STANDARDS OF CONDUCT AND COMPLIANCE FOR GOVERNMENT CONTRACTORS

1. STANDARDS OF CONDUCT AND COMPLIANCE FOR GOVERNMENT CONTRACTORS TGIC/TASC Joint Training Series June/July 2018

2. “Men must cut square corners when they deal with the government.” – Oliver Wendell Holmes • General Themes • Always remember that some business practices that are responsible and perfectly legal in the private sector are sometimes improper and even a crime when the customer is the Government. • Only the Contracting Officer can bind/obligate the Government and modify the contract.

3. General Themes • Don’t expect one arm of the Government to come to your defense if another arm of the Government alleges you did something wrong. • During an investigation, be aware that DOJ may ignore the statements or support offered by the Contracting Agency employees • Ignorance of the law is no defense – especially for Government contractors. • Best efforts by the contractor in performance and billing are not a defense. • The Government does not care how it or the relator obtains information about the contractor. • Disclose rather than cover-up . • The cover-up is almost always worse than the original problem. • You do not have the right to remain silent and anything you say can and will be used against you. • .

4. General Themes • Recognize that there is unequal bargaining power because the Government has greater resources to fight and also has nuclear deterrents – debarment and prosecution of the company and the individuals • A strong Compliance Plan and Code of Business Conduct are your best defense against claims of fraud, false claims, OCI’s, etc. and possible debarment. • Contrary to the old adage, when dealing with the Government, it is better (and cheaper) to ask permission than to ask for forgiveness. • Document all communiques – questions and requests for guidance/direction with the Government related to performance and billings.

5. FALSE CLAIMS ACT • Where it began: Confederate General Jeb Stuart’s taunt to Union Army Quartermaster General MontegueMeigs after raid at Burke Station, Va. about the shoddy supplies he captured. Congress enacts “Lincoln’s Law” – the False Claims Act in 1863 to address war profiteering by suppliers of the Union Army. • Qui Tam Actions by “Relators” (whistleblowers) for and on behalf of the U.S. (whistleblower is given protection against retaliation and can share in monetary recovery and get attorney fees). • 35 states, including Virginia, have adopted versions of the False Claims Act (and 2 more are currently considering such laws).

6. FALSE CLAIMS ACT • The 1986 overhaul of the FCA (31 USC 3729-3733) made it a potent enforcement weapon. • Adoption of the “deliberate ignorance” and/or “willful blindness” intent standard, added anti-retaliation provisions for whistleblowers and attorneys’ fees recovery • Since the 1986 more than $35 billion has been recovered by the U.S. under the FCA, annual recoveries have grown from $86 million to $4.7 billion in 2016. • Recovery of $31.3 billion since FY 2009

7. FALSE CLAIMS ACT • 2009 Revisions to FCA • Broadened definition of “claim” to include any request, whether under a contract or otherwise for money or property and whether or not the U.S. has title to the money or property" that is (1) presented directly to the United States, or (2) "to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the Government's behalf or to advance a Government program or interest" and the government provides or reimburses any portion of the requested funds. • Strengthened “reverse” FCA liability for failure to pay an obligation to the government. • Addressed Overpayments by the Government

8. FALSE CLAIMS ACT • Examples of Potential False Claim Actions - Billing for Work not Completed or Performed - Billing for Employees w/o req’d Certifications, Licenses, Degrees or Experience - Failure to Pass on Discounts – Price Reductions to the the Government - Falsely Pricing Growth Work – REAs - Failure to Provide Notice of Billing Errors and Return Overpayments to the Government - Making or using a false record or statement to support a claim

9. FALSE CLAIMS ACT • Prosecutors are now directed to pursue culpable individuals and not to settle for corporate plea deals (the “Yates Memo”) https://www.americanbar.org/publications/aba_health_esource/2015-2016/october/yatesmemo.html • The FCA Covers express and implied certifications, • Criminal penalty includes monetary fine plus up to ten years imprisonment. • Civil penalty of between $10,781 and $22,00 per false claim plus treble damages.

10. False Claims Act • While not technically an FCA penalty, suspension and debarment are not uncommon results.

11. Fraud Remedies • Contract Disputes Act, 41 U.S.C. § 7103(c) (civil) • Contractor liability for any amount of claim it cannot support due to misrepresentation of fact or fraud • False Claims Act (civil and criminal) • 31 U.S.C. § 3729 (treble damages / civil penalties) • Forfeiture under 28 USC §2514 and “special plea “ of fraud (civil) • Piece “corporate veil” – personal liability for officers • Debarment from contracting with the Gov’t (civil) • False Statements, 18 U.S.C. § 1001 (criminal) • Mail and Wire Fraud, 18 U.S.C. § 1341 et seq.(criminal)

12. Contract Disputes Act • Submission of dubious claim can trigger a fraud counterclaim by Gov’t. • False claim can be proven by showing contractor asserted false facts or did not make claim calculation in good faith. Daewoo Engineering v. U.S., 557 F.3d 1332 (2009). • Congress enacted CDA fraud provision to address “negotiating tactic” by contractors. • Prime Contractors’ responsibility to review and verify Subcontractor Claims

13. FALSE STATEMENTS • CONTRACT REPRESENTATIONS AND CERTIFICATIONS • Certificate of Independent Price Determination – FAR 52.203-2. • False Statements in Bids – FAR 52.214-4. • Employee qualifications and labor rate categories • Express and implied certifications • Utilization of Small Business Concerns – FAR 52.219-1, 8, 9, 10. • ORCA Certification - https://orca.bpn.gov/ • Gratuities (FAR 52.203-3). • IMPLIED CERTIFICATIONS – New S.Ct. case - Escobar • BILLS AND INVOICES • SUBCONTRACTORS

14. IMPLIED CERTs and RFPs • On June 27, 2016, the Supreme Court issued an opinion recognizing FCA liability based on the theory that a contractor impliedly certifies compliance with laws applicable to the claims it submits. Universal Health Services v. U.S. ex rel. Escobar. Before the ruling, the Circuits had been split on whether and to what extent implied certifications could result in FCA liability. • Case involved a healthcare facility submitting Medicare claims performed by improperly licensed employees.

15. IMPLIED CERTS (Cont.) • Pursuant to the Escobar decision, implied certifications/representations can trigger FCA liability if they are specific and material to the submitted claim. Implied Certs and Reps that are unrelated to submitted claim will usually not support FCA liability. • For example: When contractor bills for work performed, it impliedly represents that the employee has all the qualifications/licenses to legally and contractually perform the work. • Contractor’s failure to disclose its non compliance with material, statutory, regulatory and contractual requirements forms the basis for liability

16. Practical Considerations • Do not overstate/pad claim on the theory that you will reduce during negotiations. • Insure all calculations/estimates are well grounded in fact and commonly accepted methods for quantifying. • Valid factual and legal basis for the claim • Government is aggressively using actual and threatened fraud counterclaims and FCA claims in contract disputes.

17. Virginia Fraud Against Taxpayers Act The VFATA is modeled on the federal false claims act and has similar enforcement and penalties

18. ANTI-KICKBACK STATUTE • The Anti-Kickback Act of 1986 (41 U.S.C. 51) • Prohibits the giving of anything of value either directly or indirectly to any government employee or prime or subcontractor for the purpose of improperly obtaining or rewarding favorable treatment in connection with a prime contract or subcontract. • Relationships with suppliers and vendors. • Knowledge requirement is not difficult to prove and can be “deliberate ignorance” or “willful blindness.” • Applies to all Prime Contractors, Subcontractors and Suppliers as well as their employees • Civil and criminal penalties

19. GRATUITIES AND BRIBERY • 18 USC 201 covers bribery and gratuity violations. • Bribery is commonly understood to be a quid pro quo for favorable treatment. • Given with the intent to influence an act or to have an official violate the law. • Gratuities are somewhat less obvious but cover situations in which someone offers, promises or gives anything of value to any public official, former public official, or person selected to be a public official, for or because of any official act performed or to be performed by such public official.

20. BRIBERY AND GRATUITY • So a gratuity violation does not require a formal “this for that” understanding. • A gratuity violation does not require that the gift be given or that the Government official actually do any official act. • Courts have found “anything of value” to include concert tickets, golf outings, golf clubs, meals, use of vacation homes, trips, tools, computers, etc. • Exception for gifts where value is less than $20 and aggregate value of all gifts is less than $50 in a year.

21. ANTITRUST Antitrust (15 U.S.C. § 1) Antitrust is a blanket term for laws that protect the free enterprise system and promote open and fair competition. Activities that limit competition, restrain trade, fix prices, or are intended to dominate a market can violate antitrust laws. The types of practices that are prohibited under antitrust laws include: • Price Fixing – agreements with competitors regarding pricing, terms or conditions of sale. • Bid Rotation – competitors submit bids but take turns being the low bidder. • Market Division – competitors allocate business markets, customers, or territories amongst themselves. • Bid Rigging – competitors agree in advance who will submit the winning bid on a contract being awarded through the competitive bidding process.

22. Procurement Fraud/Antitrust • . Bid-rigging takes many forms, including: • Bid Suppression – one or more competitors who otherwise would be expected to bid, or who have previously bid, agree to refrain from bidding or withdraw a previously submitted bid so that the designated winning competitor’s bid will be accepted. • Complementary Bidding – competitors agree to submit bids that are either too high to be accepted or contain special terms that will not be acceptable to the owner in order to give the appearance of genuine competitive bidding. • Employees may not directly or indirectly talk to or exchange information with competitors about present or future pricing; terms or conditions of contract proposals including technical and cost proposals; dividing up markets, orders, or customers; suppressing, rotating, or submitting complementary bids; and boycotting a supplier, customer, or competitor. • A Company may not utilize Government procurement information ( i.e., the Government estimate) to influence or control the procurement process.

23. MAIL AND WIRE FRAUD These statutes are a federal prosecutors best friend. They magically transform into a federal crime any plan or scheme to defraud anyone if the U.S. Mails or if telephone lines are used in any way.

24. SBA ENTITIES AND RELATED COMPANIES AND INDIVIDUALS • There has been a surge in civil enforcement actions and criminal prosecutions against companies and individuals who make false certifications regarding SBA status (i.e., small business, 8(a), service disabled veteran owned small business, HUB Zone business and women owned business). • October 1, 2010 suspension of GTSI Corp. for using small businesses to improperly obtain and perform set-aside contracts. Suspension lifted only after CEO and General Counsel resigned and GTSI adopted new compliance plan with outside monitor. Also, 2010 enforcement in our local court (Morris-Griffin Corp. v. C.L. Serv. Corp.). Companies found to be “affiliates.”

25. SBA ENTITIES AND RELATED COMPANIES AND INDIVIDUALS • Companies that team with or that contract with certain disadvantaged businesses must seek legal guidance on the complex affiliation rules that apply to such businesses. Persons and companies can be considered affiliates of the small business through joint ownership, common management, family relations and ability to control factors. • There is an increased emphasis in prosecuting companies and individuals which make false SBA certifications (i.e. size, 8(a), disabled veteran owned).

26. SBA Entities (Cont.) • Small Business Jobs and Credit Act of 2010 (section 1341) creates “deemed certifications” when a company or person submits a bid or proposal for a federal small business contract or subcontract and for registering in any federal electronic data base for the purpose of being considered for the award of a federal small business contract.

27. “REVOLVING DOOR” RESTRICTIONS • 18 USC 207 provides the basic prohibitions on post-employment activities for federal employees. • There is a lifetime ban on “switching sides,” that is, representing a private party on the same “particular matter” involving identified parties on which the former executive branch employee had worked personally and substantially for the government.

28. “REVOLVING DOOR” RESTRICTIONS • There is a two-year ban on “switching sides” on a somewhat broader range of matters which were under the employee’s official responsibility. • There is a one-year restriction on assisting others on certain trade or treaty negotiations. • There is a one-year “cooling off” period for certain “senior” officials barring representational communications to and attempts to influence persons in their former departments or agencies.

29. “REVOLVING DOOR” RESTRICTIONS • There is a new two-year “cooling off” period for “very senior” officials barring representational communications to and attempts to influence certain other high ranking officials in the entire executive branch of government. • Lastly, there is a one-year ban on certain former high-level officials performing certain representational or advisory activities for foreign governments or foreign political parties.

30. “REVOLVING DOOR” RESTRICTIONS • The bottom line is that before hiring former government employees a company should do its homework and, if there is any question concerning these restrictions, the company should ask the former government employee to obtain a written legal opinion from his agency as to what restrictions apply.

31. ORGANIZATIONAL CONFLICTSOF INTEREST • Organizational Conflicts of Interests (OCI’s) are covered by FAR Subpart 9.5. • OCI’s fall primarily into two categories: • The existence of conflicting roles that might bias a contractor’s judgment. • An example would be where a company has a contract that includes evaluating the performance of its own product or services or those of a competitor. Another example is where a company is tasked with preparing government specifications for a procurement and the company makes or sells products or services that meet those specifications.

32. ORGANIZATIONAL CONFLICTSOF INTEREST • Unfair competitive advantage due to obtaining proprietary information without proper authorization or obtaining source selection information not available to all competitors. • An example would be where a company obtains the proprietary information of a competitor in the course of performing a government contract. Such access usually comes with restrictions that would prevent the company from bidding for work where it would unfairly benefit from this access.

33. OCI’S • OCI’s can be mitigated in many situations if identified early. • Mitigation methods include, physically segregating certain employees, restricting computer access to certain information using , passwords, firewalls, and subcontracting certain tasks with the Contracting Officer’s authorization and approval.

34. Personal Conflicts of Interest • Effective Dec. 2011 the FAR requires contractors to identify and prevent the personal conflicts of interest of “covered employees” • “Covered employees” are employees who perform acquisition functions closely associated with governmental functions • Personal conflict of interest is a financial interest, personal activity or relationship that could impair the covered employee’s ability to act impartially and in the best interest of the Gov’t. • Includes the interests and relationships of close family members. • Must disclose PCI to contracting officer

35. ITAR • International Trafficking in Arms Regulations – based on U.S. Munitions List (USML): • If a company’s products are on the USML, the company must register with the U.S. State Dept. even if it does not export any of its products. • The USML is not just weapons. It includes products relating to electronics, communications, navigation, computer hardware and software and computer security.

36. ITAR • The company is prohibited from transferring arms, software or technical data on the USML to foreign persons, either in the U.S. or abroad without an export license. • “Foreign persons” are persons who are not U.S. citizens or “Green Card” holders. The term also includes any foreign government or corporation. • The company is prohibited from performing services related to items on the USML for foreign nationals, either in the U.S. or abroad without first obtaining a Technical Assistance Agreement (TAA) from the State Dept. • Civil and criminal penalties can be severe.

37. EAR • Export Administration Regulations (EAR) – 15 CFR 730 -774 apply to an even broader number of technologies and services than ITAR and for which license requirements apply. • 15 CFR 774 contains a list of controlled technologies subject to State Dept. export restrictions and licensing requirements. The list is commonly referred to as the Commerce Control List (CCL).

38. ITAR AND EAR • ITAR and EAR have both civil and criminal penalties. • Criminal penalties of up to $1 million fine and ten years imprisonment. • Civil penalties of fines and possible debarment. • Example – ITT Corp. paid a total of $128,000,000 in civil and criminal penalties for selling night vision and related technologies without an export license.

39. BEFORE YOU FILEA CONTRACT CLAIMOR A BID PROTEST • When determining whether or not to file a contract claim or bid protest make sure you have reviewed your bid or contract performance for possible problems that could trigger a claim of misconduct from the government. • There is a trend of the government filing False Claims Act counterclaims when contractors make claims under their contracts.

40. Foreign Corrupt Practices Act • Prohibits bribes and illegal payments to officials of foreign governments or foreign government owned companies (i.e. gov’t owned oil, utility, housing company). • The FCPA also prohibits payments to intermediaries of foreign gov’ts or officials. • Act applies to US Persons (individuals and corporate entities) anywhere in the world • Watch for “red flags” such as demands for “finder fees,” “clearance charges,” “expediting fees” and charges greater than normal for goods and services.

41. FCPA (Cont.) • The FCPA requires that companies dealing with intermediaries in foreign countries must perform “due diligence” to insure that the intermediary is not bribing or making illegal payments to foreign gov’t officials on behalf of the company. • Recent FCPA charges have been made against Morgan Stanley, Wal-Mart, Avon, Siemens, BAE, Halliburton, Shell, Alcoa.

42. MANDATORY DISCLOSURE

43. MANDATORY DISCLOSURE • You no longer have the right to remain silent. • Beginning December of 2008, FAR 52.203-13 requires a company to timely disclose to the Government in writing “credible evidence” of violations of federal criminal law and/or civil violations of the False Claims Act. • The Contractor cannot remain silent waiting to see if the Government uncovers the violations • The knowing failure to make such a report is grounds for suspension and debarment. • The reporting requirement remains in effect until 3 years after final contract payment.

44. MANDATORY DISCLOSURE • “Credible evidence” is not defined by the FAR but it implies that the company has conducted an internal investigation of the reported illegal conduct and has found credible evidence to support the report. • If the internal investigation does not find credible evidence of illegal conduct, the company still needs to document the file, retain the investigation report and to take the appropriate corrective steps to prevent the reoccurrence of the issue. • The issue of attorney-client privilege has also not been resolved but usually a company’s communication with outside legal counsel have been granted greater protection than communication with inside legal counsel.

45. DOJ Enforcement Actions • September 9, 2015 DOJ “Yates Memo” • DOJ’s policy is to focus on the individual executives and employees in addition to the corporation • “In order for a company to receive any consideration for cooperation under the Principles of Federal Prosecution of Business Organizations, the company must completely disclose to the Department all relevant facts about individual misconduct.” • “Both criminal and civil attorneys should focus on individual wrongdoing from the very beginning of any investigation of corporate misconduct.” • “Because of the importance of holding responsible individuals to account, absent extraordinary circumstances or approved departmental policy such as the Antitrust Division's Corporate Leniency Policy, Department lawyers should not agree to a corporate resolution that includes an agreement to dismiss or release charges against, or provide immunity for, individual officers or employees.” • “Corporate cases should not be resolved without a clear plan to resolve related individual cases before the statute of limitations expires and declinations as to individuals in such cases must be memorialized.” • “

46. SUSPENSION AND DEBARMENT • FAR 9.4 covers suspension and debarment which can result from an agency finding that the contractor is not “presently responsible.” • Grounds for debarment range from commission of a criminal offense, civil fraud, failure to pay taxes, willful breach of contract, or a history of poor contract performance. • Debarment is usually for a period of 3 years but can be less or as many as 5 years. • Debarment almost always follows a criminal conviction and often follows FCA civil liability.

47. SUSPENSION AND DEBARMENT • As of December of 2008, failure to timely make a mandatory disclosure is grounds for debarment. • One of the most important factors in the suspension and debarment decision is whether the company had a Code of Business Ethics and a Compliance Plan that was implemented and followed. • Suspension and debarment is government wide and usually also covers state and local contracts.

48. CODE OF BUSINESS ETHICS • FAR 52-203-13 “Contractor Code of Business Ethics and Conduct.” • A contract requirement for any contract or subcontract with a value of at least $5.5 million (including all options) and a performance period of at least 120 days. • Must adopt written code of ethics and conduct within 30 days of contract award. • Even if the contractor does not have a contract in excess of $5.5 million and 120 days, the Federal Government still expects its contractors to have a compliance program commensurate with the size of the company and the amount of government contracts it performs. See, FAR 3.1002(b). • Many commercial customers require that their subcontractors and suppliers to have compliance programs and/or agree to comply with the customer’s compliance program

49. CODE OF BUSINESS CONDUCT • Must establish ethics training for employees and internal control program within 90 days of contract award. • Internal control system must include periodic reviews of business practices and company policies and procedures as well as disciplinary measures for violations. • Display agency fraud information or company hotline posters in common areas at contract work sites and on company websites that provide reporting information to employees.

50. COMPLIANCE PLAN Not having a compliance plan is no longer an option.