Which Contracting Officer Resolves Disputes Involving Agency Purchases from the GSA Federal Supply Schedule?

A recurring issue faced by vendors on the Federal Supply Schedule (FSS) is which the vendor must deal with when it gets into a disagreement with an ordering agency during the performance of a delivery order – the ordering contracting officer or the GSA contracting officer. The Federal Circuit recently addressed this issue in Sharp Electronics Corp. v. McHugh, 707 F.3d 1367 (Fed. Cir. 2013).

The Federal Circuit interpreted FAR 8.406-6 as creating a bright line rule that “all disputes requiring interpretation of the schedule contract go to the schedule CO, even if those disputes also require interpretation of the order, or involve issues of performance under the order. … Requiring that all schedule contracts must be construed by the GSA CO maintains a clear, predictable allocation of jurisdiction between agency contracting office and GSA.” The Court also stated that “the ordering CO is certainly authorized to construe the language of the order (or its modifications). … We also see no reason why an ordering CO resolving a dispute cannot apply the relevant provisions of the schedule contract, as long as their meaning is undisputed. … The dispute only need go to the GSA CO if it requires interpretation of the schedule contract’s terms and provisions.”

From the Federal Circuit’s decision, we have three important guidelines regarding these “mixed-authority” disputes:

1. The GSA contracting officer resolves all disputes requiring interpretation of the schedule contract according to FAR 8.406-6.

2. The ordering contracting officer could “decide routine disputes about order performance not involving interpretation of the schedule contract, such as whether the contractor’s default was excusable.”

3. The ordering contracting officer can also get involved in issues other than performance claims, such as issues construing the language of the order or its modifications.

The ASBCA recently decided two cases dealing with this issue. In Impact Associates, Inc., ASBCA No. 57617 (Apr. 19, 2013), the ASBCA concluded that because both Impact and the Army “plainly dispute the meaning” of three clauses in the GSA FSS contract, the issue was one for the GSA contracting officer and the CBCA. In Hewlett-Packard Company, ASBCA No. 57940 (July 9, 2013), the Navy had issued a blanket purchase agreement allowing it to buy HP software and the Army issued two delivery orders for HP software under the BPA. A dispute arose regarding the terms of the delivery orders. The ASBCA concluded that because HP’s dispute did not involve any interpretation of the FSS contract, HP properly brought its claim to the ordering agency contracting officer and, subsequently, the ASBCA.

The Federal Circuit acknowledged that the guidelines it set forth in Sharp Electronics are “less than perfect” and openly invited the FAR Council to set different rules by changing the FAR provisions on which the court based its decision. However, until the FAR Council takes such action, these rules can help guide contractors as they navigate disputes arising during the performance of a delivery order under a GSA FSS contract.

Stephanie Wilson is an attorney at Berenzweig Leonard, LLP, a business law firm in the Washington metro area. She can be reached at swilson@berenzweiglaw.com.

Government Contractor Can Be Penalized for Kickbacks Employees Receive Even If the Company Has No Knowledge of the Kickbacks

Mandatory Anti-Kickback Act procedures will not protect a government contractor from paying civil penalties for kickbacks given by subcontractors to company employees, under the Anti-Kickback Act (AKA), 41 U.S.C. 8701-07. A company is liable for kickbacks its employees receive regardless of whether the company was aware of or profited from the kickbacks. The decision shows the need for government contractors to closely monitor their employees’ compliance with company AKA procedures required by FAR 3.502-3.

A kickback can take many forms including money, football tickets, or anything of value that a subcontractor gives back to a prime contractor in exchange for something of value, like undeserved good past performance ratings.

The rationale for prohibiting kickbacks is not only that they poison the procurement system - they also needlessly raise the price the government pays the prime who in turn pays the subcontractor: since the kickback is ultimately government money, kickbacks cost the government needless expense.

The decision involved Kellogg Brown and Root (KBR)’s ID/IQ contracts with the U.S. Army for transporting military equipment and supplies to Iraq, Afghanistan and Kuwait between 2002 and 2006. The work could be done by KBR or by subcontractors that KBR selected. Two of the subcontractors gave a KBR supervisor and his colleagues meals, drinks, golf outings, tickets to rodeo events and other gifts and entertainment. In exchange, the KBR employees overlooked performance failures of the subcontractors, and continued to give them new subcontracts despite the failures.

After the government joined in a qui tam (whistleblower) lawsuit against KBR and the employees, KBR asked the court to throw the case out, arguing that the AKA did not allow corporate officials to be responsible for acts of the employees, that is, the company had no “vicarious liability” for what its employees did behind the scenes. The District Court agreed with KBR and threw the lawsuit out but the government appealed and won, keeping the case alive.

The appeals court focused first on the AKA’s definition of “person” who could be liable under the Act. The Act defined “person” broadly to include corporations and other business entities.  Thus, since the AKA “makes corporations liable for kickback activity, it requires attributing liability to corporate entities for that activity under a rule of vicarious liability.”

This decision shows why all government contractors must monitor their employees’ compliance with company Anti-Kickback procedures required by FAR 3.502-3 and FAR 52.203-7. Berenzweig Leonard LLP can provide your company with contract compliance guidance as well as white-collar defense strategies to help you comply with legal provisions such as the AKA.

John Polk is a former Assistant U.S. Attorney and handles contract compliance and white-collar issues for the firm. Terry O’Connor has over 40 years of government contract experience in all aspects of contract compliance.  Berenzweig Leonard can help government contractors avoid not only AKA penalties but also avoid being found non-responsible due to kickbacks.  John can be reached at jpolk@berenzweiglaw.com.

The Government Shutdown’s Impact on Payment to Contractors

All companies contracting with the Federal Government should ensure that they are doing everything they can to protect themselves and maximize their chances of payment once the government shutdown ends. Congress has approved back pay for federal workers once the shutdown is over, and President Obama recently signed a bill requiring the DoD to continue paying civilian Federal Government employees and contractors that provide support to the armed services.  Government contractors, however, have been put in limbo, and need to make careful decisions while navigating the shutdown.

Contractors who do not serve the armed services must typically operate on a case-by-case basis, and should stay in contact with their Contracting Officers (COs) and Contracting Officer Representatives (CORs), if they are working, to understand what the procuring agency is doing and how it is operating during the shutdown. The worst thing to do is to drop off the CO’s communication radar and give the CO proof by way of an email track record that your company did not contact him or her during the shutdown to confirm understandings on contract performance. Assumptions cannot be made during this uncertain time, so it will be beneficial to contractors to send regular written communications to agency representatives to ensure everyone is on the same page.

Each contract will have varying factors affecting its appropriation, but generally speaking, a contractor should not expect to get paid for work it does not perform – the Federal Government cannot accept payment for voluntary services under the Anti-Deficiency Act. However, contractors covering work that is fully funded, or incrementally funded and not yet reaching the funding limit, should still be funded by the Government, although each case can differ. Time and materials contracts are more problematic, and contractors should proceed with caution. FAR § 52.242-15 gives the Government discretion to terminate or suspend work independent of whether a contract is funded, and so if contractors have not already initiated creative cost-cutting mechanisms, now is the time to think outside the box and be protective.

Hopefully Congress can lead the way to a solution so that the current standoff can end, and hard working contractors can go back to work and slowly resume a normal and uninterrupted routine to help federal customers achieve their missions.

Katie Lipp is an attorney the Washington, DC regional business law firm Berenzweig Leonard, LLP. She can be reached at KLipp@BerenzweigLaw.com.