On May 19, 2015, the chairman of the Senate Judiciary Committee, Senator Charles E. Grassley (R-IA), requested information from United States Attorney General Loretta Lynch and Andrew M. Slavitt, Acting Administrator for Centers for Medicare and Medicaid Services (CMS) regarding how the agencies are working together and separately to prevent Medicare Advantage fraud. Senator Grassley’s letters rely on April 2015 investigative findings issued by the Center for Public Integrity for his assertion that there is “an increasing number of lawsuits against insurance companies” for Medicare Advantage fraud, and the Government Accountability Office’s (GAO) 2015 Annual Report, which suggests that CMS “could save billions of dollars by improving the accuracy of its payments to Medicare Advantage programs. . . .” To ensure that CMS has the appropriate “safeguards” in place to prevent fraud, Senator Grassley requested answers to the following questions by June 3, 2015:
What steps has the Department of Justice (DOJ) taken, and is currently taking, to ensure that insurance companies are not fraudulently altering risk scores?
Is DOJ working in conjunction with CMS to investigate risk score fraud? If not, why not?
In the past five years, how many Medicare Advantage risk score fraud investigations has DOJ conducted? Of the investigations, how many have resulted in criminal and/or civil sanction?
Senator Grassley’s letters were sent only weeks after CMS issued its 2016 Rate Announcement and Call Letter on April 6, 2015. After accepting and reviewing comments on its Advance Notice and Draft Call Letter, which estimated a 0.95 percent decrease in revenue for plan providers, the April 6 announcement estimated a 3.25 percent increase in revenue based on finalized 2016 rates. Neither the Attorney General nor CMS has responded to Senator Grassley’s requests. Continue reading “Medicare Advantage Program Enforcement: Increased Publicity May Lead to Increased Scrutiny”
This is the scenario: you are an executive or manager at a government contractor. It’s Friday morning. You are hoping to leave early and get a jump on the weekend. Then, the receptionist buzzes you and says, “There are men and women out here wearing FBI windbreakers and they want to execute a search warrant.” You wonder, “Can I tell the agents they cannot come in?” Your company does not have in-house counsel. You can call your attorney, but his or her office is across town and the FBI agents say they are not going to wait. “What should I do?”
This may sound like an unlikely scenario, but such government investigations happen all of the time around the country and are rarely expected. In recent years, prosecutors and agents from the Department of Justice (DOJ) and Inspector General Offices have brought charges of procurement fraud and corruption against over 100 defendants, including officers and employees of companies of all sizes. In September 2014, DOJ’s Criminal Division announced that it would be “stepping up” its investigation and prosecution of criminal violations of the False Claims Act, using a team of senior federal prosecutors dedicated exclusively to procurement fraud. DOJ’s announcement cited the use of search warrants as one of the significant investigative tools at prosecutors’ disposal. In addition to their increased exposure to law enforcement authorities, small businesses should expect greater scrutiny of their contracting dollars, an initiative that has received bipartisan support in Congress. In March, the House Small Business Committee approved a measure calling for a sweeping examination into abuses in small business contracting, and the Small Business Administration recently proposed a rule for harsher penalties relating to small business subcontracting limitations. Continue reading “Responding to a Warrant—What to Do if Your Company Is Subject to a Fraud Investigation”
On January 29, 2015, the Department of Defense, General Services Administration, and National Aeronautics and Space Administration published a final rule, effective March 2, 2015, implementing extensive new prohibitions and compliance requirements to the Federal Acquisition Regulation (FAR). The changes, mandated by President Obama’s December 2012 Executive Order (E.O. 13627) and the FY 2013 National Defense Authorization Act, raise across-the-board compliance concerns for government contractors—especially those that regularly employ foreign nationals.
New Restrictions and Requirements
The rule, amending FAR Subpart 22.17 and Contract Clause 52.222-50, will prohibit contractors and subcontractors from denying employees identity or immigration documents; using misleading or fraudulent recruitment practices; charging employees recruitment fees; using recruiters that do not comply with local labor laws of the country recruited from; and providing or arranging housing that fails to meet the host country’s housing and safety standards. The regulations also generally require contractors and subcontractors to pay for or provide transportation of foreign workers back to their home country at the end of their employment if they were brought to the work-country for the purpose of working on a U.S. Government contract or subcontract; or if the work-country is the U.S., they are not a U.S. national, and transportation is required under existing temporary worker programs or pursuant to a written agreement with the employee.
If required by law or under the contract, contractors and subcontractors must provide a written work document to employees in a language the employee understands. The rule further requires that the document contain, at minimum, details about work description, wages, the prohibition on recruitment fees, work location(s), living accommodations and associated costs, time off, round-trip transportation arrangements, grievance process, and the content of applicable trafficking laws and regulations. Continue reading “New Anti-Trafficking Regulations Finalized for Government Contractors”
A recent proposed rule issued by the Small Business Administration (SBA) previews long-awaited changes to SBA’s regulations governing small business government contracting programs. These changes will impact both large and small government contractors alike and warrant close attention. This alert highlights key elements in the proposed rule, including major changes to subcontracting limitations for small business set-asides that first arose in the FY 2013 National Defense Authorization Act (NDAA). Given the explosive growth in enforcement for small business program violations, and draconian new penalties for such violations, all contractors should take steps to ensure they comply with the upcoming rule changes.
Changed Method for Calculating Subcontracting Limitations
The FY 2013 NDAA implemented a number of changes to small business programs in federal procurements (we recently covered these changes here). The primary reform in the NDAA—now addressed in the SBA’s proposed rule—is a significant shift in the method of limiting subcontracting under set-aside procurements. The SBA and FAR currently require prime small business concerns on set-aside contracts to incur set percentages of costs incurred under the contract based on the contract type (e.g., at least 50 percent of the personnel or manufacturing costs incurred under service and supply contracts). The challenges in monitoring this cost-based method led Congress to amend the Small Business Act. That statute now limits the percentage of the total contract price a prime awardee can subcontract out. Consistent with the statute, the proposed rule would amend 13 CFR § 125.6 to require small business primes to perform 50 percent of the total contract price for service and supply contracts, 15 percent for general construction, and 25 percent for specialty trade construction. Continue reading “SBA Proposes Anticipated Small Business Subcontracting Rule”
As the holiday season approaches, companies may consider giving gifts to their government customers. But companies should be aware of the legal limits imposed on gift giving, which could result in serious penalties if ignored. Generally, federal government employees may not solicit or accept gifts or any other thing of value from prohibited sources. See generally, 5 C.F.R. Part 2635, Standards of Ethical Conduct for Employees of the Executive Branch. A prohibited source is defined as a person or company seeking official action by, doing business with, or seeking to do business with the employee’s agency, or a person or company regulated by the employee’s agency or that has interests that may be substantially affected by the employee’s official duties.
There are exclusions under the definition of “gift” that allow for some leeway in giving. Snacks or light refreshments (e.g., coffee and doughnuts at a seminar, but not as part of a meal) are excluded from the definition of gift. Items of little intrinsic value such as greeting cards are also excluded. Further, anything that a government employee pays “market value” for is not considered a gift. Market value can have varying meanings, but generally is considered face value, what the contractor paid for it, or the open market equivalent, depending on the item. Continue reading “Guidelines for Contractors Considering Giving Gifts to Government Customers”
Starting January 1, 2015, a minimum wage of $10.10 per hour will apply to certain federal government contracts issued or awarded after that date. This alert provides key details about this new minimum wage that service contractors need to know.
Which Contracts Are Covered?
On February 12, 2014, President Obama signed Executive Order 13658, which instructed the Secretary of Labor to raise the minimum wage on federal construction and service contracts to $10.10 per hour beginning in 2015 and, beginning in January 2016, to an amount set by the Secretary on an annual basis. The Department of Labor issued a final rule implementing this new minimum wage in October 2014. See 79 Fed. Reg. 60,633 (Oct. 7, 2014).
The Department of Labor’s final rule generally extends to the following four categories of “contracts” and “contract-like instruments”:
Procurement contracts for construction services covered by the Davis-Bacon Act (DBA);
2. Service contracts covered by the Service Contract Act (SCA);
3. Concession contracts, including any concession contract excluded from the SCA by the Department of Labor’s regulations at 29 C.F.R. § 4.133(b); and
4. Contracts in connection with federal property or lands related to offering services for federal employees, their dependents, or the general public.
DOD, FYSA, SITREP – government contractors are familiar with the alphabet soup that goes hand-in-hand with doing business with the federal government as well as most common labor laws and their acronyms: Federal Labor Standards Act, (“FLSA”), the Family and Medical Leave Act (“FMLA”), or Occupational Safety and Health Act of 1971 (“OSHA”). Now, the question is whether contractors comply with these laws and recent developments in government contractor employment law. On July 31, 2014 the White House issued the Executive Order – Fair Pay and Safe Workplaces (the “Executive Order”) which creates new requirements that will add pre and post-award reporting demands on many new government services and construction contracts. The purpose of this alert is to help government contractors sort through the dense language of the Executive Order and provide a roadmap for what to do going forward so that violations of labor laws don’t lead to suspension or debarment.
What’s New? The Basics of Executive Order – Fair Pay and Safe Workplaces The Executive Order applies to all new “procurement contracts for goods and services” with an expected value exceeding $500,000. The new requirements do not apply to contracts for “commercially available off-the-shelf items,” or contracts presently being performed. According to the White House Fact Sheet for the Executive Order, the new requirements will be applied in stages, on a “prioritized basis” beginning in 2016. Neither the Executive Order nor the Fact Sheet define “prioritized basis,” but presumably, government contracts with the highest expected values and most hazardous contract conditions will be among the first to report under the new requirements. The 2016 date provides some time for both the Federal Acquisition Regulatory (“FAR”) Council and Department of Labor (“DOL”) to issue guidance for implementation as required by the Executive Order.
So your company has been diligently trying to comply with state and federal government contracting regulations. You pay your service employees in accordance with the Service Contract Act, you file your EEO-1s and VETS 100s, you monitor state campaign contributions, and you follow all of the additional requirements in your compliance plan. You think your company is “golden.” Right? Maybe. Are you “offshoring” services under your contract, or the data related to your state and/or Medicaid government contracts? This easily overlooked issue has been percolating to the top of the list for government agencies, state attorneys general, and perhaps, qui tam plaintiffs’ attorneys.
Offshoring, or “the import from abroad of goods or services that were previously produced domestically,”[1] is a major part of today’s business landscape, and government contracting at both federal and state levels is no exception. The issue of offshore outsourcing of services first drew attention in the world of government contracts in 2004, when the media reported that call centers in India were answering customer service calls from Food Stamp recipients.[2] The controversy faded from the public spotlight, but in response to public outcry some states passed legislation or issued executive orders prohibiting or limiting the practice.
A recent (April 11, 2014) report[3] from the Department of Health and Human Services (DHHS) Office of the Inspector General (OIG) resurfaced the issue of offshoring restrictions in the context of Medicaid contracts. The report reminded contractors that offshoring prohibitions and limitations remain in full force today, and government contractors need to be aware of them. Government contractors must review each individual state contract to ensure compliance with any offshore outsourcing prohibition or restriction. Running afoul of an offshore outsourcing prohibition could have serious consequences. Noncompliance could expose a contractor to suspension, debarment, or even liability under the state’s version of the False Claims Act under the theory that the contractor implicitly certified compliance with a material term of the contract.[4]Continue reading “Does Your State Contract Prohibit Offshore Outsourcing?”
With the potential for millions of dollars in withholdings on contract payments, Department of Defense (DoD) contractors have become all too familiar with the Business Systems Rule since it was first implemented in 2011. The Department of Energy (DoE) is now following in the steps of DoD and promulgating its own Business Systems Rule. On April 1, 2014, DoE issued a Notice of Proposed Rulemaking for its Business Systems Rule, which is largely modeled off of the DoD rule. This expansion of the Business Systems Rule beyond DoD warrants careful attention by contractors who may not have previously been covered, as effective and proactive compliance is essential to mitigating the risk of withholdings under the rule.
Overview of the DoD Business Systems Rule
The DoD Business Systems Rule permits DoD to withhold contractor payments on covered contracts if one or more “significant deficiencies” are found in any of the six business systems covered by the rule. The term “significant deficiency” is broadly defined as “a shortcoming in the system that materially affects the ability of officials of DoD and the Contractor to rely upon information produced by the system that is needed for management purposes”–a definition which leaves great discretion to the Contracting Officers responsible for determining system acceptability. Continue reading “The Expansion of the Business Systems Rule Beyond DoD”
On May 30, 2014, the Federal Acquisition Regulatory Council issued a final rule expanding the FAR’s executive compensation cap—which is currently set at $952,308—to all contractor employees on contracts for the Department of Defense (DoD), NASA, and the Coast Guard. The final rule adopts without any changes the interim final rule issued on June 26, 2013, as modified by a subsequent technical amendment.
Overview of the Final Rule
The FAR’s executive compensation cap limits the allowability of executive compensation to an amount set each year by the Administrator of the Office of Federal Procurement Policy. The rule, which is implemented by FAR 31.205-6(p), previously applied only to the CEO and the next four most highly compensated employees in management at the company’s headquarters, as well as the five most highly compensated employees at certain other home offices of the contractor. The updated rule expands the applicability of the cap to all contractor employees on DoD, NASA, and Coast Guard contracts awarded on or after December 31, 2011.
The final rule was issued pursuant to Section 803 of the National Defense Authorization Act (NDAA) for Fiscal Year 2012 (Pub. L. 112-81). In response to a comment that the final rule will reduce contractors’ ability to attract and retain experienced and talented individuals, the comments to the final rule explain that a June 2013 GAO report found that less than .4 percent of defense contractor employees would be affected by a cap set at the President’s salary of $400,000. The comments also note that GAO found that fewer than .1 percent of employees covered by the existing cap were affected by the cap from 2010 to 2012. The final rule also indicated that the DoD is not prohibited from considering an exception to the cap for scientists and engineers. Continue reading “Final Rule Expanding the FAR’s Compensation Cap to All Contractor Employees on DoD, NASA, and Coast Guard Contracts”
