Perspectives from the SBA, the Justice Department, and Business

Transcription

1 The SBA s New Presumed Loss Rule: Perspectives from the SBA, the Justice Department, and Business December 6, 2013 Kenneth Dodds, Esq. U.S. Small Business Administration Kenneth.dodds@sba.gov Ryan Faulconer, Esq. U.S. Attorney s Office, Eastern District of Virginia Al Krachman, Esq. Blank Rome LLP Krachman@BlankRome.com

2 SBA Topics Origins of Presumed Loss Rule Rule Overview Regulatory Action Role of the SBA 2 Kenneth Dodds

3 Origins of Presumed Loss Rule July 2007 Hearings in 110 th Congress Recognized dsize Standards d with ihloopholes Allowing other than small businesses to win and keep federal contracts. Small Business Contracting Revitalization ation Act of 2010 (S.2989, Sen. Rpt ) Hearings Identified Fraud, Regulatory Loopholes in Small Business Contracting. Targeted problems: large corporation advertising itself as a smallbusiness for 10 years. 3 Kenneth Dodds

4 Origins of Presumed Loss Rule Targeted problem: difficulty in proving loss after size or status fraud in the inducement of the contract, but the fraud is not performance related. Targeted problem: societal and programmatic loss to the federal government when large businesses improperly win or keep small business contracts. Title IV of the Revitalization Act on Size and Status Integrity Included in Small Business Jobs Act of Kenneth Dodds

5 The Small Business Jobs Act Presumption Presumption (1) In general. In every contract, subcontract, cooperative agreement, cooperative research and development agreement, or grant which is set aside, reserved, or otherwise classified as intended for award to small business concerns, there shall be a presumption of loss to the United States based on the total amount expended on the contract, subcontract, cooperative agreement, cooperative research and development agreement, or grant whenever it is established that a business concern other than a small business concern willfully sought and received the award by misrepresentation. 15 USC 632(w) 5 Kenneth Dodds

6 Presumed Loss Rule: Overview Liability attaches for misrepresentation of size or status + award received by misrepresentation. But: Liability will not attach if unintentional error, technical malfunction or similar circumstance Damages presumed based on the total amount expended by the Government if OTS firm willfully sought and received award by misrepresentation. 6 Kenneth Dodds

7 Presumed Loss Rule: Overview Certifications create willful representations. Two new certifications created: Deemed Certification Occurs by submitting a proposal or bid on small business contract. Express Certification Occurs by company official i signing i a formal written certification on eligibility for the exact status applicable to the contract, like the Contracts Disputes Act Claim certification. 7 Kenneth Dodds

8 Regulatory History SBA issued Proposed Rule on October 7, Fed. Reg SBA issued Final Rule on June 28, 2013, effective August 27, Fed. Reg Next Step Implementation in the FAR 8 Kenneth Dodds

9 The Role of the SBA Rulemakings in process NDAA provision on liability bl limitation and advisory opinions Prosecution Policy Others? Providing consultations on size or status in response to agency inquiries Suspension and Debarment Rendering size and status decisions 9 Kenneth Dodds

10 The Role of the DOJ Coming to the DOJ DOJ: Processing Claims Aggravating circumstances Mitigating circumstances Sentencing / Negotiation Topics * Caveat: Not Speaking for DOJ or Offering Binding Opinions; every case will be circumstance dependent. 10 Ryan Faulconer

11 Coming to the DOJ How a Presumed Loss Claim may reach the DOJ: Inspector General referral (SBA or contracting agency) Referral from Agency General Counsel Qui Tam / Whistleblower Complaint Size Protest Discovery during general contracting investigation 11 Ryan Faulconer

12 DOJ: Processing Claims How the DOJ may process a Presumed Loss Claim: Likely parallel proceedings Parallel = both civil and criminal; independent but concurrent Ci Criminal i or civil iilmay tk take lead Separate or joint resolutions Separate plea, DPA, NPA, then civil settlement (or vice versa) Joint all at same time 12 Ryan Faulconer

13 Aggravating g Circumstances Factors in triggering enforcement action: $ amount (both contract tvalue and profit) Length of time and # of contracts Additionalfalse statements (8(a), etc.) Other criminal or fraudulent conduct 13 Ryan Faulconer

14 Mitigating gcircumstances Voluntary disclosure Cooperation against others (incl. in company) Compliance programs Remedial measures Administrative agreements 14 Ryan Faulconer

15 Sentencing / Negotiation Topics Presumed Loss Rule and the sentencing guidelines Early flexibility (pre vs. post charge/complaint) Conceived in sin? Or legitimate gone bad? Forfeiture, restitution, fines, damages (claim or loss) Victimized businesses 15 Ryan Faulconer

16 Business Perspective Topics Standard of care Actions required by large and small businesses Offensive and defensive uses of the Rule Open issues 16 Al Krachman

17 The New Standard of Care in Size and Status Representations An organization proposing on a federal transaction reserved for small or a small preferenced status tt business must take tk all reasonable measures to independently verify and document their size and status eligibility for the transaction before submitting the proposal. Reasonable measures include the following: Where size is measured by receipts or employee counts, conduct annual CFO level verification of average annual income figures, and employee counts. Where preferenced status is required, review management, ownership, effective control, and personal and substantial participation, In all cases, an affiliation review must be conducted to insure the employee counts, revenues, and control relationships capture the affiliated entities, if any. The standard of care includes a compliance system to timely detect and correct misrepresentations. 17 Al Krachman

18 Meeting the Standard of Care 1. Find the applicable NAICS Code and Size Standard 2. Run the SBA's Size Calculator standards tool?ms=nid4070 standards tool?ms nid Check Affiliation Automated Tool*: SBA Guidance: /sites/defa er pdf * This is a NOT an SBA product or tool. 18 Al Krachman

19 Actions Required by Small and Large Businesses Robust internal management procedures governing sizerepresentation or certification. Documented Annual size and status self audit. System to detect unclear or ambiguous representations or certification requirement. Use of Q&A process in gray areas. Insist on teaming partner and counter party compliance. Aggressive defense of size or status protests. 19 Al Krachman

20 Offensive and Defensive Uses of the Rule Leverage a timely or untimely size protest. Increase the potential for early termination of an improperly awarded contract. Deemed Certification provision could create or restrict opportunities on long term contracts. Defensive disclosure under FAR Mandatory Disclosure Rule if serious violations are identified. 20 Al Krachman

21 Open Questions Does every losing size or status protest create risk of presumed loss exposure? Can the rule be used by a competitor? Does the rule change how a should a Contracting Officer should react to a size or status challenge? Others? 21 Al Krachman

22 Questions Al Krachman, Esq. Al Krachman Blank Rome LLP Ryan Faulconer, Esq. Ryan Ryan Faulconer U.S. Attorney s Office, Eastern District of Virginia Kenneth Dodds, Esq. Kenneth Dodds 22 U.S. SBA Kenneth.dodds@sba.gov

23 APPENDIX 23

24 Deemed Certification The following actions shall be deemed affirmative, willful, and intentional certifications of small business size and status: (A) Submission of a bid or proposal for a Federal grant, contract, subcontract, cooperative agreement, or cooperative research and development agreement reserved, set aside, or otherwise classified as intended for award to small business concerns. (B) Submission of a bid or proposal for a Federal grant, contract, subcontract, cooperative agreement, or cooperative research and development agreement which in any way encourages a Federal agency to classify the bid or proposal, if awarded, as an award to a small business concern. (C) Registration on any Federal electronic database for the purpose of being considered for award of a Federal grant, contract, subcontract, cooperative agreement, or cooperative research agreement, as a small business concern. 15 USC 632(w)(2) 24

25 Express Certification Certification by signature of a responsible official. (A) In general. Each solicitation, bid, or application for a Federal contract, subcontract, or grant shall contain a certification concerning the small business size and status of a business concern seeking the Federal contract, subcontract, or grant. (B) Content of certifications. A certification that a business concern qualifies as a small business concern of the exact size and status tt claimed li dby the business concern for purposes of bidding on a Federal contract or subcontract, or applying for a Federal grant, shall contain the signature of an authorized official on the same page on which the certification is contained. 15 USC 632(w)(3) 25

26 Annual Certification Annual Certification: In general. Each business certified as a small business concern under this Act shall annually certify its small business size and, if appropriate, its small business status, by means ofa confirming entry onthe Online Representations and Certifications Application database of the Administration, or any successor thereto. 15 USC 632(x) 26

27 Prosecution Policy Policy on prosecutions of small business size and status fraud. Not later than 1 year after the date of enactment of this subsection [enacted Sept. 27, 2010], the Administrator, in consultation with the Attorney General, shall issue a Government wide policy on prosecution of small business size and status fraud, which shall direct Federal agencies to appropriately publicize the policy. 15 USC 632(y) 27

28 Limitation of Liability Limitation of Liability. Paragraphs (a) through (c) of this section may be determined not to apply in the case of unintentional errors, technical malfunctions, and other similar situations that demonstrate that a misrepresentation of size was not affirmative, i intentional, i willful l or actionable under the False Claims Act, 31 U.S.C. 3729, et seq. 13 CFR (d) 28

29 Subcontractor Representation A prime contractor acting in good faith should not be held liable for misrepresentations made by its subcontractors regarding the subcontractors' size. 13 CFR (d) 29

30 Suspension and Debarment Penalties for Misrepresentation. (1) Suspension or debarment. The SBA suspension and debarment official or the agency suspension and debarment official may suspend or debar a person or concern for misrepresenting a firm's size status pursuant to the procedures set forth in 48 CFR subpart CFR (e) () 30

31 Penalties Penalties for Misrepresentation. (2) Civil Penalties. Persons or concerns are subject to severe penalties under the False Claims Act, 31 U.S.C , and under the ProgramFraud Civil Remedies Act, 331U.S.C ,andany3812, any other applicable laws. 13 CFR (e) 31

32 Penalties Penalties for Misrepresentation. (3) Criminal Penalties. Persons or concerns are subject to severe criminal penalties for knowingly misrepresenting the small business size status of a concern in connection with procurement programs pursuant to section 16(d) of the Small Business Act, 15 U.S.C. 645(d), as amended, 18 U.S.C. 1001, 18 U.S.C. 287, and any other applicable laws. Persons or concerns are subject to criminal penalties for knowingly making false statements or misrepresentations to SBA for the purpose of influencing any actions of SBA pursuant to section 16(a) of the Small Business Act, 15 U.S.C. 645(a), as amended, including failure to correct "continuing representations" that are no longer true. 13 CFR (e) () 32

33 Rule Summary Subcontracting 13 CFR (d) (h) 8(a) () 13 CFR Small Disadvantaged Business , Service Disabled Vt Veteran Owned d125.29, HUBZone 13 CFR Women Owned Small Business 13 CFR ,

34 Limitation of Liability Relevant factors to consider in making this determination mayinclude the firm's internal managementprocedures governing size representation or certification, the clarity or ambiguity of the representation or certification requirement, and the efforts made to correct an incorrect or invalid ld representation or certification in a timely manner. 13CFR (d) 108(d) 34

35 Limitation of Liability An individual or firm may not be held liable where government personnel have erroneously identified a concern as small without any representation or certification having been made by the concern and where such identification is made without the knowledge of the individual or firm. 13 CFR (d) 35

36 36 OUR SPEAKERS S

37 Mr. Krachman has 30 years of experience providing legal counsel Albert B. Krachman, Esq. to companies that conduct business with, or desire to do Blank Rome LLP business with governments on all aspects of government 600 New Hampshire Ave, NW contracting and government grants. He counsels on winning Washington, DC government contracts and grants, solicitation and proposal Tel: issues, and strategies to increase contract profitability. Mr. Krachman counsels on a broad range of compliance and enforcement issues arising from mergers and acquisitions of government contractors, including organizational conflicts of interests, problems under the Small Business Act, international contracting, and security clearance matters. Mr. Krachman s litigation practicecovers covers internalinvestigations investigations, defenses of suspensions, debarmentsor other ethics investigations, whistleblower, contract fraud and False Claims Act litigation, as well as contract disputes, service and supply contracts, construction contracting claims, equitable adjustments, terminations and the like. Mr. Krachman's government practice spans the civilian and defense agencies and the key vertical sectors within those agencies, such as contracting for energy supplies and services, telecommunications, information technology, IT and guard security services, construction, and health care services and supplies. From a financial assistance perspective, he advises on federal grant compliance, the SBIR program, defense of grant audits and government repayment claims under grants and non procurement debarments and suspensions. He also advises on GSA Schedule and Homeland Security contracting. Mr. Krachman has authored various articles on a wide span of subjects, including Small Business Certification Fraud, Information Security and Military Utility Privatization. He is the co author of the Homeland Security Law Handbook, and has served as a contributing tib ti editor on several publications, including Pii Pricing of Claims, Cases and Materials on Federal Labor Standards, and Contracting for Services. 37

38 Kenneth Dodds Kenneth Dodds is the Director of Procurement Policy and Liaison at the Small Business Administration ( SBA ). His office is responsible for implementing legislation and drafting regulations pertaining to small business federal government contracting programs and size standards. Previously, he served as the Director, Office of Government tcontracting ti and as a Senior Attorney in the SBA's Office of General Counsel. He is a graduate of James Madison University and received his law degree from the College of William & Mary. 38 Kenneth Dodds

39 Ryan Faulconer Ryan Faulconer is an Assistant U.S. Attorney in the Financial Crimes and Public Corruption Unit of the U.S. Attorney s Office for the Eastern District of Virginia in Alexandria, Virginia. His cases include a recent eight defendant prosecution of a scheme to defraud the U.S. government through the use of a shell entity purporting to be a disadvantaged small business. The defendants obtained more than $100 million in contracts, $30 million in py payments, and $6 million in profits. He previously served as a Trial Attorney in the Fraud Section of the Criminal Division at the U.S. Department of Justice. He is a graduate of the University of Kansas and received his law degree from the University of Virginia. 39

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