Friday, August 27, 2010

Tax Penalties and FAPIIS--Part 1

It seems safe to say that most Americans and American companies regard tax audits with some dread. After all, an IRS Revenue Agent’s determination that taxes are due may well lead to the payment of interest on top of the taxes due, and, possibly, lead to the payment of penalties.

A few examples of grounds for tax penalties and of their respective possible fines and sentences are quoted below from the United States Code.

Example 1

"26 U.S.C. § 7201: Attempt to evade or defeat tax

Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution."

Example 2

"26 U.S.C. Section 7206: Fraud and false statements

Any person who -
(1) Declaration under penalties of perjury
Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter;
* * * * *
shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 3 years, or both, together with the costs of prosecution."

Example 3

"26 U.S.C. Section 7207: Fraudulent returns, statements, or other documents

Any person who willfully delivers or discloses to the Secretary any list, return, account, statement, or other document, known by him to be fraudulent or to be false as to any material matter, shall be fined not more than $10,000 ($50,000 in the case of a corporation), or imprisoned not more than 1 year, or both. . . ."

Reading these statute sections can be unsettling, and perhaps equally unsettling is the Internal Revenue Manual for IRS personnel, especially in Part 20, Penalty and Interest, and sub-part 20.1, the "Penalty Handbook".

Of course, even if you are audited and find the prospect of penalties looming in your future, there is a possibility, however slim, that you may be able to reduce your taxes due and potential penalties. For example, with those goals in mind you could offer a compromise settlement. Note the following section 7122 from the Internal Revenue Code.

"26 U.S.C. Section 7122: Compromises

(a) Authorization
The Secretary may compromise any civil or criminal case arising under the internal revenue laws prior to reference to the Department of Justice for prosecution or defense; and the Attorney General or his delegate may compromise any such case after reference to the Department of Justice for prosecution or defense.
(b) Record
Whenever a compromise is made by the Secretary in any case, there shall be placed on file in the office of the Secretary the opinion of the General Counsel for the Department of the Treasury or his delegate, with his reasons therefor, with a statement of -
(1) The amount of tax assessed,
(2) The amount of interest, additional amount, addition to the tax, or assessable penalty, imposed by law on the person against whom the tax is assessed
* * * * *
(c) Standards for evaluation of offers
(1) In general
The Secretary shall prescribe guidelines for officers and employees of the Internal Revenue Service to determine whether an offer-in-compromise is adequate and should be accepted to resolve a dispute.
* * * * *
(3) Special rules relating to treatment of offers
The guidelines under paragraph (1) shall provide that -
(A) an officer or employee of the Internal Revenue Service shall not reject an offer-in-compromise from a low-income taxpayer solely on the basis of the amount of the offer; and
(B) in the case of an offer-in-compromise which relates only to issues of liability of the taxpayer -
(i) such offer shall not be rejected solely because the Secretary is unable to locate the taxpayer's return or return information for verification of such liability; and
(ii) the taxpayer shall not be required to provide a financial statement.
(d) Administrative review
The Secretary shall establish procedures -
(1) for an independent administrative review of any rejection of a proposed offer-in-compromise or installment agreement made by a taxpayer under this section or section 6159 before such rejection is communicated to the taxpayer; and
(2) which allow a taxpayer to appeal any rejection of such offer or agreement to the Internal Revenue Service Office of Appeals."

We see here in section 7122 of the Internal Revenue Code some references to the tax assessed, to interest, and to an assessable penalty, but this section 7122 at least gives one some small hope of a possible compromise. Also potentially helpful is the administrative review option for rejections of this offer in compromise. The administrative process begun with filing an offer in compromise would then extend to the appeal at the IRS Office of Appeals.

FAPIIS Connection?

Is there a connection between these tax considerations or proceedings on the one hand, and FAPIIS on the other hand? To the best of my knowledge no one has authoritatively answered this question to date. Consequently at this point in time reasonable people might disagree over the answer. Obviously that situation would not help a contractor who did not list tax penalties in FAPIIS and subsequently suffered negative consequences as a result.

So, must IRS penalties be listed in FAPIIS? I believe the correct answer may be "sometimes", or "it depends". I explain my suggested answer below. Unfortunately, the question of whether state tax penalties must be listed in the FAPIIS database also arises, and once again I believe the correct answer may be "sometimes". I also explain this answer below.

Consider the following.

We know that FAR 52.209-7 imposes the following contractual requirements upon the offeror:

"(b) The offeror [ ] has [ ] does not have current active Federal contracts and grants with total value greater than $10,000,000.
(c) If the offeror checked "has" in paragraph (b) of this provision, the offeror represents, by submission of this offer, that the information it has entered in the Federal Awardee Performance and Integrity Information System (FAPIIS) is current, accurate, and complete as of the date of submission of this offer with regard to the following information:
(1) Whether the offeror, and/or any of its principals, has or has not, within the last five years, in connection with the award to or performance by the offeror of a Federal contract or grant, been the subject of a proceeding, at the Federal or State level that resulted in any of the following dispositions:
(i) In a criminal proceeding, a conviction.
(ii) In a civil proceeding, a finding of fault and liability that results in the payment of a monetary fine, penalty, reimbursement, restitution, or damages of $5,000 or more.
(iii) In an administrative proceeding, a finding of fault and liability that results in—
(A) The payment of a monetary fine or penalty of $5,000 or more; or
(B) The payment of a reimbursement, restitution, or damages in excess of $100,000.
(iv) In a criminal, civil, or administrative proceeding, a disposition of the matter by consent or compromise with an acknowledgment of fault by the Contractor if the proceeding could have led to any of the outcomes specified in paragraphs (c)(1)(i), (c)(1)(ii), or (c)(1)(iii) of this provision.
(2) If the offeror has been involved in the last five years in any of the occurrences listed in (c)(1) of this provision, whether the offeror has provided the requested information with regard to each occurrence."

To a fair degree this FAR echoes section 872 of The Duncan Hunter National Defense Authorization Act of 2009 (the "ACT").

Let us assume for the sake of discussion that we are considering a contractor with current active Federal contracts and grants totaling more than $10,000,000. Note in requirement (c)(1) above the words "in connection with the award to or performance by the offeror of a Federal contract or grant". How broad or narrow is the (c)(1) concept of "in connection with"? Must the connection be direct or can it be indirect? What connects a Federal contractor’s tax penalties with "the award to or performance by the offeror of a Federal contract or grant"?

We will discuss examples of tax penalties in Part 2, to be posted on September 3rd.

Tuesday, August 24, 2010

Publicly Available FAPIIS – Consequences For Grant Recipients?

As OMBWatch explains here, FAPIIS becoming publicly available is a wonderful thing.
“When President Obama signed this year's supplemental appropriations bill, he delivered a big win for the good government community, as a little known transparency amendment attached to the bill became law. The amendment, introduced by Sen. Bernie Sanders (I-VT), will require the General Services Administration (GSA) to make most of the Federal Awardee Performance and Integrity Information System (FAPIIS) publically available.

Now, the public will have access to information on a contractor's past performance, specifically if the government has slapped them with any penalties, including non-responsibility determinations, terminations for default, administrative agreements over suspension or debarment, and criminal and civil proceedings.”
However, it remains to be seen whether the positive consequences of the FAPIIS database becoming publicly available will outweigh the negative consequences. Will the god of Unintended Consequences rule over the consequences of the FAPIIS database becoming publicly available? “To a degree” may be the correct answer, but only time will disclose how much. We know that FAR 52.209-7 imposes the following contractual requirements upon the offeror:
“(b) The offeror [ ] has [ ] does not have current active Federal contracts and grants with total value greater than $10,000,000.
(c) If the offeror checked “has” in paragraph (b) of this provision, the offeror represents, by submission of this offer, that the information it has entered in the Federal Awardee Performance and Integrity Information System (FAPIIS) is current, accurate, and complete as of the date of submission of this offer with regard to the following information:
(1) Whether the offeror, and/or any of its principals, has or has not, within the last five years, in connection with the award to or performance by the offeror of a Federal contract or grant, been the subject of a proceeding, at the Federal or State level that resulted in any of the following dispositions:
(i) In a criminal proceeding, a conviction.
(ii) In a civil proceeding, a finding of fault and liability that results in the payment of a monetary fine, penalty, reimbursement, restitution, or damages of $5,000 or more.
(iii) In an administrative proceeding, a finding of fault and liability that results in—
(A) The payment of a monetary fine or penalty of $5,000 or more; or
(B) The payment of a reimbursement, restitution, or damages in excess of $100,000.
(iv) In a criminal, civil, or administrative proceeding, a disposition of the matter by consent or compromise with an acknowledgment of fault by the Contractor if the proceeding could have led to any of the outcomes specified in paragraphs (c)(1)(i), (c)(1)(ii), or (c)(1)(iii) of this provision.
(2) If the offeror has been involved in the last five years in any of the occurrences listed in (c)(1) of this provision, whether the offeror has provided the requested information with regard to each occurrence.”
Much of this information is already publicly available—in the public domain. For example, with some qualifications and exceptions, criminal law convictions are available from court records, and most civil law court files will be available from the clerk of the court. Online databases make many reported cases available. However, as public-domain information publishers are aware, the power of collected, searchable, and online-assessable public-domain information is often greater than discrete components thereof. Obviously, without a comprehensive database some individual items of information may be difficult and time consuming to find, others may go unnoticed, and individual items do not illustrate or subtly suggest patterns of behavior that might be detected in a comprehensive collection of searchable and online-accessible data.

Nevertheless, such a database of public-domain information may have unintended and undesirable consequences as well. Other commentators have ably speculated about possible unintended and harmful consequences of making the FAPIIS database publicly available. It would be interesting to focus on some less recognized potential consequences. Let us consider federal grant recipients for a moment, and let us focus in particular on large grant recipients. How will they be affected by the FAPIIS database becoming publicly available?

Large charitable organizations and universities are two types of large federal grant recipients. Their purposes vary. Some large charitable organizations focus on community improvement activities, some focus on K-12 education initiatives, some focus on medical research, and so on. Within large universities it is commonplace to see an engineering college receiving grants. There are many other examples of federal grant recipients.

As we see above in FAR 52.209-7, FAPIIS-related regulations appear to require large Federal grant recipients to self report various types of negative data. These particular reporting requirements spring from The Duncan Hunter National Defense Authorization Act of 2009 (Public Law 110-417).

Now let us suppose for the sake of discussion that a large charitable organization or university annually receives grants with a value in excess of $10,000,000. How will such an institution be affected by the FAPIIS database becoming publicly available?

Assuming some negative data is reported to FAPIIS by such an institution, we can easily imagine that this negative data may be publicized by the press or in privately run blogs. FAPIIS will become a favorite news-item source for the press and news-oriented blogs. It will be a free buffet of bad news items, each admitted by the reporting institution. Patterns of negative events may become the most sensational news. Imagine the press claiming that a few instances of one type of negative event recorded in FAPIIS show a pattern—a pattern of insensitivity, a pattern of mismanagement or incompetence, a pattern of corruption, a pattern of oppression, a pattern of dangerous activity, etc. Perhaps the patterns of behavior detected in FAPIIS data, or concocted by the press from FAPIIS data, will become more troublesome for institutions than individual news items.

Will any large charitable organization or university be happy about negative data found in FAPIIS being publicized? Not likely. Why not? Well, for one thing publicized FAPIIS database content will draw public attention to the institution’s significant items of dirty laundry. That will be embarrassing. Historically, public embarrassment of a large charitable organization or university has fairly often negatively affected donations. Donations are one of the major sources of funding for such institutions—part of their lifeblood. Can you imagine the public relations groups of such institutions growing in size and importance as they tackle the difficult task of trying to minimize the donation blood letting that such publicity may trigger? It seems possible that institutional public image management may become more difficult than ever before.

Let us be more specific. What kinds of negative information might be reported to FAPIIS by large universities? Obviously, there may be quite a variety of types of negative data stemming from various types of proceedings, including civil law suits brought by parents of students who commit suicide on the university’s campus each year. Must they be reported? If damages in excess of $5,000 are paid, it appears that they should be reported.

In response to a FAPIIS listing of a few suicide cases in which damages are paid there is likely to be some increase in interest in the overall suicide rate at a university. After all, prospective student applicants and their parents are not stupid, and the safety of their child on campus is a common parental concern. Will such a broader interest in all suicides on campus each year cause university ranking organizations to create a new rating category addressing the number of suicides on campus each year? How many student suicides per year will it take to lower the ranking of a university? Will three or more suicides per academic year be enough to drop one of the top 10 or 15 into the ranks of second-tier universities? Will any significant loss in ranking have a bearing on what annual tuition increases can be justified?

What about on-campus violent crime, such as assault and sexual assault, and resulting litigation against the university for inadequate security measures? If there is a damage award in excess of $5,000, these civil cases against a university seem to fall into the “must report to FAPIIS” category.

What about on-campus personal injuries and the personal injury cases that follow? For example, what about student partying on campus during which students get hurt by doing stupid, often alcohol-fueled things like jumping or falling out a window or being thrown out a window that was not locked or blocked from opening enough to prevent the exit? Again, if there is a damage award in excess of $5,000, these civil cases against a university seem to fall into the “must report to FAPIIS” category.

Will a FAPIIS collection of information about legal claim damages over on-campus suicides, assaults, and personal injuries cause a reduction in applicants, or in the number of the smartest students, applying each year? Conversely, will low numbers of such events help to persuade more applicants, including more very smart applicants, to apply to the universities with the low numbers?

Will large universities launch on-campus security improvement initiatives such as hiring more guards or on-campus police and improving external lighting, in part, to reduce the volume of litigation and FAPISS disclosures of negative events? What other types of internal initiatives will be launched by large universities in an attempt to reduce negative events and thereby minimize the volume of negative data reported to FAPIIS? Some prestigious universities currently offer little or no training to their resident assistants or resident advisors (“RAs”), thereby arguably leaving themselves open to avoidable liability and avoidable reporting to FAPIIS. Universities offering new RAs a month of training in the summer before classes begin are much better situated to minimize liability and minimize reporting to FAPIIS.

Plaintiffs’ trial counsel will likely smile at least slightly over self-reported negative information available in FAPIIS, for example, data regarding on-campus suicides, violent crimes, and personal injuries, because it can be used as a basis to assert that there is a virtually self-admitted pattern of negligence by the university . . . and that pattern can be used to help support greater than average damage awards. Will tuitions go up as a result of greater damage awards?

Or now that FAPIIS has become publicly available will universities fall prey to threats of litigation, for example, from some unions threatening lawsuits? Will FAPIIS become an indirect lever used by unions to pressure university administrations?

It will take some time for the consequences of the public availability of FAPIIS negative data to fully unfold, but it seems reasonably clear now that large charitable organizations and universities may suffer significant unintended consequences from such public availability. It is certainly easy to speculate about the unintended consequences they may suffer, and this article does not pretend to include all possibilities.

What do you think?

AF

Thursday, August 19, 2010

Is FAPIIS the Business Equivalent of “Pick-Your-Poison?” (Part 2)

Difficulties

We begin to see some difficulties when the above-referenced rules and regulations are applied to a contractor with current active Federal contracts and grants totaling more than $10,000,000. Intentionally, for discussion purposes, we are not considering a small business concern here, but instead consider a medium-sized or large company or grant-receiving organization. When we consider the multi-million dollar contracts commonly pursued in this larger contractor realm, one obvious difficulty is that a fine or penalty of $5,000 or any sum close to it is trivial and not hard to incur. By itself, this low threshold of "$5,000 or more" makes the ACT anti-business in nature. This low threshold aspect of the ACT and its related federal acquisition regulations should be revised and made more practical.

To add insult to injury, in subsection (f) of section 872 of the ACT we are advised that contractors must self-report the above-required content for the FAPIIS database. Subsection (f) states:
"f) DISCLOSURE IN APPLICATIONS.—Not later than one year after the date of the enactment of this Act, the Federal Acquisition Regulation shall be amended to require that persons with Federal agency contracts and grants valued in total greater than $10,000,000 shall—
(1) submit to the Administrator, in a manner determined appropriate by the Administrator, the information subject to inclusion in the database as listed in subsection (c) current as of the date of submittal of such information under this subsection; and
(2) update such information on a semiannual basis."
FAR 52.209-7 helps to implement the statute by imposing the following contractual requirements upon the offeror:
"(b) The offeror [ ] has [ ] does not have current active Federal contracts and grants with total value greater than $10,000,000.
(c) If the offeror checked "has" in paragraph (b) of this provision, the offeror represents, by submission of this offer, that the information it has entered in the Federal Awardee Performance and Integrity Information System (FAPIIS) is current, accurate, and complete as of the date of submission of this offer with regard to the following information:
(1) Whether the offeror, and/or any of its principals, has or has not, within the last five years, in connection with the award to or performance by the offeror of a Federal contract or grant, been the subject of a proceeding, at the Federal or State level that resulted in any of the following dispositions:
(i) In a criminal proceeding, a conviction.
(ii) In a civil proceeding, a finding of fault and liability that results in the payment of a monetary fine, penalty, reimbursement, restitution, or damages of $5,000 or more.
(iii) In an administrative proceeding, a finding of fault and liability that results in—
(A) The payment of a monetary fine or penalty of $5,000 or more; or
(B) The payment of a reimbursement, restitution, or damages in excess of $100,000.
(iv) In a criminal, civil, or administrative proceeding, a disposition of the matter by consent or compromise with an acknowledgment of fault by the Contractor if the proceeding could have led to any of the outcomes specified in paragraphs (c)(1)(i), (c)(1)(ii), or (c)(1)(iii) of this provision.
(2) If the offeror has been involved in the last five years in any of the occurrences listed in (c)(1) of this provision, whether the offeror has provided the requested information with regard to each occurrence."
As we see above, given "current active Federal contracts and grants with total value greater than $10,000,000", the contractor represents that the information he submitted to the FAPIIS database "is current, accurate, and complete".

Now we need to remember FAR 52.214-4 regarding false statements in bids which states in part:
"The penalty for making false statements in bids is prescribed in 18 U.S.C. 1001."
Title 18 of the United States Code tells us in section 1001 that anyone within the jurisdiction of "the executive, legislative, or judicial branch of the Government of the United States" who "knowingly and willfully" . . . "makes any materially false, fictitious, or fraudulent statement or representation" shall "be fined under this title, imprisoned not more than 5 years . . . or both."

Given the representation mentioned above, it appears that at least in some situations contractors may face fines or imprisonment for submitting incomplete or false information to the FAPIIS database.

How will government procurement personnel react to a contractor’s self-reported negative data found in the FAPIIS database? Will any of them ever overreact notwithstanding any contractor comments in FAPIIS? I believe instances of de facto debarment are inevitable and will be easily covered up by procurement personnel. A large or mid-sized contractor may be subject to de facto debarment from a major contract award by overreacting contracting personnel who review the contractor’s self-reported negative data in the FAPIIS database and decide subjectively, excessively, and without bothering to go through proper debarment procedures, that there are sufficient responsibility concerns to warrant bid rejection.

On the other hand, this hypothetical contractor may also be subject to fines and imprisonment if negative data reported is not complete and accurate and if the omissions or inaccuracies are caught.

This hypothetical scenario of (1) "possible de facto debarment due to reporting negative data" versus (2) "possible fines and imprisonment due to not reporting negative data" sounds like a theoretical Catch 22 situation, but the potential loss of huge contracts versus potential fines and imprisonment are too serious for the normal, every-day category of Catch 22 situations. Instead, this scenario places two vials of Hemlock in front of a business and asks it to drink one. It is the business equivalent of asking you to pick your poison. This poison may or may not kill you, but it definitely is not good for your health.

Is this picture too extreme? Tell that to a company that loses out on a multi-million dollar contract due to de facto debarment, even a one-time de facto debarment, especially if layoffs and facility closings follow the loss. Tell that to the laid off workers as they apply for unemployment compensation and food stamps, and then lose their homes because they cannot find other work in the current economy with its high unemployment rate. Ask these workers how they feel. Ask their family members how they feel. Then see if you say this suggestion of FAPIIS business equivalence with being forced to choose a poison is too extreme to have merit.

Do you retort that no federal government contracting personnel will excessively subject a bidder to de facto debarment? Then I ask, what is the source of your faith in their perfection? Then I ask, why does section 869 of the ACT say:
"(c) CRITERIA.—The Acquisition Workforce Development Strategic Plan shall include, at a minimum, an examination of the following matters:

(1) The variety and complexity of acquisitions conducted by each Federal agency covered by the plan, and the workforce needed to effectively carry out such acquisitions."
Federal agencies have undertaken diverse and complex acquisitions for decades, and many of them already have in place extensive training programs for procurement personnel. One possibility is that this call for The Acquisition Workforce Development Strategic Plan is more than an employment initiative and is intended, in part, to address the obvious potential for de facto debarment abuses and an increased volume of unofficial complaining and official protests alleging unjustified and unreasonable agency decisions regarding responsibility determinations. The FAPIIS database and its use are certainly not likely to make contractors less prone to complain and protest.

What do you think?

-AF

Tuesday, August 17, 2010

Is FAPIIS the Business Equivalent of “Pick-Your-Poison?” (Part 1)

Have you heard about the Federal Awardee Performance and Integrity Information System ("FAPIIS")? According to ppirs.gov:
"The Duncan Hunter National Defense Authorization Act of 2009 (Public Law 110-417) was enacted on October 14, 2008. Section 872 of this Act required the development and maintenance of an information system that contains specific information on the integrity and performance of covered Federal agency contractors and grantees. The Federal Awardee Performance and Integrity Information System (FAPIIS) was developed to address these requirements. FAPIIS is a distinct application that is accessed through the Past Performance Information System (PPIRS) and is available to federal acquisition professionals for their use in award and responsibility determinations. FAPIIS provides users access to integrity and performance information from the FAPIIS reporting module in the Contractor Performance Assessment Reporting System (CPARS), proceedings information from the Central Contractor Registration (CCR) database, and suspension/disbarment information from the Excluded Parties List system (EPLS)."
According to OMBWatch, FAPIIS becoming publicly available is a wonderful thing.
“When President Obama signed this year's supplemental appropriations bill, he delivered a big win for the good government community, as a little known transparency amendment attached to the bill became law. The amendment, introduced by Sen. Bernie Sanders (I-VT), will require the General Services Administration (GSA) to make most of the Federal Awardee Performance and Integrity Information System (FAPIIS) publically available.

"Now, the public will have access to information on a contractor's past performance, specifically if the government has slapped them with any penalties, including non-responsibility determinations, terminations for default, administrative agreements over suspension or debarment, and criminal and civil proceedings."
The topic of the FAPIIS database being made publicly available on a government website pursuant to the above-mentioned amendment to the Defense Authorization Act last year is a topic for another day. Instead, I direct your attention to one small aspect of FAPIIS implementation found in subsection (c)(1) of section 872 of the Duncan Hunter National Defense Authorization Act of 2009 (the "ACT") where we are informed that the FAPIIS database will include information "in connection with the award or performance of a contract or grant with the Federal Government" such as the following:
"(B) In a civil proceeding, a finding of fault and liability that results in the payment of a monetary fine, penalty, reimbursement, restitution, or damages of $5,000 or more.

(C) In an administrative proceeding, a finding of fault and liability that results in—

   (i) the payment of a monetary fine or penalty of $5,000 or more ..."
Then in subsection (c)(7) of the same section 872 we are informed as follows:
"(7) To the maximum extent practical, information similar to the information covered by paragraphs (1) through (4) in connection with the award or performance of a contract or grant with a State government."
So fines or penalties of $5,000 or more in connection with any state or federal procurements or grants must be included in FAPIIS. Both the award context and the performance context are covered. To further complicate matters, in subsection (c)(1) of section 872, part (D) says:
"(D) To the maximum extent practicable and consistent with applicable laws and regulations, in a criminal, civil, or administrative proceeding, a disposition of the matter by consent or compromise with an acknowledgment of fault by the person if the proceeding could have led to any of the outcomes specified in subparagraph (A), (B), or (C)."
So actual imposition of a fine or penalty of $5,000 or more is not required. An acknowledgement of any fault coupled with the closing of a proceeding that could have led to a fine or penalty of $5,000 or more must also be included in the FAPIIS. Apparently it does not matter how minor the fault admitted may be so long as it was involved in a proceeding and sufficient to support a theoretical fine or penalty of $5,000 or more. And we should remember that the proceeding in question could be state or federal—information from both contexts must be included in the FAPIIS.

Why would a contractor ever acknowledge fault and pay a small fine? Take a situation where the contractor was slightly responsible for damage to supplies that was caused mainly by the negligence of officers, agents, or employees of the Government acting within the scope of their employment. The contractor may be very aware of FAR 52.246-16, Responsibility for Supplies, sitting in his contract, but he may also want to end the dispute and returm to a non-adversarial footing, believing that that condition is not good for business. This is but one of many possible examples.

In subsection (d)(2)(C) of section 872 of the ACT we are told that policies will be developed allowing contractors to "submit comments pertaining to information about such person for inclusion in the database"—in other words, in the FAPIIS database. We now have FARs implementing the ACT, and regarding policies allowing contractors to submit comments, FAR 52.209-8 tells us:
"(b)(1) The Contractor will receive notification when the Government posts new information to the Contractor's record.

(2) The Contractor will have an opportunity to post comments regarding information that has been posted by the Government. The comments will be retained as long as the associated information is retained, i.e. , for a total period of 6 years. Contractor comments will remain a part of the record unless the Contractor revises them."
Thus a contractor will have the capability to add explanatory and possibly protective comments to the FAPIIS database under certain circumstances. For example, some information might be added that attempted to support a responsibility finding by attempting to explain away, neutralize, or overcome negative data. To further illustrate, presumably a contractor could explain a decision to settle a civil case because, while blameless, the contractor was spending more in attorney fees than it would take to settle the case, and because the contractor realized there is always a risk of losing in court no matter how blameless he was. Alternatively, among many other reasons, a contractor might settle a case in order to avoid publicity, or to avoid giving competitors the opportunity to suggest the contractor was litigious, or to end some frivolous but distracting claim.

In subsection (e)(2)(A) of section 872 of the ACT we find an important process requirement imposed on government contracting personnel:
"Before awarding a contract or grant in excess of the simplified acquisition threshold under section 4(11) of the Office of Federal Procurement Policy Act (41 U.S.C. 403(11)), the Federal agency official responsible for awarding the contract or grant shall review the database and shall consider all information in the database with regard to any offer or proposal, and, in the case of a contract, shall consider other past performance information available with respect to the offeror in making any responsibility determination or past performance evaluation for such offeror."
Here we see that all information included in the FAPIIS database, including any comments entered by the contractor, must be considered before awarding a contract or grant.

Part 2 of this post will explore further the implications and difficulties the FAPIIS database reporting poses for contractors, and will be posted on Friday, August 20.

Monday, August 16, 2010

FarSmarter Government Contracting

We'd like to welcome readers to our new blog.  We've created this space to share U.S. federal government contracting news, updates, and information in an in-depth environment that allows for comments and interaction.  We will post articles and commentary, and we'd love to hear from you as well, so please feel free to reply to our articles.

By way of background, FARSmarterBids is a web-based service that aims to make contracting accessible to all companies, regardless of size and resources.  We are passionate about making the Federal Acquisition Regulation System (FARS) and associated regulations easy to find and manage.  We are also passionate about helping new and existing contractors navigate the maze of government websites, many of which have good information--like prime and subcontractor lists, contact information for contracting officers, and vendor outreach events--that is unfortunately obscured by the sheer quantity of .gov sites out there.

One of the keys to being an effective, competitive, and profitable contractor is staying compliant with the government's contract regulations.  This sounds easy to do in theory, but is hard to accomplish in practice.  Looking up a regulation once doesn't cut it.  These rules need to be at a contractor's fingertips, organized in a way that makes sense to him or her.  Our system contains a online Filing Cabinet that allows our clients to save and organize key regulations so that compliance is just a mouse click away.  Any information in our agency resource library, as well as any external link, can also be filed in the same manner.  We believe this kind of knowledge management is one of the most important things a contractor can do to be successful.

It's our goal to help contractors to bid more competitively.  To that end, we hope you find this blog interesting and informative.  Bid Smarter. Far Smarter.