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New DFARS Rule Reiterates: Don’t Retaliate Against Whistleblowers

The final DFARS rule implementing whistleblower protections for prime and subcontractor employees became effective on February 28, 2014.  This rule, found at subpart 203.9, sets forth policies and procedures for protecting whistleblowers, handling complaints, and imposing remedies. The subpart applies to DOD contractors (excluding those in the intelligence community), regardless of size, at the prime and subcontract levels, in lieu of the requirements of FAR 3.903 and 3.905. Under the rule, DOD contractors and subcontractors are prohibited from “discharging, demoting, or otherwise discriminating against” any employee in retaliation for the employee’s disclosure to certain entities of information related to: gross mismanagement, abuse of authority, or violations of law, rule or regulation concerning DOD contracts; gross waste of DOD funds; or dangers to public health or safety.

New DFARS Rule Reiterates: Don’t Retaliate Against Whistleblowers

GAO: Treasury Violated Antideficiency Act’s Prohibition on “Voluntary Services”

A recent U.S. Government Accountability Office (GAO) decision serves as an important reminder that federal agencies violate the Antideficiency Act, 31 U.S.C. § 1341 et seq., whenever they accept unpaid “voluntary services” from contractors without first obtaining written agreement that: (1) the services are offered without expectation of pay; and (2) expressly waives any future pay claims against the government.  Dep’t. of the Treasury—Acceptance of Voluntary Servs., B-324214, Jan. 27, 2014.

The Antideficieny Act provides that an agency “may not accept voluntary services” that exceed those authorized by law.  See 31 U.S.C. § 1342.  According to GAO, “[t]he purpose of the prohibition is to preclude situations that might generate claims for compensation that might exceed an agency’s available funds.”  B-324214, at 2 (internal citation omitted).  The Federal Acquisition Regulation (FAR) also makes clear that the mere act of “encouraging a contractor to [perform or] continue work in the absence of funds” is a violation.  See FAR 32.704(c) (emphasis added).  Federal employees who violate the Act are subject to civil or criminal penalties.  See 31 U.S.C. §§ 1349, 1350.

Because the voluntary services prohibition is intended to preclude future monetary claims against the government, GAO and the Attorney General have held that an agency does not violate the Antideficiency Act if it accepts voluntary services “with a written record” that clearly says “the services are offered with no expectation of payment.”  See B-324214, at 3.  According to GAO, such services are “gratuitous,” not “voluntary,” and therefore do not violate the Act.  Id.  To be effective, such an agreement “must clearly state that the services are offered without expectation of payment, and it must waive any future claims against the government for pay for the services rendered.”  Id. at 4.

In Dep’t of Treasury, GAO determined that the Treasury violated the Antideficiency Act when it accepted services from four individuals who “perform[ed] substantive official business” for the agency on an unpaid basis.  Id. at 2.  Treasury admitted it had not obtained an advanced “written waiver of compensation” from any of the workers.  Id. at 3.  Instead, the agency claimed it had secured “binding oral waivers” to that effect.  Id. at 3.  According to GAO, this approach “clearly violate[d] the plain meaning of the voluntary services prohibition,” id. at 2, and “[o]nly a written document, executed prior to the beginning of performance by those providing services to the government, provides the necessary protection from [future monetary] claims,”  id. at 3-4.

In an era of ever-tightening budgets and increased competition for federal work, government contractors may be tempted to offer their services to federal agencies “at no cost.”  Similarly, government officials may encourage contractors to perform work without compensation.  Before doing so, however, contractors should be mindful of the requirements under the Antideficiency Act and should consult with counsel prior to executing any advanced agreement to waive future claims against the government.

GAO: Treasury Violated Antideficiency Act’s Prohibition on “Voluntary Services”

DCAA Clarifies Position on Documentation Requirements for Consultant Costs

The Defense Contract Audit Agency recently issued guidance clarifying the agency’s view on the types of evidence necessary to substantiate consultant costs.  The guidance explains DCAA’s position that Federal Acquisition Regulation 31.205-33, which addresses the allowability of consultant costs, does not require the existence of specific types of documents in order for consultant costs to be allowable.  Instead, the guidance explains that the FAR only requires evidence of the nature and scope of the consultant effort and that such evidence can be supplied in a variety of ways, including through non-contemporaneous documentation.  This guidance will assist contractors in resisting the common auditor position that FAR 31.205-33 requires contractors to provide specific types of documents, such as invoices, contracts, and work product, as a precondition of consultant cost allowability.

DCAA Clarifies Position on Documentation Requirements for Consultant Costs

Senate Committee Hearing Highlights Uncertainty Surrounding Fiscal Year 2014 Defense Budget

The four military service chiefs presented a gloomy picture of the projected effects of sequestration and a continuing resolution on their respective branches to Senators at an Armed Services Committee hearing on November 7th. While the House of Representatives  has already passed both a defense appropriations bill and a defense authorization bill for fiscal year 2014, the Senate has done neither – even as the 1st quarter of fiscal year 2014 draws to a close. If the Congress fails to enact a regular defense appropriation for fiscal year 2014 prior to January 25, 2014 (i.e. the expiration of the current continuing resolution or “CR”), defense spending will likely be locked at fiscal year 2013 levels under a continuing resolution in effect through October 1st. Moreover, if Congress fails to provide some legislative relief from the implementation of sequestration in this fiscal year, the defense budget will be further slashed – by as much as $54 billion – below that CR level.

General Mark Welsh, Chief of Staff of the Air Force, summed up the collective sentiment of the witnesses: “[w]e don’t know how much money we’re going to have. We don’t know when we will know how much money we’re going to have. And we don’t know what the rules are going to be when we know.”

Of the four testifying, General Ray Odierno, Chief of Staff of the Army, presented arguably the starkest case. General Odierno outlined the dramatic cuts to end strength in store for the Army if sequestration cuts are fully implemented. According to General Odierno, the Army will go from a wartime high of 570,000 soldiers to 420,000 soldiers (an 18% cut) by the end of sequestration in FY’ 21. Moreover, training opportunities for the Army’s current units will be slashed dramatically in FY’14. General Odierno warned that 85% of the Army’s active and reserve Brigade Combat Teams will not meet the readiness (training) requirements for deployment in a contingency because of a lack of funds. And as the service that bore the brunt of the war in Afghanistan over the last 12 years, the Army has the largest backlog of equipment that requires  significant maintenance. General Odierno noted that the Army has deferred some $716 million in maintenance on roughly 172 aircraft, 700 vehicles, 2,000 weapons and 10,000 pieces of communications equipment. Because of the uncertainty over the size and composition of the Army going forward and because of the tremendous deficits in training and maintenance, General Odierno predicted cuts and restructuring to major Army acquisition programs. In particular, General Odierno singled out two high profile programs – the Armed Aerial Scout program and the Ground Combat Vehicle – as being at risk. General Odierno’s testimony to the Senate Armed Services Committee about the threats to Army acquisition programs has closely echoed his previous comments to the defense industry at the annual Association of the U.S. Army Exposition in October.

All of the service chiefs agreed that sequestration needed to be replaced. Barring a full replacement of the sequester cuts, all of the chiefs agreed that greater flexibility in reallocating (“reprogramming”) precious defense dollars would help ease some of the strain. Some members of Congress have discussed temporary relief from the sequester in FY’14 and ’15. If the services got additional funds and flexibility in FY’14, the service chiefs would most likely apply it to their Operations and Maintenance accounts to preserve current readiness. This could be good news for government contractors that provide training support and do maintenance, repair and overhaul of equipment. The first signs of any sort of sequester relief deal would likely come from the House-Senate Budget Committee Conference.

Senate Committee Hearing Highlights Uncertainty Surrounding Fiscal Year 2014 Defense Budget

White House Announces Plans to Create Government-wide FOIA Portal

The White House recently announced plans to overhaul the process for submitting Freedom of Information Act (FOIA) requests to the federal government.  See Draft Report, “The Open Government Partnership:  Second Open Government National Action Plan for the United States of America.”  These plans include the creation of a single online portal for submission of all FOIA requests, as well as an effort to standardize FOIA regulations and practices across agencies.  The administration hopes a coordinated FOIA process will reduce the amount of time and effort needed to obtain responsive information and navigate through each agency’s unique FOIA processes and procedures.  A final version of the plan is expected in December 2013.

At present, however, the White House’s proposal is far more aspirational than operational.  The plan contains few specifics and leaves many unanswered questions, including how the new process will affect: (1) overall processing times for FOIA requests; (2) the procedures for filing administrative appeals (i.e., whether such appeals will be handled on a consolidated basis or continue on an agency-by-agency basis; or (3) a requester’s ability to interact directly with agency personnel who are tasked with searching for responsive records.

Given these and other unanswered questions, the true impact of the White House’s proposal remains to be seen.  We will continue to monitor the status of the administration’s plan to create a unified FOIA system.

White House Announces Plans to Create Government-wide FOIA Portal

DoD Issues Contract Clause Regarding Obligations in Advance of FY14 Funding

In an effort to facilitate procurement of supplies and services necessary to support those activities that are excepted from the shutdown, on October 9, DoD  issued a contract clause that contracting officers are required to use when entering into contracts or issuing modifications or task/delivery orders, or exercising options for such excepted activities. Notably, the clause does not apply to any contract actions using existing appropriations (e.g., prior year funds) or to actions under the Pay Our Military Act, which was the authority relied upon by DoD on October 5 to reinstate the majority of furloughed DoD civilian employees as required to support members of the Armed Forces, and to authorize the payment of “allowances” to contractors who DoD determines are providing support to members of the Armed Forces in active service. The new contract provision, DFARS 252.232-7998 (Obligations in Advance of Fiscal Year 2014 Funding), provides that the DoD has authority to enter into the contractual action and to obligate the Government in advance of appropriations, and that payment will be made when appropriated funds become available. One may question the constitutionality of this clause, as it purports to commit both Congress and the Executive Branches to financial obligations in advance of any appropriations of funds. Nonetheless, any contractor performing “excepted” activities under a contract that was not fully funded at the time of the shutdown would be prudent to make sure that the new provision is added to the contract by modification. By doing so, contractors can best position themselves to recover their performance costs and avoid a limitation of funds defense to recovery.

DoD Issues Contract Clause Regarding Obligations in Advance of FY14 Funding

Another Possible Blow for Contractors – -Implications of the Failure to Raise the Debt Ceiling

With the recent shutdown caused by failure to enact a Continuing Resolution funding the government for the start of FY2014, contractors are understandably wary of Congress’ ability to reach an agreement on raising the debt ceiling.  If the debt ceiling is not raised, and the US Treasury cannot meet all of the United States’ financial obligations when they become due, government contractors are likely to be among those adversely affected.  When the debt limit is reached, Treasury’s borrowing authority ends, so the Department cannot issue new debt to manage cash flow or to pay interest on the federal deficit.  As a result, the Government cannot pay its bills or invest surpluses which may accumulate in various trust funds as required by law.

A Government default on financial obligations resulting from a failure to raise the debt ceiling is different from a Government shutdown that results from the failure of Congress to pass appropriations legislation.  A shutdown occurs because the Government may not incur new financial obligations in the absence of appropriations without violating the Anti-Deficiency Act.  A default means that the Government cannot pay financial obligations that have already been incurred.  Raising the debt ceiling is not about the availability of funds; it is about managing cash flow.  If the debt ceiling is not raised and default occurs, the Department of the Treasury will prioritize and decide which outstanding financial obligations are paid and in what order.  Most experts believe that in this event, Treasury will use available funds to first pay interest on outstanding debt and entitlement obligations, and delay or defer payments to contractors – -including payments for invoices for work that has been completed or for delivered goods, progress payments, contract financing payments, and other payments, such as those for lease or settlement agreements.

Another Possible Blow for Contractors – -Implications of the Failure to Raise the Debt Ceiling