Congress imposes new hurdles for contractors.Several statutes directly relevant to government contractors A government contractor is a private company that produces goods or services under contract for the government. Often the terms of the contract specify cost plus – i.e., the contractor gets paid for its costs, plus a specified profit margin. became law recently, and companies doing business with the federal government should worry about these new laws New Laws: see Las Casas, Bartolomé de. for a number of reasons.
First, Congress wants to place work now performed by contractors into the hands of federal employees through a "contracting-in" process. Second, Congress is tightening the use of the "commercial item" exemption for certain procurements, and imposing tougher limitations on organizational conflicts of interest restrictions. Moreover, Congress continues its attack on contractor recovery of indirect costs Indirect costs are costs that are not directly accountable to a particular function or product; these are fixed costs. Indirect costs include taxes, administration, personnel and security costs. See also
When an individual or a company is involved in a large-scale project, a contractor is often hired to see that the work is done. effort.
Finally, Congress has opened the door for increased contractor liability, as agents of the government, for mistreatment mis·treat
tr.v. mis·treat·ed, mis·treat·ing, mis·treats
To treat roughly or wrongly. See Synonyms at abuse.
mis·treat of any individual "in the custody or under the physical control" of the government.
In Section 343 of the FY 06 DOD (1) (Dial On Demand) A feature that allows a device to automatically dial a telephone number. For example, an ISDN router with dial on demand will automatically dial up the ISP when it senses IP traffic destined for the Internet. Authorization Act, Congress ordered the Department of Defense to "prescribe guidelines and procedures" to facilitate reviews for migrating work from contractors to the federal government. In effect, Congress instructed DOD to give "special consideration" to contracts that have been performed by federal government employees at any time since Oct. 1, 1980; are associated with inherently governmental functions; were not awarded on a competitive basis; or have been determined "to be poorly performed due to excessive costs or inferior quality."
Congress passed a similar provision in Section 842(b) of the FY 06 Transportation, Treasury and HUD Hud (hd), a pre-Qur'anic prophet of Islam. Hud unsuccessfully exhorted his South Arabian people, the Ad, to worship the One God. Appropriations Act. There, Congress ordered that OMB OMB
Office of Management and Budget
Noun 1. OMB - the executive agency that advises the President on the federal budget
Office of Management and Budget Circular A-76 "shall provide procedures and policies for these [public-private] competitions [to convert work from contract to federal employee performance] that are similar to those" that would allow conversion of work from federal employees to a contractor.
The language in these provisions is problematic because it is so broad. For example, under the criteria in the DOD Authorization Act, any work that federal employees performed at any time in the last quarter-century, that contractors now perform, must be given "special consideration" for conversion to federal employee performance. Similarly, contract work "associated" with inherently governmental functions must be given such special consideration, along with any contract not competitively bid or determined to have excessive costs or inferior quality. Congress provided no measures to indicate how "excessive" or "inferior" costs and quality must be to qualify.
Title VIII of the DOD Authorization Act contains a number of polices to expand congressional oversight Congressional Oversight refers to oversight by the United States Congress of the Executive Branch, including the numerous U.S. federal agencies. Congressional Research Service (CRS) Report for Congress
Congressional Oversight of increased costs in major defense acquisition programs (Sec. 801-802, 804), and control over the treatment of a major weapon system as a "commercial item." In Section 805, Congress sought to gain visibility into the role of "lead system integrators" in major systems, focusing on organizational conflicts of interest and the use of "pass-through charges" by such integrators. Congress defined these charges as "a charge for overhead or profit on work performed by a lower-tier contractor ... that does not ... promote significant value added Value Added
The enhancement a company gives its product or service before offering the product to customers.
This can either increase the products price or value. with regard to such work."
This provision continues the attack on prime contractor recovery of indirect costs and profit on subcontractor effort. It is especially troubling because DOD appears to have the discretion to determine what "does not promote significant value added with regard to" subcontracted sub·con·tract
A contract that assigns some of the obligations of a prior contract to another party.
intr. & tr.v. sub·con·tract·ed, sub·con·tract·ing, sub·con·tracts work. Equally worrisome: Such a limitation on indirect cost recovery appears to ignore government regulations on indirect cost accounting contained in federal Part 31 of the Federal Acquisition Regulation and the Cost Accounting Standards.
Section 841 of the DOD Authorization Act orders the General Accounting Office to review DOD efforts to identify and assess vulnerability in DOD contracts to fraud, waste and abuse. GAO must submit a report to Congress within six months, including findings and recommendations. Contractors can anticipate that this report will give new ammunition to those calling for more contractor scrutiny.
The DOD Appropriations Act also contains Title X, prohibiting "cruel, inhuman in·hu·man
a. Lacking kindness, pity, or compassion; cruel. See Synonyms at cruel.
b. Deficient in emotional warmth; cold.
2. or degrading TO DEGRADE, DEGRADING. To, sink or lower a person in the estimation of the public.
2. As a man's character is of great importance to him, and it is his interest to retain the good opinion of all mankind, when he is a witness, he cannot be compelled to disclose treatment or punishment" for any individual "in the custody or under the physical control of the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. Government, regardless of nationality or physical location." Contractors, especially contractors performing security functions, must be alert to the fact that they may be considered "agents" of the U.S. Government and open to liability for mistreatment of any individual. Section 1004 provides for a limited defense if the person charged "did not know that the practices were unlawful and a person of ordinary sense and understanding would not know the practices were unlawful."
These statutes demonstrate that companies doing business with the federal government should expect increased challenges in obtaining, performing and withstanding audits and investigations related to government contracts.
Robert E. Lewis Jr. (firstname.lastname@example.org) is Manager of Government Affairs in FEI's Washington, D.C., office and liaison to FEI's Committee on Government Business. He wishes to acknowledge the contribution to this ARTICLE of Stephen D. Knight, a long-time government contracts attorney and partner with Smith Pachter McWhorter.