance; (5) key personnel; and (6) management or technical approach of the vendor. Ratings of bids and proposals and a recommendation for award, including the underlying rationale, should be made in writing and retained in the private contractor's files.
Prior to awarding a purchase order or subcontract, it is necessary to ensure that the selected supplier or subcontractor has not been debarred or suspended from doing business with the government and, therefore, ineligible to perform services for the private contractor. A contractor's purchasing department should review the General Services Administration's "List of Parties Excluded from Federal Procurement and Nonprocurement Programs" (http://epls.arnet.gov) to ensure that proposed vendors and suppliers have not been debarred or suspended from doing business with the federal government.
Federal law known as the "procurement integrity provisions" addresses restrictions on the exchange of protected information, including contractor bid and proposal information, and government source selection information. These provisions make it illegal for a private contractor to have in its possession or use certain types of information. During the competitive procurement process, certain information generally may not be requested or obtained by the private contractor, unless the information is released to all competitors. Therefore, it is important for private contractor personnel to be alert when offered information that is marked in any of the following ways:
In addition, certain other information about the private contractor's competitors is off limits irrespective of any legends or other markings. This includes cost or pricing data and proprietary information and trade secrets. Information available publicly, such as on a competitor's website, does not fall into these protected categories. Private contractors should always exercise due diligence to assure that the private contractor is authorized to receive information provided by government employees or third parties, including consultants. Private contractor personnel should not assume such authorization.
Building the Government Strategy Team: Conflicts of Interest and Employment Discussions
The laws and regulations regarding this subject can be divided into two categories:
Because of their government duties, some government personnel cannot hold employment discussions with contractors unless they obtain advance agency approval. 41 U.S.C. § 423; FAR § 3.104. In most cases, government personnel must notify their supervisor and their agency ethics official when contacted by or prior to contact contractors to discuss employment, even if the official rejects the possibility of non-government employment at the outset. Id.; 18 U.S.C. § 208.
What constitutes "employment discussions" is interpreted broadly. Even e-mail correspondence, exchanging a resume, or a conversation over lunch or at a conference can be considered employment discussions. References to salary or other terms of employment are not necessary to trigger employment discussions.
At other times, because of their government duties, certain former government employees are prohibited from working for and receiving compensation from certain government contractors for one year after they leave government service. 41 U.S.C. § 423. Others have a one- or two-year ban that precludes them from contacting their former agencies, and/or any senior officials in the Executive Branch. 18 U.S.C. § 207. The restrictions are triggered based on an individual's government responsibilities and, in some cases, grade level, during his/her government service. The determination of the applicable restrictions usually requires a legal analysis. This legal analysis has become more difficult with the issuance of U.S. Office of Government Ethics ("OGE") Advisory Opinion 02 x 5, where OGE fails to draw a distinction between policy and "particular matter." The legal analysis has also become more complex due to the fact that not all workers in the federal workplace necessarily qualify as a federal "employee" under title 5. Instead, these workers have been brought into the federal workplace through other personnel vehicles, such as the Intergovernmental Personnel Act (5 U.S.C. § 3371 et seq.), the detailee system, and the Information Technology Exchange Program (5 U.S.C. § 3701 et seq.).
In addition to other potential restrictions, current government personnel are prohibited from "representing" any non-government entity while they are employed by the government, even if such government personnel are on annual or transition leave. 18 U.S.C. §§ 203, 205. Further, there are restrictions on the form of compensation that may be paid by the private contractor to a current government employee. Id.
This is a complex area of government law, requiring analysis on two levels:
Sanctions available to the government for violations in this area include criminal and civil penalties, exclusion from the procurement competition, cancellation of the contract, and suspension and debarment from doing business with the government. These sanctions may be applied by the government to the private contractor, the government employee, or the private contractor employee involved, as appropriate.
Organizational Conflicts of Interest
FAR Subpart 9.5 limits the ability of the private contractor to perform a federal government contract under certain circumstances where the government considers there to be an organizational conflict of interest, as defined in the regulations. Under FAR § 9.501 an "organizational conflict of interest" occurs when, because of other activities or relationships, a contractor is unable or potentially unable to render impartial assistance or advice to the government, the contractor's objectivity in performing the contract work is or might be otherwise impaired, or the contractor has an unfair competitive advantage. Under certain circumstances, the contractor may be permitted to mitigate the conflict of interest, so long as the government approves the mitigation plan.
A government procurement that requires the private contractor to perform one of the above activities should contain a provision stating the nature of conflicts which may arise in performing a subsequent contract. These government contract provisions that will limit the private contractor's ability to pursue follow-on contracts in the future may be subject to negotiation. In some instances, the government may make arrangements to preserve the private contractor's ability to bid follow-on procurements when the private contractor's obligations under a predecessor contract involve one or more of the above described activities. This may provide an opportunity to develop a mitigation plan acceptable to the government.
Organizational conflicts of interest rules also apply to any consultants working on behalf of the private contractor. The use of consultants who have had access to the proprietary information of competitors, source selection information, or any other information creating an unfair advantage to the private contractor over competitors may preclude the private contractor from pursuing government contracts relating to that information or advantage.
Given the complexities that arise from entering into a contract with the federal government - no matter how small the amount of the contract - it is important to review carefully the terms and conditions of a solicitation and any resulting award. Likewise, it is also important to keep an eye on the changing currents of what happens in the legislative branch as well, such as who and what issues are the focus of oversight committees.
About the Author
Jenny Kim's practice focuses in the areas of public procurement, government ethics, campaign finance, the law of lobbying, and general corporate ethics and compliance. She is the Young Lawyer Division Liaison to the Public Contract Law Section and the Standing Committee on Election Law. She is also a 2006-2008 Business Law Section Fellow. She can be reached at firstname.lastname@example.org or (202) 626-1571.