Compliance and Growth in the MAS Marketplace Overview of Compliance Risks and Responses

1. Compliance and Growth in the MAS Marketplace Overview of Compliance Risks and Responses Roger Waldron President The Coalition for Government Procurement www.thecgp.org

2. INTRODUCTIONFEDERAL SUPPLY SCHEDULE CONTRACTS • FSS contracts contain unique, non commercial items • Industrial Funding Fee • Price Reduction Clause • Trade Agreements Act • Audit Rights • Recovery Act Reporting • Mandatory Disclosure Rule Compliance is critical: failure to comply can lead to termination, False Claims Act liability, suspension or debarment

3. COMPLIANCEAN ANALYTICAL FRAMEWORK • The keys to success • Know and understand the contractual and regulatory requirements • Know and understand thyself (e.g. business operations, market) • Apply “self-knowledge” to contract/regulatory requirements to determine compliance measures • Implement measures: “Create a Culture of Compliance” • Business ethics code • Training • Internal monitoring and controls

4. INDUSTRIAL FUNDING FEE (IFF) • GSA recoups its cost via a fee (.75%) tacked onto the FSS contract prices • Contractors must include the fee in their FSS prices • Contractors must report contract sales revenue to GSA on a quarterly basis • Contractors must remit the IFF (.75% of sales revenue) to GSA on a quarterly basis Compliance measures: (1) ensure FSS orders/invoices reference your GSA schedule contract and (2) Ensure your ordering and billing system tracks all sales for reporting purposes

5. CONTRACT PRICING & THE PRICE REDUCTION CLAUSE • GSA negotiates prices based on each offeror’s commercial sales practice information • GSA negotiates discounts from an offeror’s commercial price list • Objective is to obtain equal to “Most Favored Customer” Pricing • GSA should consider/compare terms and conditions • See GSAR Clause 538.270 • Offeror is essentially negotiating against itself • GSA and the offeror must also agree on a tracking (also referred to as the Basis of Award (BOA)) commercial customer for Price Reduction Clause purposes

6. GSA SCHEDULE CONTRACTS: PRICE NEGOTIATION • Most Favored Customer (MFC) Price = Government’s price negotiation objective • If the contractor’s offered price is “equal or better than the best price offered to any customer” for the same item(s) “regardless of quantity or terms and conditions,” the offeror completes a chart with information on most favored customers.

7. GSA SCHEDULE CONTRACTS: PRICE NEGOTIATION • If the contractor’s offered price is NOT equivalent to the most favored customer price, the offeror must complete a chart for all customers that get a price equal to or less than the price offered to the Government • required information included; name of each customer or category of customers; discount received, with terms and conditions; quantity or volume required to be eligible for discount; delivery terms and concessions

8. THE PRICE REDUCTION CLAUSE (PRC)MECHANICS • Three Prices are linked through the PRC • The tracking (BOA) price • The commercial price list • The FSS contract Price • Changes in the BOA price or the commercial price list will result in changes in the FSS contract price- the PRD requires that the price relationship be maintained • Revised commercial price list that reduces prices • Additional discounts to the BOA customer or customers • Additonal or new discounts to a wide-ranging set of customers • Discounts not disclosed during negotiations

9. THE PRICE REDUCTION CLAUSECOMLIANCE MEASURES • Interrelated contract framework • Disclose pricing practices • Detail differences in commercial sales practices versus the FSS market place and contract requirements • Negotiate a BOA tracking customer that works • Monitoring system • Written pricing policies and training • Approval process for deviations from the policies • Track discounts for BOA tracking customer • Contract Administrator

10. GSA CONTRACTS:TYPICAL INTERNAL STRUCTURE • Steps to reduce process risk • Inspect new proposal requirements for every solicitation rather than rely on prior proposals • Engage in specialized compliance training • Utilize centralized control or monitoring of discounting and other pricing practices • Conduct periodic, independent compliance reviews and sanction significant misconduct

11. GSA CONTRACTS:TYPICAL INTERNAL STRUCTURE • Risk mitigation: System Requirements • Searchable sales database to identify all current accurate low prices for use in negotiations, modifications, and audits • Designated personnel should be quick to notice and report breakdown • Overrides should documented and justified • Monitor government and tracking customer prices • Track sales by GSA contract number • Retain data in time periods consistent with contract retention and audit access requirements

12. GSA CONTRACT AUDITS • Post-Award Audits • Covers over-billings, billing errors, compliance with Price Reduction and IFF clauses, proof of commerciality of items offered on GSA Schedule, contract administration, and small business subcontracting plan compliance • Generally does not cover pricing, but GSA may use to obtain pricing information • Contractor has a duty to maintain record for three years after last payment. • Contractor Assistance Visits: include review of: • Products to ensure they fall within scope • Pricing and IFFBuy American Act/ Trade Agreements Act Compliance

13. GSA CONTRACT AUDITS • Steps to Controlling the Audit Process • Assign one person to interface with auditors • Respond reasonably to written data requests • Provide access to necessary documents in organized fashion • Document all meetings and telephone conversations • Maintain structured environment • Conduct Entrance/Exit conference • Request copy of draft audit report from auditors; chance to correct errors • Obtain copy of final audit report from CO • Prepare rebuttal, with factual documentation • Present defense to CO

14. Changes in Audit Process • IG now • Interview employees • Why? • Repercussions? • Cooperate with IG • Include Counsel • Employee discretion to participate

15. THE TRADE AGREEMENTS ACT (TAA)THE FRAMEWORK • FSS contracts: The TAA applies to all contract line items except those set aside for small business • FAR 25.003, Definitions- eligible end products • Japan, Canada, Germany, Korea, Taiwan . . . (Good) • China, India, Malaysia, Thailand, Vietnam (Bad) • FAR 25.4 Trade Agreements • Far 52.212-3 – Commercial item certificate • 19 CFR 177 Subpart B- U.S. Customs country of origin

16. THE TAASUBSTANTIAL TRANSFORMATION ACT • Subjective Test • Substantially transformed in an eligible country into a new and different article of commerce with a different name, character or use • Totality of the Circumstances- Case by case analysis • The determinative issue is the extent of operations performed and whether the parts lose their identity and become a integral part of a new article • Complex/meaningful assembly operations versus simple/minimal • US Customs Determinations of Country of Origin • http://rulings.customs.gov

17. THE TAACOMPLIANCE MEASURES • Address TAA during negotiations with contracting Officer • Make TAA part of Contract Compliance Program • Monitor Inventory • Track and archive COO information for inventory • Subcontracts • TAA Certification and/or a compliance with laws provision • Require notification of production point changes • Flow down the applicable FAR clauses • Training – know your contract and the applicable foreign acquisitions requirements

18. MANDATORY DISCLOSURE RULETHE REQUIREMENTS • FAR 52.203-13(b)- Applicability, Ethics and Disclosure • Applies to all contracts exceeding $5 million and 120 days, including commercial item contracts, contracts performed overseas and contracts with small business concerns • Requires a Written Code of Business Ethics and Conduct • Contractor must provide a copy to each employee engaged in performance of the contract • Must be in place within 30 days of contract award • Requires the contractor to exercise due diligence to prevent and detect criminal conduct; and • Otherwise promote an organizational culture that encourages ethical conduct and commitment to compliance with law • FAR 52.203-13(b) applies to FSS contracts

19. THE MANDATORY DISCLOSURE RULE • FAR 52.203-13(b) – Mandatory Disclosure • Requires the contract to timely disclose in writing to the inspector general and the contracting officer (in that order) whenever, in connection with the award or performance, or closeout of a contract, the contractor has credible evidence that a principal, employee, agent, or subcontractor has committed a violation of federal criminal law involving fraud, conflict of interest, bribery or gratuities found in Title 18 of the US code or a violation of the civil False Claims Act

20. THE MANDATORY DISCLOSURE RULETHE MECHANICS • FAR 52.203-13(b) – Mandatory Disclosure • For the Federal Supply Schedules, multiple award contracts and govermentwide acquisition contracts, disclosure must be made to both the IG of the ordering agency and the IG responsible for management of the contracts • Provides that the Government, to the extent permitted by law, will safeguard the information obtained via contractor disclosure as confidential where the information has been marked “confidential” or proprietary • Invokes FOIA and states that to the extent permitted by law and regulation the contractor will be given prior notification before public release of such information

21. THE MANDATORY DISCLOSURE RULEFOOD FOR THOUGHT • FAR 52.203-13(c) – Business Ethics Compliance Programs and internal control system • This section does not apply to small businesses and commercial item contracts including FSS contracts. However, this provision provides insight into the government’s views regarding “due diligence.” • Ongoing business ethics awareness and compliance program • Includes periodic communication and training on the business ethics awareness and compliance program and internal control system • Provided to principals, employees and as appropriate agents and subcontractors

22. THE MANDATORY DISCLOSURE RULEFOOD FOR THOUGHT • FAR 52.203-13(c)(2) –Internal control system • Minimum requirements continued . . . • Assignment of responsibility at a high level and adequate resources to ensure effectiveness of the ethics and compliance program • Reasonable efforts not to include and individual as a principal who has engaged in conduct that is in conflict with the code of business ethics (background checks) • Periodic compliance reviews of company business practices and procedures • Audits, periodic evaluations, assessment of the risk and remedial actions

23. THE MANDATORY DISCLOSURE RULEFOOD FOR THOUGHT • FAR 52.203-13(c)(2) –Internal control system (continued • Minimum requirements continued . . . • Internal reporting mechanism; such as hotline • Disciplinary action for improper conduct or for failing to take steps to prevent or detect such conduct • Timely disclose, in writing to the IG, with a copy to the contracting officer of any applicable violation of federal criminal law or the civil False Claims Act • Full cooperation with any Government audit, investigation or corrective action

24. THE MANDATORY DISCLOSURE RULESUSPENSION AND DEBARMENT • FAR 9.406-2 and 9.407-2 • Applies to all current contracts and all contracts where final payment was received within the last three years • Applies to all contracts and contractors regardless of size or type (includes commercial item contracts, small businesses and contracts below $5 million or shorter than 120 days)

25. REMEMBER THE FUNDAMENTALS • Successful government contractors invest in contract compliance • Assign an executive responsible for compliance • Establish a code of conduct and training • Establish a hotline for your employees • Implement systems/policies/procedures addressing IFF, PRC and TAA requirements • Review, audit, and update your compliance program • Create a culture of compliance

26. Regulatory Update • Preventing Abuse of Interagency Contract Interim Rule – FAR 8.4 and 17.5 • New FSS Ordering procedures- Interim Rule FAR 8.4 • eBuy and BPAs • FAR Part 51 Deviation Ordering Guide • Public Access to Federal Awardee Performance and Integrity Information System- Interim Rule

27. Regulatory Update Continued • GSAR Rewrite – MAS Pricing Policies and Procedures • GSA Requesting Comments on Improving Regulation and Regulatory Review • Proposed rule addressing Organizational Conflicts of Interests – FAR 9.5 (Coming soon)

28. GREENING THE GOVERNMENT • EO 13514: Federal Leadership in Environmental, Energy, and Economic Performance (Oct. 2009) • 95% new contract actions for products/services must be green: • Section 13: GSA determining the feasibility of requiring vendors to report greenhouse gas (GHG) emissions • 2 pilots: • GreenGov Supply Chain Partnership (Companies experienced in GHG voluntary reporting) • Federal Supplier GHG Emissions Inventory Pilot (Small businesses) • GSA Greening Schedules (Icons)

29. FEDERAL STRATEGIC SOURCING INITIATIVE • OMB Memorandums: • Implementing Strategic Sourcing (May 2005) • Improving Government Acquisition (July 2009) • MAS BPAs • Office supplies • Domestic delivery services • Telecommunications Expense Management Services • Managed Print Services

30. DEPARTMENT OF DEFENSE:BETTER BUYING POWER INITIATIVE • Increase competition • Cost or Pricing data requests • Subcontract management • Efficiency Initiative to Reduce Industry Overhead Costs (Feb. 2011) • Reduce Time and Materials Contracts • Shorten contract terms/modular bite-sized contracts • New Source Selection Procedures • Impact on MAS Program • Potential increase in market share

31. COALITION POLICY INITIATIVES (THE 5 Cs) • Contract Duplication/Consolidation • Consistency in Interpretation of Rules • Contract Structure (ODCs) • Contract compliance and competition • New ordering procedures • Maximum order threshold • Price Reduction Clause • Contract Greening

32. Growth Prospects

33. GSA Schedule Sales Data • GSA Schedule Sales • FY 2010: $38.8 Billion • FY 1998: Just under $8 Billion • This chart shows the growth of the GSA schedules indicating sales by fiscal year

34. WHAT’S HAPPENING TO YOUR GOVERMENT CUSTOMER? • Oversight and Transparency • Limited Fiscal Resources • Current Uncertainty (Continuing Resolutions) • Push for Savings (Strategic Sourcing and Competition) • Future Cuts • Insourcing Slows • Acquisition Workforce Grows

35. CURRENT FEDERAL MARKET CLIMATE • Continued Audits and Increased Reporting • The American Recovery and Reinvestment Act (ARRA) Transparency • The President’s $40 Billion Goal in Reduced Contract Spending • Savings Initiatives • Strategic Sourcing • Competition • OMB & DoD Setting the Policy Framework

36. CURRENT FEDERAL BUYING INITIAIVES • Strategic Sourcing • Leverage Government’s Collective Buying Power • Reduced Costs, Better Logistics • OMB & GSA Setting Framework • Mandatory or Non-Mandatory? • Government-Wide or Agency Specific? • Competition • Acquisition Planning • Justifications • Electronic Systems • Conflicts with Strategic Sourcing?

37. BUSINESS EXPECTED, BUT AT A COST • Transparency & Oversight • IG Audits & Investigations • Ethics Compliance/ Mandatory Disclosure Rule • Pricing Reviews & Tools (GSA Taking the Lead) • Subcontracting Reporting • Federal Awardee Performance and Integrity Information System (FAPIIS) • ARRA – Model for the future?

38. IS THERE MONEY? • Continuing Resolutions • Budget Stagnation/ Reduction • How do you add value and save money? • ARRA Has Ebbed • Change in Congress: Greater pressure to reduce spending

39. WHAT DOES THAT MEAN FOR MY BUSINESS PROSPECTS? • How Easy Is It For Your Customer To Find You? • How Can You Save the Customer Money? • Why Are You The Low-Risk, Proven Solution? • Increased Competition May Mean More Opportunity

40. THE SELLING TRIANGLE • End-User: The Most Obvious Person • Program Manager: Sometimes The End User’s Boss, Sometimes the Same Person • The Contracting Officer

41. MARKETING & FINDING LEADS • Business Intelligence • Target Specific Agencies • Call on CO’s, End-Users, and Project Managers • Examine FPDS for Past Buying Habits • Read Industry Publications • Attend the Right Conferences • Review E-Buy and Websites • The Pitch • What Makes You Special, Low-Risk and Cost Effective? • Socio-Economic Partnerships • Past Performance • Don’t Over Do It • Agency SES: GS-14s and 15s that control program funding and direction

42. Roger Waldron President The Coalition for Government Procurement rwaldron@thecgp.org 202-331-0975