DEFENSE CONTRACTING

Lessons Learned From Latest Ethics Violation

4/1/2011
By James D'agostino and David P. Goodwin
The Defense Department’s inspector general’s office in January reported instances of noncompliance with the Federal Acquisition Regulation, and recommended remedial action to improve the Army Logistics Civil Augmentation Program IV (LOGCAP IV) support contract.
This report confirms two primary policy themes of increasing importance to the current procurement system: an understaffed and underfunded acquisition work force; and conflicts of interest, particularly organizational conflicts of interest.

The program in the broadest sense is an Army initiative to administer contingency operations through logistics support contracts. It comprises four contracts. Three for performance contractors who would compete for and perform individual task orders; and a fourth to plan and develop task order performance work statements for task orders under the LOGCAP IV performance contracts.

This arrangement ironically was instituted to avoid the potential conflict of interest of having one of the three performance contractors plan and draft and then bid on the same performance work statements.

Premised on an interpretation of the scope of the support contract that the inspector general deemed untenable, the support contractor was directed in two ways to perform work outside the scope of the contract.

The first was performing under proper task orders, but performing work for non-LOGCAP contracts. The second, an individual task order for base closure assistance team support, was entirely out of scope because it was in direct support of Multi-National Corps-Iraq, not logistics officials, as prescribed in the support contract performance work statement.

Government acquisition officials responsible for the support contract also failed to establish a sufficiently detailed quality assurance surveillance plan as required by FAR Subpart 46.4, and the award fee plan was unnecessarily vague.

These two “out of scope” problems work surfaced several concerns. First, apart from violating the Competition in Contracting Act, 41 U.S.C. § 253, allowing contractors to perform out of scope work on existing contracts bypasses competition and likely cost savings to the government. Second, the support contractor had a clear competitive insider advantage on non-Army logistics work when it has drafted the performance work statement. Third, the contractor received access to others’ proprietary information creating potential violations of the FAR and the Trade Secrets Act, 18 U.S.C. § 1905. Fourth, the Army is exposed to liability to contractors whose proprietary information was improperly disclosed.

These last three concerns all fall within the category of organizational conflict of interest.  Here, these issues were exacerbated because the support contract had built in contractual provisions to bar organizational conflicts of interest for the work, but did nothing to extend that protection to non-Army logistics work, even after the support contractor began developing performance work statements for the outside work.

One subcontractor had employees developing performance work statements for non-logistics work, and that subcontractor also had employees working on a contractor team for the Combat Service Support Contract-Kuwait, in line to compete for task orders using the same performance work statements. To the support contractor’s credit, one of its employees actually identified this potential conflict of interest and brought it to the Army’s attention. As the inspector general report points out, however, the contract should have been modified to address this problem.

In addition to the work out of scope issues, the inspector general also found that the quality assurance surveillance plan and award fee plan were too vague and lacked sufficient detail to meet their objectives — that the government was receiving what it paid for and that payment above and beyond the award fees were justified.

The specific problem with the support contractor quality assurance surveillance plan was that there was only a single general quality assurance surveillance plan. No specific surveillance plans were developed for particular task orders. Because the plan only existed at a very high level of abstraction, it lacked the level of detail needed to track the support contractor’s performance against task orders. The surveillance plan also lacked particular required metrics. For example, the section discussing demonstration of adequate skills to perform job duties failed to describe the required skills.

The award fee plan was deemed flawed for lack of metrics that defined varying levels of performance, meaning that the support contractor’s award fees may have been unjustified.

The report identifies errors and remedial actions for the Army both specific to these contracts and systemically for the acquisition leadership, but contractors also can take away a lesson here. In the short run lead contractors who don’t flag out of scope work or unduly broad quality assurance surveillance and award fee plans may profit.

But in the long run, those contractors who seek to understand and abide by the ground rules, and share responsibility for ensuring that all actions are authorized, recorded, and documented, will have earned the government’s trust, and this, long term, inevitably will result in more business.

L. James D’Agostino is a shareholder (dagostinoj@gtlaw.com) and David P. Goodwin (goodwind@gtlaw.com) is an associate with the international law firm of Greenberg Traurig LLP government contracts practice group. The views expressed are solely those of the authors.

Topics: Defense Contracting, Defense Contracting

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