Federal Contracting Developments & Hot Button Compliance Issues

Transcription

1 Federal Contracting Developments & Hot Button Compliance Issues CBI Conference Federal Pricing and Contracts for Bio/Pharmaceutical Companies Philadelphia, PA December 9-10, 2014 Joy Sturm, Hogan Lovells US LLP Dave Rice, Dave Rice Group LLC 1

2 AGENDA Update on Developments at VA & DoD Update/considerations in the age of corporate inversions Compliance Issues 2

3 Update on Developments at the VA & DoD CBI Conference Federal Pricing and Contracts for Bio/Pharmaceutical Companies Philadelphia, PA December 9-10,

4 Organizational Structure Assigned FTEs : 76 Vacant FTEs: 21 Director Jane Stroder Alpha Contract Director James Booth Lambda Contract Division Bob Satterfield Omega Contract Division Greg Madden Program Management & Resource Support Division Christine Szrom All 9 Schedules All 9 Schedules All 9 Schedules Systems Management and Contract Support Jane Stroder, Director June 11, 2014 Briefing to AMSUS-SM

5 Activities and Initiatives #1 Priority is to fill current vacant positions Look at future needs Ensure we are measuring and managing for success Transition to a paperless Contracting Activity Moving back to schedule focused Divisions Re-establish Priorities No Awards Most Favored Customer (MFC) and Fair & Reasonable Procurement Action Lead Times (PALT) expectations Jane Stroder, Director September 17, 2014 Briefing to Medicaid Drug Rebate Program (MDRP) & Other Public Sector Reimbursement Programs 5

6 Schedule Focus Assigned FTEs : 76 Vacant FTEs: 13 Director Jane Stroder Contract Division Pharm Contract Division Med-Surg Contract Division Services Program Management & Resource Support Division Christine Szrom 65 IB--Pharmaceutical 65 VII--Invitro Diagnostics, Reagents, Test Kits/Sets 65 IIC Dental Equipment & Supplies 65 IIA Medical Equipment & Supplies 65 IIF Patient Mobility Devices 65 VA X-Ray Equipment & Supplies 621 I Professional & Allied Healthcare 621 II Medical Laboratory Testing & Analysis 66 III Cost Per Test Clinical Laboratory Schedule focus (Solicitation rewrite, Policy, Training, Sub Contracting, SIN Cleanup, Waivers) Systems Management and Contract Support Transition Status New Offers Existing Contracts Jane Stroder, Director September 17, 2014 Briefing to Medicaid Drug Rebate Program (MDRP) & Other Public Sector Reimbursement Programs 6

7 VA-NAC Activities and Initiatives Re-establish Priorities Offers Priority Code Description Priority 1 Expiring Contracts for Critical Items with no alternative support Expiring Contracts with BPAs (upon concurrence of Director or Chiefs) Emergency or High Profile actions (as identified by Director or Chiefs) Priority 2 No Awards Expiring Contracts that require pre-award audit Elevated to Priority 2 if PALT exceeded Expiring Contracts that cannot be extended Priority 3 New Priority 4 Expiring Contracts that can be extended 7

8 VA- NAC Activities and Initiatives Re-establish Priorities Contract Extensions Priority Code Description Priority 1 For Critical Items with no alternative support For contracts with BPAs (upon concurrence of Director or Chiefs) Emergency or High Profile actions (as identified by Director or Chiefs) Priority 2 Extensions the require pre-award audit No Awards Elevated to priority 2 if PALT exceeded No change in the terms/conditions Priority 3 All other 8

9 VA NAC Activities and Initiatives Re-establish Priorities Modifications Priority Code Description Priority 1 Emergency or High Profile actions (as identified by Director or Chiefs) Price Changes All 65IB Additions, NPS, Divestitures, NDC Changes Priority 2 Mass Modifications (3 days) Non-Price reduction TPR changes Deletions for non-taa compliant or patent infringement, etc. All other 65IB (within 30 days) Administrative (within 30 days) Elevated to priority 2 if PALT exceeded Priority 3 RFMs that cover multiple authorities that cannot be split out (60 days) All other Deletions (60 days) All other (60 days) 9

10 VA NAC Activities and Initiatives PALT expectations Goal 180 days Offers Plus OIG Audit time and Contractor Response Time 120 Extensions Plus OIG Audit time and Contractor Response Time 60 days Modifications Plus OIG Audit time and Contractor Response Time Realistic Based on current manning levels and experience VA pledges to do its best to achieve the goals Question for VA: Any recourse where modification e.g., for price increase is delayed? 10

11 NAC Contracting Goals Have new hires on board by End of FY Have new hire introductory training well underway by CY End Have tools in place to measure and track effectively by End of FY Have Divisions transitioned to Schedule Focus by End of FY By Mid-FY15 expect to see rate of execution per person increasing 11

12 VA NAC Challenges Not much progress on filling open positions 13 of 21 still open Lack of qualified candidates Continue to have key employee turnover Secretary of VA directive prohibiting any reorganizations Impacts the restructuring back to Schedule focus divisions Increased difficulty of Offers Lower percentage of experienced CSs Increased focus on pricing Changes to 621I schedule 12

13 VA - Changes in Contracting Electronic Acceptance of Offers Simplify the documentation Eliminates costs of printing & shipping Accelerate the receipt & assignment of proposals Promote efficient & timely reviews Use most recent solicitation forms 90 day grace period Return outdated proposals Determination of Fair and Reasonable Prices GSAReverse Auction System reverseauctions@gsa.gov

14 DoD DLA Troop Support National Contracts DoD only Alex Quinones - Contact Doxycycline Reverse Auction Contract Compliance Initiative (increase adherence) UFBPA/UFVARR Investigating an Electronic Bidding Mechanism Product class reviews will be posted with 6 weeks lead time (was 4 weeks) Former PEC/PEB will reorganize and be called Formulary Management Branch Function will remain the same May be a different reporting structure Tricare Retail Pharmacy Rebate Program (TRRx) heavy reliance on contractors 14

15 Issues facing companies joining the trend of corporate inversions CBI Conference Federal Pricing and Contracts for Bio/Pharmaceutical Companies Philadelphia, PA December 9-10,

16 Inverted Domestic Corporation The 2013 Final Rule refers to the definition of inverted domestic corporation in FAR and summarizes it in these words: An inverted domestic corporation is one that used to be incorporated in the United States, or used to be a partnership in the United States, but now is incorporated in a foreign country, or is a subsidiary whose parent corporation is incorporated in a foreign country. FAR Councils published, on May 10, 2012 and Jan. 29, 2013, an Interim Rule and then a Final Rule that incorporated into the FAR a prohibition against the award of contracts using appropriated funds to any foreign incorporated entity that is treated as an inverted domestic corporation or to any subsidiary of such entity. 16

17 Corporate Inversions: Contract Clause and Representation Statutory restrictions are limited (gaps in annual coverage), but Schedule 65 I B (FSS pharmaceuticals solicitation) and SAM include blanket restriction FAR Clause , Prohibition on Contracting with Inverted Domestic Corporations (May 2012) FSS R7 Solicitation Representation SAM s Representations and Certifications include FAR Clause that has an identical title and includes a Representation identical to the Representation portion of (n) FSS Solicitation : requirement for affirmative representation in order to qualify for FSS contract award 17

18 Inverted Domestic Corporation Exceptions If not prohibited in individual appropriations (appropriation specific) Possible wavier by Agency Head (based on national security) Must be reported to Congress Walgreen/Boots Mylan/Abbott ($5.3B) Burger King/Tim Horton Certifications/Disclosures MFG s Government Contracting representative False Claim and Contract Termination penalties Make the annual certification part of your SOPs (get a positive response from CFO) Don t just check the box Seek guidance of Government Procurement Counsel and Corporate Counsel 18

19 Compliance Issues CBI Conference Federal Pricing and Contracts for Bio/Pharmaceutical Companies Philadelphia, PA December 9-10,

20 Who are your subcontractors? screening, flowdowns, executive compensation What constitutes a subcontractor vs. a vendor? Prime contractor interactions with subcontractors : Small business subcontracting plan requirement Flowdowns to subcontractors (e.g., ethics, E.O. requirements) Screenings of subcontractors suspension and debarment (FAR ) Executive Compensation - report required for certain first tier subcontractors (FAR ) Award above $25k threshold; and If sub received at least 80% of annual gross revenue from federal awards for prior fiscal year; and at least $25M in annual gross revenue from federal awards for prior fiscal year; and data not public (IRS/SEC). 20

21 Country of Origin: Compliance Considerations Trade Agreements Act (TAA) governs country of origin analysis under most Federal contracts, including the FSS Implements World Trade Organization Agreement on Government Procurement standards Buy American Act (domestic preference) is waived where TAA applies Critical fact: TAA forbids agency purchase of products from other than designated countries TAA origin restrictions are incorporated into standard Federal government contract clauses Limited bases for waiver (non-availability is one basis) VA has followed GSA policy that prohibits waiver; efforts to circumvent the policy for pharmaceuticals schedule were initiated in No evidence of a change. 21

22 World Trade Organization: Agreement on Government Procurement GPA Threshold for Federal Contracts: $204,000 Therefore, applies to Federal Supply Schedule (FSS) contracts GPA Members Canada, EU, Hong Kong, Iceland, Israel, Japan, Korea (Republic of), Liechtenstein, Norway, Singapore, Switzerland, Chinese Taipei, U.S. Notable Non-members BRIC (Brazil, Russia, India, China) 22

23 Origin Analysis Substantial Transformation To determine if a product is of designated country origin, the substantial transformation test is applied (same test as in int l trade context) Totality of circumstances is considered to determine whether product retains same name, use, and function: Cost and origin of components Extent of manufacturing/changes made to components Cost of manufacturing and testing Data as to how manufacturing affects use & function Customs and Border Protection (CBP) issues decisions on TAA substantial transformation questions Bottom line: Country of final manufacture (into finished good) may NOT be the country of origin 23

24 Government Contractor TAA Certification If TAA applies to a procurement - such as FSS contract, the contractor must complete origin certificate in its proposal All products are considered to have been certified as compliant, except those end products identified by the contractor as being of nondesignated country origin Note: the government arguably has a responsibility to give due consideration to whether a certification is reasonable). If product manufacture/sourcing changes midcontract such that a nondesignated country dictates origin, must notify agency 24

25 Potential Consequences of Non-compliance Delivery of product from noncompliant sources where contractor has not identified those sources in certificate or thereafter if manufacture is outsourced after contract award can result in the following: Removal of product from Federal contract A requirement by the purchasing agency for a refund or replacement product for prior noncompliant sales Potential allegations/investigation under False Claims Act Many significant TAA procurement whistleblower qui tam cases have been brought in last 10 years. VA National Acquisition Center aware of industry issues with designated country origin certification 25

26 Smith & Nephew FCA Settlement Qui tam case/settlement (Sept. 2014) - $8M plus $3M in attorneys fees United States v. Smith & Nephew, Inc., 749 F. Supp. 2d 773 (W.D. Tenn. 2010). VA contract for medical devices Before FCA action was filed, defendant disclosed to U.S. DoD IG and VA National Acquisition Center that it had supplied products manufactured in Malaysia, China, and Thailand and may have made incorrect certifications in identified contracts DoD referred to the VA for resolution Whistleblower nevertheless filed a civil FCA complaint alleging TAA violations in that certain products were neither manufactured nor substantially transformed in the U.S. or a designated country from which the U.S. may purchase in accordance with 19 U.S.C. 2503, 2511 Company did not prevail on two different motions to dismiss 26

27 Counterfeit Goods proposed rule Proposed Rule: 79 Fed. Reg (June 10, 2014) Requires detection and reporting of counterfeit or nonconforming end items and parts (even if item not delivered to the government, but only purchased for delivery ). Applies to commercial items contractors Medical devices Drugs? Additional compliance program requirement for VA FSS contractors? Similar DoD rule applies to cost-based/non-commercial items contractors. 27

28 Questions? Dave Rice Dave Rice Group LLC (269) Joy Sturm Hogan Lovells US LLP