Follow your subcontracting plan, or else?

We recently posted a series of articles on FAPIIS, the Federal Awardee Performance Integrity Information System, and some of the consequences of this system's introduction. New legislation has passed that makes use of FAPIIS. It seems the government is interested in holding contractors to their plans, and those contractors that don't may reap the consequences.

The newly-passed Small Business Jobs and Credit Act (H.R. 5297) mandates that prime contractors have to follow their subcontracting plans. An article by Washington Technology states that written explanations are required when a prime contractor doesn't follow its subcontracting plan, and that if those statements aren't to the satisfaction of the contracting officer, it may "hurt the evaluation of the prime contractor's performance on the contract".

As if a negative evaluation wasn't bad enough, this evaluation may also be made public under the FAPIIS past performance reporting system. This new law makes it even more important to know the rules when doing business with the government, a trend on the rise in recent months.

For more information on FAPIIS, check out some of our recent articles:

• Tax Penalties and FAPIIS Part 1, Part 2
• Is FAPIIS the Business Equivalent of "Pick-Your-Poison?" Part 1, Part 2
• Publicly Available FAPIIS – Consequences For Grant Recipients?

Tax Penalties and FAPIIS--Part 2

Part 2 of "Tax Penalties and FAPIIS" discusses some examples of tax penalties and their possible relation to the FAPIIS database.

Penalty Example One

It is hard to imagine what could connect a contractor’s tax penalties with the award to the contractor of a Federal contract, or with the contractor’s performance under that contract. Putting our imagination in overdrive, what if the Federal contract is performed partly by subcontractors that the prime contractor should have treated as employees, and after an IRS audit the prime contractor pays employment-related taxes and penalties? Should these penalties be reported in FAPIIS? In the FAR quoted above, it appears that the elements of requirement (c)(1)(iii) could be satisfied. For example, in an IRS audit and offer-in-compromise context, or in an appeal to the IRS Office of Appeals, liability that results in a penalty of $5,000 or more is certainly possible. In addition, the payment of a reimbursement, restitution, or damages in excess of $100,000 is not unheard of in such an administrative proceeding context. The taxpayer is not being sued in court here, but the pressure that the IRS can apply to resolve the dispute is considerable. Thus, in this example there does appear to be a connection between our hypothetical contractor’s tax penalties and his performance under a Federal contract.

We could stop here and conclude that we have shown a "sometimes" positive answer to the question of whether IRS penalties must be listed in FAPIIS, but we should also consider requirement (c)(1)(iv). Note in (c)(1)(iv) the words "a disposition of the matter by consent or compromise with an acknowledgment of fault by the Contractor". Wherever else they may be found, we see tax concepts here that we can find in the Internal Revenue Code sections quoted above—note the word "compromise" for example. An arguably broader, context-neutral word like "agreement" could have been selected. Settlement agreements are sometimes achieved by capitulation rather than compromise. Thus, logic suggests that the selection of "compromise" held one or more specific intentions, and the Internal Revenue Code’s tax concept of a "compromise" fits like a glove. Also, liability for some portion of taxes due is acknowledged in an offer-in-compromise, at least when it is accepted if not before. Finally, as we have seen, "the proceeding could have led to" the outcome specified in paragraph (c)(1)(iii). Looking at all of (c)(1)(iv), it appears that example number one could satisfy all of its elements.

Given two ways this example number one could satisfy the criteria of FAR 52.209-7, one through satisfying (c)(1)(iii) and the other through satisfying (c)(1)(iv), it appears that FAR 52.209-7 contemplates tax penalties within FAPIIS and hence tax penalties must be reported in FAPIIS under certain circumstances.

Penalty Example Two

Another example might arise where a contractor simply did not pay employment-related taxes for employees working on a Federal contract project, and after an IRS audit the contractor paid employment-related taxes, interest and penalties. In 2009 a failure to pay employment-related taxes generated the greatest volume of penalties in the employment taxes category. (See this IRS spreadsheet.) It appears that the elements of requirement (c)(1)(iii) of FAR 52.209-7 could be satisfied by this example, which again seems to suggest that some tax penalties must be reported in FAPIIS. It appears that (c)(1)(iv) also could be satisfied, and again that possibility seems to suggest the intention that some tax penalties must be reported in FAPIIS.

Penalty Example Three

Perhaps an award-related example might be helpful now that we have seen two contract performance examples. Imagine the contractor using a consultant, or perhaps a supplier or a subcontractor to help prepare an unsolicited proposal in a new product area. Then imagine that the contractor took excessive expense deductions for this proposal-preparation assistance that were caught in an IRS audit, after which the contractor paid additional taxes and penalties. Yet again it appears that the elements of requirements (c)(1)(iii) and (c)(1)(iv) of FAR 52.209-7 could be satisfied, which again seems to suggest that some tax penalties must be reported in FAPIIS.

Penalty Example Four

Are there any future-oriented examples? It has been reported that starting in a few years businesses will have to file with the IRS additional documents, known as 1099 forms, which state the total value of goods they buy from a single vendor if that total exceeds $600 annually--goods, for example, such as office supplies. (See the report for example in the July 17, 2010 article in The Wall Street Journal’s online Opinion Journal entitled "Lost in Taxation, The IRS's vast new ObamaCare powers".)

Before this rule was enacted businesses only had to tell the IRS the value of services they purchased. Imagine for the sake of discussion that this new rule is not repealed, and that our hypothetical contractor does not file 1099s for parts purchased that were built into products sold to the govenrment. Then imagine this failure to file 1099s was caught in an IRS audit, after which the contractor paid penalties. This situation is one more example in which it appears that the elements of requirements (c)(1)(iii) and (c)(1)(iv) of FAR 52.209-7 could be satisfied, which in turn further suggests that some tax penalties must be reported in FAPIIS.

Penalty Example Five

What about state tax penalties? To name just one state, California considers and accepts some offers in compromise from companies. Let us use penalty example number two again, but apply it at the state level. Imagine our hypothetical contractor did not pay state employment taxes for employees working on a Federal contract project, and that after a state audit the contractor paid the state a failure-to-pay tax penalty. Once again it appears that the elements of requirements (c)(1)(iii) and (c)(1)(iv) of FAR 52.209-7 could be satisfied, which suggests fairly clearly that some state tax penalties must be reported in FAPIIS.

Other Examples

You may think of better, or at least additional, examples. Comments are welcome.

Conclusion

How will government procurement personnel react to a contractor’s self-reported tax penalties found in the FAPIIS database? Will any of them ever overreact notwithstanding any contractor comments in FAPIIS? I believe that we will see instances of a large or mid-sized contractor found lacking for a major contract award by government contracting personnel who review the contractor’s self-reported negative data in the FAPIIS database and decide subjectively and excessively that there are sufficient responsibility concerns to warrant bid rejection.

In addition, what will competitors without tax penalties in their FAPIIS record do with the information that the contractor in question has paid tax penalties? Perhaps as much or more than in government procurements, in the world of commercial procurements such negative information about a contractor is potentially helpful to competitors.

Is tax penalty data a good indicator of a contractor’s contract-performance history? Or has the information net been cast too wide by FAPIIS? Could it be that tax penalties must be reported in FAPIIS under certain circumstances due to concerns about contractors living up to their tax payment "responsibility of citizenship"? Note a January 20, 2010 Presidential Memorandum that might be interpreted as supporting this view.

AF

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.

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

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.