Race, Religion, and Privacy: Oh My!

Government Contracting does not exists in a vacuum. It exists within the public domain, with governance features that distinguish it entirely from private contracting.

 Lexology, always a reliable source for government contracting updates (and more), hit a trifecta of such features with its procurement related article selections that hit my inbox today.  Here's a brief sampling of them.

Race: Executive Order Prohibiting Bias Training? Ignore That. DoD Issues Class Deviation to Comply with Nationwide Ban on EO 13950 Provisions

On January 6, 2021, the DoD issued a class deviation, effective immediately, to implement the nationwide court order enjoining Sections 4 and 5 of Executive Order (EO) 13950, Combating Race and Sex Stereotyping. EO 13950 prohibits federal agencies, contractors, and grant recipients from using workplace diversity and inclusion trainings to “promote race or sex stereotyping or scapegoating,” with Section 4 applying specifically to government contractors.

That new Court Order trumped Executive Order 13950. Also see Venable's post,Dismantling EO 13950 – Nationwide Preliminary Injunction Results in Suspension of Enforcement Measures for a bit more flavor and information.

For the foreseeable future, Federal contractors, subcontractors, and grant recipients alike no longer need to comply with or worry about the enforcement of EO 13950, especially given President‑elect Joe Biden's very recent announcement that he is appointing Boston Mayor Marty Walsh as the Secretary of Labor. In particular, Mayor Walsh has issued executive orders over the past few years that declare racism an emergency and public health crisis with the goal of "dismantl[ing] [] systemic racism"; acknowledge and improve racial equity through government, as further reported on here; and "create a national model for breaking down system racism across all aspects" of Boston, as reported here. Given that history, it is likely safe to assume that, if confirmed, Mr. Walsh has no intention of advancing policies akin to those in EO 13950.

Religion: OFCCP Issues Final Rule on Religious Exemptions for Government Contractors

The Office of Federal Contract Compliance Programs issued Implementing Legal Requirements Regarding the Equal Opportunity Clause’s Religious Exemption final rule, which becomes effective on January 8, 2021. The final rule is intended to clarify the scope and application of the religious exemption in light of recent developments, including Supreme Court rulings and Executive Orders. Among other things, it clarifies that, in addition to churches, the exemption covers employers that: are organized for a religious purpose; hold themselves out to the public as carrying out a religious purpose; engage in exercise of religion consistent with and in furtherance of a religious purpose; and either operate on a not-for-profit basis or present other strong evidence that their purpose is substantially religious. Moreover, religious employers may condition employment on compliance with religious tenets, as long as they do not discriminate on other protected bases. This particular provision has caused concern, as some have interpreted it to permit discrimination against LGBTQ individuals. Among its key provisions, the final rule adds a rule of construction to provide the maximum legal protection of religious exercise permitted by the Constitution and laws, including the Religious Freedom Restoration Act.

Privacy (well, one person's privacy is another person's transparency): New Corporate Transparency Act Will Impose Beneficial Ownership Reporting Requirements on Many Companies, Particularly Small Businesses

The Corporate Transparency Act (CTA), part of the 2021 National Defense Authorization Act enacted into law on January 1, 2021, will impose new beneficial ownership reporting requirements on many companies. The stated purposes of the CTA include the collection of beneficial ownership interest information for corporations, limited liability companies and similar entities "to (A) set a clear, Federal standard for incorporation practices; (B) protect vital United States national security interests; (C) protect interstate and foreign commerce; (D) better enable critical national security, intelligence and law enforcement efforts to counter money laundering, the financing of terrorism and other illicit activity; and (E) bring the United States into compliance with international anti-money laundering and countering the financing of terrorism standards." Many types of entities, however, are exempted from the requirements of the CTA. These entities include, among others: public companies; governmental entities; banks and bank holding companies; credit unions; broker dealers; registered investment companies; registered investment advisers; insurance companies; registered public accounting firms; public utilities; certain pooled investment vehicles; 501(c) entities; companies with more than 20 full-time employees in the United States, more than $5 million in gross receipts or sales, and an operating presence at a physical office in the United States; and entities owned or controlled by one or more of such exempt entities. A reporting company will be required to identify each beneficial owner and applicant and report the individual's full legal name, date of birth, current residential or business address, and a "unique identifying number from an acceptable identification document" (generally a nonexpired passport, state issued driver's license or identification card or, if the individual does not have any of these, a nonexpired foreign passport) or a FinCen identifying number. The reporting company need only report the name of the exempt entity having a direct or indirect ownership interest in the reporting company (and not any of the other identifying information otherwise required). There are many issues of scope, definition and interpretation in the CTA which are expected to be addressed by the Treasury's forthcoming implementing regulations.

See, also, How do you determine prospective contractor responsibility if you don't know who the contractor really is?

Follow the money

With every disaster comes disastrous spending.  And attempts to stem the flow.  So many attempts.  Sad.

Here's an illustration of the money flow, from the source to the see (sic), all courtesy of Covington & Burling LLP.

GAO Report Reveals New Insights Into Lobbying Disclosure Act Compliance and Enforcement:

"The 2020 annual report from the Government Accountability Office (“GAO”) provides new details regarding the state of Lobbying Disclosure Act (“LDA”) compliance and enforcement. By statute, the GAO is charged with conducting random audits of LDA compliance and submitting reports reflecting the results to Congress. This year’s audit reviewed approximately 100 quarterly “LD-2” reports filed by lobbyist employers and lobbying firms and about 160 semi-annual “LD-203” reports that disclose political contributions and politically-related contributions.

"Many takeaways from this year’s review were consistent with past reports. Lobbying registrants still often neglect to round their lobbying expenses and lobbying income to the nearest $10,000. Many registrants also fail to disclose the prior covered government positions held by newly-registered lobbyists. And many LDA reports continue to be amended after a registrant learns of the audit — a fact that GAO believes “suggests that our contact may spur some lobbyists to more closely scrutinize their reports than they would have without our review.”

"But the 55-page report does include some interesting new nuggets:

     • "Missing Political Contributions. Almost half (45%) of audited registrants failed to report political contributions on their semi-annual LD-203 political contribution reports. GAO described this as a “statistically significant” increase over prior years. This is a preventable error. Prior to filing, registrants should consider cross-checking the LD-203 reports versus Federal Election Commission reports to ensure there are no missing contributions.
     • "JACK Act Certifications. Pursuant to a new statute, the JACK Act, lobbyists are now required to certify they have not been convicted of certain crimes. This year, GAO audited the accuracy of these reports, including by conducting criminal background checks on names listed in the reports. While it found no errors, GAO’s background checks underscore the importance of conducting due diligence to confirm the accuracy of these representations.
     • "Naming and Shaming. The report singles out, by name, two lobbying firms that “declined to meet with us following our initial letters.” The failure to meet led to GAO reporting the names of these firms to Congress.
     • "Low Enforcement Levels. While there has only been a trickle of LDA civil enforcement cases in the last decade, the trickle has begun to dry in recent years. Only one civil attorney now handles LDA enforcement part-time (down from two in 2017). Moreover, GAO announced that “no suits have been initiated or cases settled since our 2018 lobbying report.” Those prior cases, GAO emphasized, have all involved “chronic offenders”."

Whistleblowers Watch Stimulus Money From Inside from the firm Squire Patton Boggs.

"Whistleblowers, with their unique access to business operations, follow the money to learn whether the business abides by the strings attached to that money. Whistleblowers look for an opportunity to cash in on what they consider fraudulent conduct. What’s a business to do?

Strings Attached

"We recently advised about the many strings attached to the trillions of dollars available from the stimulus packages. Government watchdogs aggressively will scrutinize what happens to that money from the outside. If they find fraudulent conduct, they will seek recovery under the federal False Claims Act (FCA) not just for the amount of loss to the government but for up to three times that amount (known as treble damages).

Whistleblower Incentives

"Whistleblowers are employees on the inside who know what procedures are in place, what procedures they think should be in place, and the people to who make decisions about those procedures. The FCA incentivizes whistleblowers to capitalize on their invaluable insight by filing a lawsuit (a qui tam suit) reporting what appears to be fraudulent conduct to the government watchdogs. The rewards are great. Whistleblowers receive 15% to 30% of the amount of any recovery. In addition, the business is required to pay attorney’s fees to the whistleblower.

"Those incentives work. Whistleblowers are the source of most recoveries under the FCA. We reported that qui tam law suits in 2019 were being filed at the rate of more than 12 per week. Whistleblowers personally recovered more than $271 million in payments. The government itself recovered more than $2.2 billion in those qui tam suits. This far outstrips direct enforcement actions brought by the government without a whistleblower. Now that trillions of dollars are flowing, whistleblowers know the rewards are even greater.

Proactive Action

"A business that needs a recovery stimulus should obtain the relief that is available. From small businesses, nonprofits, venture-backed startups, higher education institutions, and healthcare to trade, supply chains and defense, and other regulated industries, Squire Patton Boggs attorneys are here to help you receive the much-needed assistance.

"But vigilance also is needed. Prepare to account for the money received by, for example, ensuring

     • Protocols are established to handle the money
     • Compliance programs are in place
     • Compliance programs operate effectively
     • Clear and readily available channels handle complaints remotely
     • Tone at the top encourages employees to report problems to leadership"

Past as Prologue: The Wave of Investigations to Follow the Pandemic Recovery and Actions that Companies Can Take Now to Prepare from, again, Covington & Burling LLP.  

"On March 30, 2020, the inspectors general of several major agencies selected the Department of Defense Inspector General, Glenn Fine, to lead a newly created federal oversight entity that will investigate waste, fraud, and abuse in connection with the massive new coronavirus economic relief legislation. The inspectors general were exercising new authority contained in the legislation, but these actions also echo Congress’s past approach to oversight of recovery efforts. This client alert examines the new investigative authorities in the legislation and provides advice for companies, based on past examples.

"Throughout American history, when Congress has confronted a national emergency and authorized a major government response, the economic recovery has almost always been accompanied by significant congressional, civil, or criminal investigations. This paradigm dates back at least to the Civil War, with Congress’s Joint Committee on the Conduct of the War. In modern times, the savings and loan crisis and bailout of the late 1980s led to criminal convictions and the Keating Five lobbying scandal.

"Most recently, after the 2008 financial crisis, Congress sought to formalize and institutionalize the oversight and investigation of recovery efforts through the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”) and other oversight bodies. A Congressional Oversight Panel held 26 hearings over more than two years on the causes, symptoms, and effects of the economic crisis and government response and reform efforts. Investigations by just one entity, the Recovery Accountability and Transparency Board, resulted in 1,665 convictions, pleas, or judgments, along with more than $157 million in recoveries, forfeitures, seizures, and other savings.

"In the newly enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), Congress again provided that oversight and investigations will accompany the $2 trillion relief program:

"The bill establishes a Special Inspector General for Pandemic Recovery within the Department of the Treasury. The Special Inspector General will be presidentially appointed, as was the SIGTARP. The Special Inspector General will be responsible for conducting, supervising, and coordinating audits and investigations of the making, purchase, management, and sale of loans, loan guarantees, and other investments by the Treasury under the CARES Act. Like the SIGTARP, the Special Inspector General for Pandemic Recovery will also be responsible for providing quarterly reports to Congress. Congress dedicated $25 million of new Treasury funds for the Special Inspector General to carry out these duties.

"The bill establishes a Pandemic Response Accountability Committee within the Council of Inspectors General on Integrity and Efficiency to prevent and detect fraud, waste, abuse, and mismanagement of funds and to mitigate risks across programs and agencies. Congress appropriated $80 million for the Committee. This new Committee appears to be modeled on the Recovery Accountability and Transparency Board established by the American Recovery and Reinvestment Act of 2009 (ARRA), which is generally viewed as having successfully protected against the misuse of recovery funds. Although the Recovery Board was required to coordinate its activities with various agency inspectors general, the new Pandemic Committee is created within the Inspectors General Council. This may mean that the Pandemic Committee will have a heightened degree of autonomy and a greater ability to act quickly and with better coordination than was the case for the Recovery Board. The Pandemic Committee is authorized to issue subpoenas to persons outside of the government.

"The bill authorizes the creation of a bipartisan Congressional Oversight Commission charged with oversight of the Treasury Department and Federal Reserve, as they work to provide economic stability in the wake of the coronavirus. Like the TARP Congressional Oversight Panel, the CARES Act’s Congressional Oversight Commission will consist of five members appointed by the leaders of Congress. Also like its predecessor, the Congressional Oversight Commission will have significant authority to conduct oversight and investigations, including holding hearings and taking testimony.

"In addition to these new entities, existing authorities are certain to continue to investigate. For example, the House Oversight and Reform Committee has already launched an investigation of travel insurance companies and their coverage decisions related to travel cancelled due to the coronavirus. It is likely that congressional committees will examine the administration’s preparedness and response to the crisis, along with the activities of deeply affected companies and industries, especially those that receive federal aid. If history is a guide, these investigations will continue for many years into the future. For example, as late as last year, the House Financial Services Committee held a hearing that focused on bank accountability “10 years after the Financial Crisis.” The CEOs of Citigroup, JP Morgan Chase, Morgan Stanley, Bank of America, Goldman Sachs, and others all testified.

"Criminal authorities will also continue to investigate. Attorney General William Barr has directed federal prosecutors to prioritize investigations and prosecutions of coronavirus fraud schemes, and Deputy Attorney General Jeffrey Rosen directed each U.S. Attorney’s Office to identify a prosecutor to serve as the lead coronavirus fraud coordinator. These developments mirror actions that were taken after the financial crisis. For example, SIGTARP investigations related to fraud involving TARP funds resulted in enforcement actions against nine financial institutions and in the successful criminal prosecutions of 51 bank officers and executives. The Department of Justice—including through a Financial Fraud Enforcement Task Force and a Residential Mortgage-Backed Securities Working Group—investigated fraud related to the financial crisis itself, ultimately resulting in several multi-billion dollar civil settlements with financial institutions.

"Of course, the investigations that will follow the coronavirus recovery will not be exactly the same as the investigations of the financial crisis or the savings and loan bailout. Each new crisis has its own unique attributes and characteristics. Nonetheless, based on our experience defending companies and individuals involved in similar investigations, we can offer the following five tips for being prepared:

     1. Invest in compliance now to avoid problems in the future. Companies need to understand the implications of taking federal money and establish systems that ensure compliance. For example, companies that benefit from increased federal investment in pandemic responses may have increased compliance obligations as a result of contracting with the government. Certain of the federal relief programs contain restrictions on executive compensation. Even the process of seeking federal assistance may implicate laws that regulate lobbying, depending on the agencies or officials contacted.
     2. Consider the public and political dynamics of corporate actions. Congressional investigators often follow where the press leads, and investigative reporters will be looking for juicy stories to highlight. Some recipients of prior federal funds were criticized for paying bonuses, moving jobs overseas, or even for their executives’ vacation arrangements. By seeking and accepting public funds, companies will often be held by the public and Congress to a higher standard.
     3. Understand your company’s areas of vulnerability. Companies in certain industries already face a high risk of investigation. Industries involved in the response to the crisis—including the biopharmaceutical, technology, consumer goods, and medical device industries—could have their actions scrutinized closely. Sometimes companies with the best intentions, such as rushing to respond to a pandemic, will take risks that would not be warranted upon reflection. Companies should have a clear understanding of these vulnerabilities and a clear and compelling answer to after-the-fact criticisms.
     4. Involve your legal department in business decisions. With the vast majority of employees working from home, and business situations moving rapidly, there are significant risks that business decisions can be made in “silos” without proper examination by all relevant parts of the company, including the legal department. The coronavirus pandemic has placed pressure on government regulators, including the Food and Drug Administration and others, to relax tightly controlled regulatory regimes. This dynamic also creates opportunities for industry, including for companies that may seek to develop new product lines or otherwise re-tool their manufacturing processes to meet current demand for hand sanitizers, facial masks, and other products and supplies needed during the pandemic. It is critical to involve the legal and compliance functions in these business decisions in order to mitigate a host of risks, including missteps with the federal government that could lead to regulatory or criminal exposure.
     5. Carefully vet all applications for assistance and other submissions to the federal government. In order to review applications and other submissions quickly and exercise judgment about the suitability of individual institutions to receive funds, the government will need to rely on representations, attestations, and certifications made by applicants. Companies and their counsel should carefully vet such statements with an eye toward the potential civil and criminal risks associated with submissions to the government. Civil and criminal authorities will focus on such submissions and other disclosures in any eventual investigations, and companies should seek to mitigate this risk with proper planning and legal review processes on the front-end."

UPDATE TO THIS STORY:

As reported in the final article above,"The [Congress']bill establishes a Pandemic Response Accountability Committee within the Council of Inspectors General on Integrity and Efficiency to prevent and detect fraud, waste, abuse, and mismanagement of funds and to mitigate risks across programs and agencies. ... This new Committee appears to be modeled on the Recovery Accountability and Transparency Board established by the American Recovery and Reinvestment Act of 2009 (ARRA), which is generally viewed as having successfully protected against the misuse of recovery funds. ... the new Pandemic Committee is created within the Inspectors General Council. This may mean that the Pandemic Committee will have a heightened degree of autonomy...."

NOT SO FAST. Fine, but...

Trump Removes Acting Pentagon IG Slated to Lead Pandemic Oversight Last week, the Council of the Inspectors General on Integrity and Efficiency tapped Fine to chair the Pandemic Response Accountability Committee, an oversight body created by the $2.2 trillion CARES Act to ensure taxpayer money is spent wisely. The law empowered CIGIE to name the committee chair, but stipulates that only current IGs can hold the position, so Trump’s removal of Fine from his acting position prevents the well-regarded watchdog from leading the oversight committee.

Over the course of his presidency, Trump has flouted transparency precedents and bristled at the role of IGs, whose work is critically important to holding agencies and the administration accountable for protecting the public’s health, among other things. Fine’s removal is part of a larger shakeup to the IG community.

Trump signaled in a signing statement on March 27 that he would not enforce some of the oversight provisions in the $2.2 trillion CARES Act. He specifically objected to the creation of a special IG for pandemic recovery at Treasury empowered to request information from other agencies and report to Congress any delays in receiving that information: “I do not understand, and my administration will not treat, this provision as permitting the SIGPR to issue reports to the Congress without the presidential supervision required by the Take Care Clause, Article II, section 3,” the statement said."

The Constitutional "authority" the President of the United States cited doesn't appear to quite fit this particular Bill which, remember, was intended "to prevent and detect fraud, waste, abuse, and mismanagement of funds." Article II, Section It says, the President "shall take Care that the Laws be faithfully executed...." Instead, the President seems more interested in taking care that no independent voice is heard, and no such Inspector seen.

Of smoke and mirrors; nonresponsibility and invisibility

This post is prompted by a November 2019 GOA report about defense procurement, specifically posing the proposition that "Ongoing DOD Fraud Risk Assessment Efforts Should Include Contractor Ownership".

In explaining why GAO did the report, it says, "DOD generally accounts for about two-thirds of federal contracting activity. Some companies doing business with DOD may have an opaque ownership structure that conceals other entities or individuals who own, control, or financially benefit from the company. Opaque ownership could be used to facilitate fraud and other unlawful activity." GAO describes "opague" in the context: opaque ownership is a structure of business form or governance that may conceal or obfuscate entities or individuals who own, control, or benefit financially from a business. (See also, e.g., in other contexts, this and this and this.)

The report recalled the impetus for the report came out of "the committee report on the National Defense Authorization Act for fiscal year 2018,[in which] the House Armed Services Committee expressed concerns that DOD contractors may disguise their identities and cost structures from procurement officers, in effect acting as hidden monopolies with unreasonable prices or establishing opaque ownership structures for benefits that are contrary to the government’s interest. The committee report included a provision that GAO examine DOD’s processes to identify contractors’ ownership structures and the risks posed to DOD by contractors with opaque ownership structures. As a general finding in this GAO report, GAO noted, "DOD has also begun a department-wide fraud risk management program, but it has neither assessed risks of contractor ownership across the department nor identified risks posed by contractor ownership as a specific area for assessment."

In undertaking the study leading to this report, GAO "reviewed GAO bid-protest decisions to identify cases in which contractors may have failed to disclose foreign ownership or concealed beneficial-owner information to obtain contracts that they were not eligible to receive"; also studying cases where there appeared "the risk that contractors could be disguising their ownership to create the appearance of competition.

Paraphrasing, GAO explains that real ownership of an entity includes the ostensible ownership disclosed to regulators and the beneficial ownership by the persons who directly or indirectly pull the levers of control and management or reap the substantial rewards of ownership of the entity. The more layers of ownership there are, the difficult it is to determine who really owns the entity. This is compounded by the observation that "In the United States, no centralized information source or national registry maintains company ownership information. In 2014, the National Association of Secretaries of State found that most states collect minimal ownership data. ... During both the entity-formation process and in annual or periodic reporting, the association found that very few states collect some form of entity ownership or control information from limited liability companies or corporations." It conceded that "the Securities and Exchange Commission collects some ownership information on publicly traded companies"; that is, the relatively few, but relatively large, businesses in the USA. The Securities and Exchange Commission collects [only] some ownership information on publicly traded companies.

This limited view from the business world has implications for procurement.

"The FAR contains several provisions governing the selection of an offeror. Provisions such as price and past performance of the offeror are generally applicable in determining which offeror should win a contract. ... A prospective contractor must affirmatively demonstrate its responsibility, including, when necessary, the responsibility of its proposed subcontractors. Contracting officers must then determine the responsibility of prospective contractors, including whether prospective contractors can perform the terms of a contract. To be determined responsible, a prospective contractor must have adequate financial resources to perform the contract (or the ability to obtain them); be able to comply with the required delivery or performance schedule; have a satisfactory performance, integrity, and ethics record; have the necessary organization, experience, accounting and operational controls, and facilities to carry out the contract (or the ability to obtain them); and be otherwise qualified and eligible to receive an award under applicable laws and regulations.

Before awarding a contract over the simplified acquisition threshold, a contracting officer must review the prospective contractor’s performance and integrity information available in the Federal Awardee Performance and Integrity Information System (FAPIIS). FAPIIS is a federal government-wide database designed to assist contracting officers with making a responsibility determination by providing integrity and performance information of covered federal agency contractors and grantees. FAPIIS provides a prospective contractor “Report Card” that includes information pertaining to the prospective contractor’s past performance (if applicable), such as any administrative agreements, contract terminations, nonresponsibility determinations, and exclusions, among other things. It also includes the ability to view the company relationship information, which details the ownership information that prospective contractors are required to report in SAM. [The System for Award Management, or SAM, is a government-wide portal that is consolidating the capabilities of multiple systems and information sources used by the Federal government in conducting acquisitions. In order to contract with the federal government businesses and agencies must complete the required registration with SAM.] When making a responsibility determination, the contracting officer must consider all the information available through FAPIIS with regard to the prospective contractor and any immediate owner, predecessor (an entity that the prospective contractor replaced by acquiring assets and carrying out affairs under a new name), or subsidiary identified for that prospective contractor in FAPIIS. The contracting officer must document in the contract file how the information in FAPIIS was considered in any responsibility determination, as well as the action that was taken as a result of the information.

There is much more to the report, and the need for knowledge about the person or entity with who the government is, or may be, engaging in business. But this post is concentrating on the responsibility factor, and that is only part of the report. I really want to encourage you to read the whole report and how entity information is critical to matters national security and the mitigation of fraud.

GAO notes that, although DOD and other agencies have taken some baby steps to shed light on the issue of contractor ownership (e.g., "DOD, GSA, and the National Aeronautics and Space Administration amended the FAR in May 2014 to require prospective contractors to self-report their immediate and highest-level entity owner, but not their beneficial owner, as part of contractors’ annual registration process in SAM), DOD "faces a number of challenges in identifying and verifying" it. Because "the scope and scale of this activity makes DOD procurement inherently susceptible to fraud", GAO recommended "The Office of the Undersecretary of Defense (Comptroller) should include an assessment of risks related to contractor ownership as part of its ongoing efforts to plan and conduct a department-wide fraud risk assessment."

Guam law follows the ABA Model Procurement Code when it comes to issues of responsibility, which is also the framework of the federal government as described above. I also has a (problematic) requirement (5 GCA § 5233) that, in some procurement methods, a bidder, "as a condition of bidding" must disclose "the name and address of any person who has held more than ten percent (10%) of the outstanding interest or shares of [a] partnership, sole proprietorship or corporation at any time during the twelve (12) month period immediately preceding submission of a bid." The "wild wild West" current darling of business entities is an LLC, but this law, written before Guam adopted an LLC law, does not make any disclosure requirement for that form of entity. Nor does it include trusts within the prophylactic disclosure requirement.

It is interesting to know that trusts have also been used to create invisibility in the procurement context. The following article discussing this issue in light of the trend described in the GAO report above.

Trust but Verify: Disclosure of Trust Ownership May Be Required for Family-Owned Government Contractors

Family-owned businesses are often owned and controlled by family trusts. Trusts are used by families for estate planning, tax planning and asset protection. Family-owned government contractors with trust ownership structures should be mindful of ownership
disclosures required by the Federal Acquisition Regulation (FAR). Failure to comply with the required disclosures could result in False Claims Act or false statement allegations, loss of Facility Security Clearances, rejections of bids and proposals, and loss of bid protests.

Under rules adopted in 2014, a government contractor or offeror owned by another entity must disclose its own Commercial and Government Entity (CAGE) code and the CAGE codes of its “immediate owner” and “highest level owner” both in the System for Award Management (SAM) and to the contracting officer before contract award. Under FAR 52.204-17 (Ownership or Control of Offeror), “immediate owners” and “highest-level owners” are required to obtain their own CAGE codes even if they will not be directly contracting with the government. “Immediate owner” means an entity, other than the offeror, that has direct control of the offeror. “Highest-level owner” means the entity that owns or controls the
immediate owner of the offeror, or that owns or controls one or more entities that control an immediate owner of the offeror. No entity owns or exercises control of the highest-level owner.

If an offeror is owned directly by individuals, the offeror does not have an “immediate owner” or a “highest-level owner.” If an offeror is directly owned by another entity, the ownership entity is the “immediate owner” of the offeror. If an offeror’s immediate owner is, in turn, owned by another entity or series of entities, the last entity at the top of the offeror’s organizational chart is the “highest-level owner.” An offeror is required to certify its ownership disclosures in the “Representations and Certifications” section of its registration on SAM.gov.

The term “entity” is not defined in the FAR, [but is described at the Commercial and Government Entity webpage: "In business, an entity is a person, department, corporation, cooperative, partnership, business, manufacturer, organization, or other groups with whom it is possible to conduct business", and a trust can fall within that description.] The Defense Logistics Agency (DLA), the agency responsible for assigning CAGE codes, suggest that trusts are considered entities under the FAR and should have their own CAGE codes and be disclosed on SAM.gov." Trusts are commonly referenced in state business entity statutes. Trusts also have certain characteristics that are similar to other business entities such as corporations and limited liability companies. Namely, trusts can buy, sell and own personal property and real property; own equity in other business entities; and enter into contracts. Trusts may also shield their beneficiaries from the claims of creditors.

The author of that article warns, "In order to avoid possible False Claims Act or false statement allegations, loss of security clearances, rejections of bids and proposals, and adverse bid protest decisions, family-owned government contractors with trust ownership structures should review their SAM.gov registration to ensure that disclosures about their “immediate owner” and “highest-level owner” are accurate."

The interests of the government, be it state, local or federal, in good governance principles of transparency and responsibility are antithetical to the interests of private sector contractors. There may be some giving and taking, but the government must always heed those principles. History has shown there are many other structures that provide the flexibility commerce requires to carry on,but government, and the broader community must stay vigilant to any "Houdini factor" that jeopardizes the foundation of principles which good governance, and good procurement, that our democratic society depends on.

Crikey! Wot a rort!

I remind my reader to click the links to the articles presented and read the originals, as I slice and dice the material for didactic purposes in order to try to present a "teachable moment". These posts are mostly to be considered as hypothetical procurement case studies, not news or other literary content, and omit, paraphrase and rearrange a lot of original material. You've been warned, again.

Allegations of systemic fraud sparked Defence Department internal audit

Confidential documents drafted by a senior defence department investigator reveal allegations of systemic fraud spanning several years inside the government's biggest spender. The 10-month investigation, which finished in February this year, was prompted by an anonymous disclosure about fraud and corruption made to the department in April 2016.

One of the most concerning aspects involved the department awarding companies contracts without a competitive tender process and only a flimsy justification they met "value for money" requirements. In other cases the department was unable to tell whether a contract breached procurement rules or not because important paper work could not be found.

In 2015-16 the Department of Defence reported the largest yearly contract spend of any agency within the public service. The department dialled-up a bill of $30.5 billion on contracts, amounting to 54 per cent of total government contractor spending.

The investigation raised serious questions about the department's use of "single source" tenders, where a single company is awarded a contract without having to compete against other providers. "It is questionable whether true value for money is achieved when [redacted] continually conduct single source limited tenders," Dr Clarke wrote. "Whilst there is less administration and quicker decision making with this approach, it provides limited opportunity for Defence to achieve the best possible outcome. "Single source limited tenders increase the risk of contractor underperformance and corruption."

Defence spending data unreliable, incomplete, national audit office says

Transparency and accountability for billions of dollars of annual defence spending remains suspect despite recent reforms, the Australian National Audit Office (ANAO) has found.

Last year, the Defence Department spent $8.3 billion on keeping its equipment in working order, known as "sustainment" in military jargon. Yet, the audit office found that despite small recent improvements, information about where that money went and whether it was being spent wisely was often unreliable or not available.

The report also questions a claim from Defence that reforms to its sustainment policies had saved $2 billion. "Defence has not been able to provide the ANAO with adequate evidence to support this claim, nor an account of how $360 million allocated as 'seed funding' for Smart Sustainment initiatives was used," it read.

Auditors were also critical of inconsistencies between figures given to the Government during the budget process and those provided in the department's annual report. "It's absolutely not good enough," Andrew Davies, director of defence and strategy at the Australian Strategic Policy Institute, told AM.

Oz military megahack

An Australian Signals Directorate (ASD) presentation to the Australian Information Security Association (AISA) conference yesterday detailed the hack. Suffice to say that a medium-sized defence contractor was breached and gigabytes of aerospace data and commercial arrangements for military aircraft and naval vessels were delivered into the hands of the attackers. The ASD used it as a case study for the AISA conference yesterday.

The government has since said the information was commercial-in-confidence, but not classified. This is not an isolated incident: in Australia, as elsewhere, attackers thwarted by a network's defences then seek out third-party contractors as an easier mark.

This suggests a problem in sub-contractor oversight – you can win a government contract without proving you have adequate network security.

Minister for Defence Industry Christopher Pyne seems to agree. This morning, he told Radio National's Breakfast programme that the government can't be held responsible for a contractor's lax security.

Fat and mismanaged public sector is eating us alive

In a Crikey article, carried by the Community and Public Services Union, Eric Beecher chronicles appalling mismanagement in service delivery.

Then there’s the $11 billion spent by the Defence Department managing 119 bases around Australia which the ANAO says is well in excess of the $9.3bn “expected value” of the 10 services contracts, signed in 2014, to do the work. The department has defended its performance, saying the vast project to renegotiate the contracts has delivered value for money, when considered against increased service demands and changing expectations of the ADF. Yet a new $120 million IT system, meant to manage contracts ­between Defence and the private companies servicing the bases, was $39m over budget and five years late.

There’s also the flawed tendering and contracting processes overseen by the Immigration ­Department, which resulted in the waste of “tens and possibly, hundreds of millions of dollars”. Given these practices were subject to a scathing ANAO report, they could hardly be ignored.

We’re reminded of last year’s Australian Bureau of Statistics census “stuff-up”, the Australian Taxation Office’s massive and damaging IT outage, the Department of Health’s decade-long mismanagement of e-health records, and the embarrassing release of identifiable Medicare information. There’s also the Department of Finance’s lax oversight of ministerial travel arrangements. But not raised is the $576m public service travel bill — a blowout of $75m in just four years.

While this shocking record is acknowledged, Beecher argues the blame lies mainly with outsourcing to powerful private contractors.

Outsourcing failures expose weaknesses in both government and business

The problems of dealing with private sector providers and contractors are a persistent theme in the analysis of government shortcomings. For example, recent Australian National Audit Office reports highlighted contracting problems in Air Services Australia, the Defence Department and the Immigration Department. Contract management issues were at the heart of last year's failed online census and have been a constant factor in the turbulent administration of Australia's controversial offshore detention centres. Over-reliance on contracted consultants was a major cause of the botched home insulation scheme.

Given the extent to which governments rely on private contractors for a large range of goods and services, it is unsurprising that contractors are often in the frame when things go wrong. But many of the recurring issues arise out of factors specific to the contracting process.

A common complaint is that the use of contractors has caused agencies to run down their in-house expertise and technical resources. As a result, it can be argued, agencies lack the capacity to assess whether the contracts they are agreeing to give the government and taxpayer adequate value for money. Without their own professional judgment, grounded in technical knowledge and practical experience of the area in question, public service managers are ill-equipped to decide matters of all-round quality. Instead, they tend to fall back on generic checklists of assessment criteria that emphasise easily specifiable factors, such as cost and timeliness.

Alternatively, if funds allow and time permits, they may contract in an external consultant or commissioner to give an expert opinion on a proposed contract. But such advice carries the risks of perverse incentives attached to all forms of external contracting and consulting. The consultants' objective is to gain future contracts, which encourages them to say what they think governments want to hear in preference to what they ought to hear. Once again, without the professional judgment to tell the difference and without their own in-house, trusted staff to advise them, public service managers are at the mercy of self-interested outsiders. This vulnerability is compounded by the lack of transparency that surrounds contracting. Overuse of commercial-in-confidence provisions has shielded public servants from the bracing effects of public scrutiny.

The lack of in-house capacity can affect not only the initial process of drawing up contracts but also the oversight of how contracts are implemented. However, as the constant stream of scandals illustrates, many commercial providers are more interested in profit than in good service and cannot be trusted to do the right thing. As a result, governments are being driven to impose tighter controls and regulations. Even then, in the face of determined rorting and corner-cutting, most government agencies lack the resources to prevent opportunistic contractors from wrongfully expropriating public funds.

After two decades of wholesale outsourcing, some general conclusions are clear. Contracting out is an efficient and effective alternative to in-house provision where the objectives are clear and easily monitored, and where there is a competitive market of alternative providers. It also works well for more complex services where providers can be trusted to pursue public-interest objectives for their own reasons. However, where these conditions of either simplicity or trust do not apply, the risks that governments will not receive value for money start to build. Moreover, extensive experience with outsourcing has itself compounded these risks by reducing governments' capacity to effectively draw up and monitor outsourcing contracts. Some complex service contracts that could have been safely contemplated a generation ago are now beyond the professional expertise of public servants to administer.

politicians need to recognise that outsourcing complex government services requires the development of trust between the parties, which means looking beyond the short-term bottom line and not always preferring the cheapest option. In addition, successful contracting depends on well-resourced government agencies with the skills and experience necessary to manage ongoing relationships with contractors. Running down government staffing levels while relying more on private contractors is a recipe for continuing policy failure.

Contractors, for their part, must earn the right to be treated as trusted partners. They must be prepared for the long haul and willing to learn from experience. They must also be ready to submit to the level of public scrutiny and accountability that public servants take for granted. Indeed, given that the commercial private sector is not imbued with the same commitment to serving the public interest, there is a case for subjecting private contractors to more scrutiny than the public service, not less.

Procurement controversy du jour - PI seeks to expand emergency procurement before and after emergency

New purchase rules eyed during crises

Speaker Pantaleon Alvarez has filed a bill proposing to loosen restrictions on negotiated procurement in cases of “extreme urgency and necessity,” and allow the government to skip public bidding in purchasing cheaper goods. House Bill No. 5521 seeks to amend several provisions of Republic Act No. 9184 or the Government Procurement Reform Act, which was enacted in 2003.

The (current) law considers negotiated procurement and direct contracting as alternative procurement methods to public bidding. The former (negotiated procurement) refers to the method used in extraordinary circumstances such as during the failure of bidding and in times of emergency.

Under Alvarez’ bill, negotiated procurement will be allowed “before, during, or after a calamity.” Currently, this mode is applicable “during a state of calamity,” which requires an actual declaration by the affected government unit.

Alvarez said that current regulations “unduly delay and hamstring the delivery of services” in times of calamity.

The proposed measure also provides for an additional criteria to resort to direct contracting, which currently sees the agency ask for a price quotation from the exclusive supplier of goods of critical or proprietary nature.

Read more: http://newsinfo.inquirer.net/904623/new-purchase-rules-eyed-during-crises#ixzz4jkiZKcEF

Sounds like a step onto a slippery slope to a procurement system without accountability, competition, transparency or integrity, as I've illustrated before: When corners are cut, even for great reasons (e.g., war), the way is opened for fraud. Also, refer to the tags/labels associated with this post, just below.

War (good God): What is it good for? In Nigeria, the elite and Boko Haram, it seems

Or so the following article would have us believe. I use this as though it is thoroughly hpothetical to illustrate that, in times of strife, whether ma-nmade or natural, attention is more attracted to the strife, not the money trail. 

The only defense for such diversion of attention is transparency and accountability in as near real time as possible. A trained and trustworthy professional bureaucracy is critical. 

It is obviously most useful to elect and appoint honest leaders who put good governance and the welfare of the led before their own interests.

Nigeria's Political Elites Hid Behind Military to Steal Billions of Dollars - Report

Corrupt officials over the years exploited the excessive secrecy of the country's defence budget to rip off the nation, says the report released Thursday in Abuja by Transparency International Defence And Security. The 15-years-old war against Boko Haram insurgency has helped pushed up Nigeria's defence budget and corresponding increase in corruption within the sector, the report said. The Areport has highlighted how Nigeria's political elites for years hid under the cover of the country's military to steal billions of dollars that would have been channeled into improving the living conditions of the citizens.

The report, which was prepared in partnership with the Civil Society Legislative Advocacy Centre, CISLAC, is titled, Weaponising Transparency: Defence Procurement Reform As a Counterterrorism Strategy in Nigeria. Corruption in the defence sector, according to the report, is a major threat to Nigeria's internal security and political stability. "Largely unaddressed, it has weakened Nigerian counterterrorism capacity whilst strengthening Boko Haram," it said.

The report repeatedly mentioned a former National Security Adviser, NSA, Sambo Dasuki's case as an example of how the country's defence sector leaves room for exploitation. Mr. Dasuki is currently standing trial for allegedly mismanaging funds meant for the procurement of weapons to prosecute the war against Boko Haram.

The report also mentioned former President Goodluck Jonathan and the late military dictator, Sani Abacha, as some of the nation's leaders who profited from the inherent weakness in the sector.

According to the report, the stealing is usually done through inflating of procurement contract values and creating of "phantom" defence contracts. "Such contracts are used as a vehicle for money laundering: facilitated via weak or corrupted Nigerian banks, illicit financial flows are often hidden in property in the UK, United States, South Africa and Dubai," the report says.

The stealing is done with the active connivance of the country's military leaders. "With oil prices at a record low, defence has provided new and lucrative opportunities for the country's corrupt kleptocrats," says the report.

"Former military chiefs have stolen as much as US $15 billion - a sum equivalent to half of Nigeria's foreign currency reserves - through fraudulent arms procurement deals."

All is not lost. The report acknowledged President Muhammadu Buhari administration's effort to tackle corruption in the country's defence sector. But it warned that, "Only a holistic reform agenda can deliver the deep, systemic changes and improvements in transparency and accountability needed to prevent the next US $15 billion quietly leaving Nigeria through the back door".

"Since coming to power in May 2015, President Buhari has taken some bold action in tackling defence sector corruption. Central to his approach have been two ad hoc, temporary audit committees: one investigating spending by the Office of the National Security Adviser and one investigating defence arms and equipment procurement.

"Taking on the defence establishment was a significant move: the evidence uncovered by these probes revealed that several of the country's former military chiefs, using dozens of companies, together stole as much as US $15 billion.

"President Buhari's anti-corruption drive is a rare example of senior Nigerian defence and security officials being exposed to criminal investigation. By signalling that military impunity is not without limit, it is undoubtedly a positive step forward," it said.

State governors in Nigeria are also known to have used the secretive "security votes" as an avenue to steal public funds, the report said.

The report recommends a unified anti-corruption strategy for the defence sector, the extension of public access to defence and security information, and the monitoring of confidential procurements as some of the ways of tackling the problem. Other recommendations include the sharpening of international focus on fighting corruption in Nigeria, plucking off money laundering loopholes in banks, the extension of whistle-blower protection to cover the defence sector, and regulation of secretive security votes.

"Declassifying how the security vote funds have been spent, after a two-year information embargo, could also enable citizen oversight," the report said.

Katherine Dixon, Director Transparency International Defence and Security, called for a quick action against corruption in the Nigeria's defence sector. "Corruption in Nigeria is not just a problem for Nigerians, but a concern for all of those looking to tackle violent extremism around the world.

"Entering into blind defence deals that ignore the rampant corruption in Nigeria's defence sector means international partners could inadvertently be giving rise to Boko Haram. Likewise, the doors to allow corrupt officials to launder their ill-gotten gains out of Nigeria should be slammed shut, through the active denial of visas and other domestic legislation that targets corrupt money. With Buhari's first term soon to end, the international community may soon find itself without a Presidential ally in this fight - now is the time to act," Ms. Dixon said.

Procurement controversies series: Ohio. Time after time...

Ohio awards millions in unbid IT contracts, sidestepping state policy, analysts’ protests

Time after time, state purchasing analysts warned that the pricey pending contracts were improper. “This position was unbid” ... ”No competitive procurement was issued” ... “The rates seem to be excessive” ... “The agency did not complete any competitive process” ... ”This position could have been filled ... with rates at least $63 less per hour.” The supervisors also repeatedly disregarded the agency’s own purchasing policy and sidestepped approval of the bipartisan state Controlling Board that serves as a check on spending on non-competitive contracts.

And, time after time, their superiors at the Ohio Department of Administrative Services overrode those concerns to award millions of dollars in no-bid, information-technology contracts, frequently paying more than $200 an hour — often to a company employing one-time Administrative Services executives, a Dispatch investigation found. As a result, Ohioans likely have paid much more than if routine competitive purchasing procedures had been used by the agency with the responsibility to “guide the use of resources on behalf of the public trust.”

Revolving door in reverse:

The high cost of contracting consultants' employees is underscored by a pair of instances in which the consultants later were hired by the state to perform similar duties — but at a sharply lower cost to taxpayers.

Gregory Jackson, one of Davis’ predecessors as the state’s chief information officer for five years (Davis was a 20-year agency employee who was named chief information officer in 2009 and became a deputy director two years later), left his state job in 2005. He was employed by Advocate beginning in September 2012, and through an unbid contract approved by Administrative Services, immediately became interim chief information officer at the Ohio Department of Medicaid. The company received more than $913,000, charging $218 an hour for Jackson’s full-time services until May 2015, when he departed both Advocate and the Medicaid department.

Jackson then returned to the state 10 months later as a full-time state employee in a similar job as head of information services at the Department of Job and Family Services. His hourly state salary of $67.31 — which yields $140,000 a year — represents less than a third of what Advocate was paid for his services. Advocate was paid $453,400 in its last contract for the services of Jackson, who listed a salary of $180,000 a year at Advocate on his state employment application. Jackson declined a request for an interview.

Peter McGeoch, Administrative Services’ IT director in the 1990s and an Advocate employee, worked at the Ohio Department of Higher Education through an unbid contract. His duties included advising Chancellor John Carey on IT issues. Records show McGeoch was hired for $150 an hour, for a total of $77,400, to work for three months ending in September 2016. A spokesman for Carey said McGeoch continued his work at $150 an hour under an extension with Advocate before departing in January. Advocate also was paid $456,000 in 2014 and 2015 for general consulting services provided by McGeoch.

A spokesman for the agency said that it did nothing wrong because its awarding of no-bid contracts is lawful under a waiver of competitive selection granted by the Controlling Board for the past 45 years. But the spokesman could not point to any law or another written policy permitting the awarding of contracts, even with the waiver, without first obtaining at least three price quotes from competing suppliers, as required by the department’s own policy.

The Department of Administrative Services oversees or handles most state purchasing. It also serves as the state property manager and human-resources and payroll office. Its Office of Information Technology handles most software and computer-system contracts for state agencies. The state spends more than $930 million a year on those agencies’ computer and information-technology needs. State agencies generally are required to obtain Controlling Board approval of no-bid or single-source contracts in excess of $50,000 per vendor per year. Last year, a department purchasing analyst pointed out a need to “help reduce the $75 million spent on consultants ... who have since 2006 received several million dollars in unbid work,” writing that some tasks could have been done at lower cost by other companies.

Administrative Services has not submitted any no-bid information-technology contracts for board approval during the past four years, records show. Top agency officials, such as Director Robert Blair and Chief Information Officer Stuart Davis, were not made available for interviews requested by The Dispatch. “The complexity of this subject matter does not lend itself to an interview,” wrote department spokesman Tom Hoyt.

“The majority of the identified (no-bid) contracts are for managing large-scale, complex IT projects and programs that span several years,” Hoyt said. “Items such as a pen or pencil can be compared or purchased in a like manner, apples-to-apples, while IT consulting involving specialized skills, knowledge and experience is difficult to compare in the same way.”

Among the findings from The Dispatch’s seven-month investigation:

‒ Advocate, a Columbus family of companies that has received in excess of $14 million in multiple unbid contracts since mid-2011, employs several former Department of Administrative Services IT executives who once worked closely with the state’s current highest-ranking IT officials.

‒ Stonyhurst Consulting, based in the Washington, D.C., exurb of Middleburg, Virginia, was handed more than $3 million in unbid IT contracts — again, many over the protest of Administrative Service analysts — that included pay rates of up to $250 an hour.

‒ Advocate also charged hourly rates exceeding $200 an hour. In fact, when a couple of its employees transferred to the state payroll, their wages were less than a third of what Advocate had charged the state for similar services.

‒ Despite insisting the no-bid contracts were proper, agency officials canceled some and sought price quotes following the protests of purchasing analysts. However, department leaders gave some contracts to Advocate and Stonyhurst anyway — even though they were the highest-priced.

The unbid contracts uncovered by The Dispatch were awarded without complying with an Administrative Services policy that since 2008 has required the agency to obtain at least three price quotes from competing suppliers, a process intended to save tax dollars by yielding lower prices through competition. The quotes are to come from pre-negotiated and pre-approved “state term schedules” that would-be contractors file with the state.

Hoyt said that policy is overridden by the agency’s receipt of a waiver of competitive selection each biennium from the Controlling Board, which consists of six legislators and a Kasich appointee. The waiver permits the granting of unbid contracts for specialized work and “to provide continuity of services,” Hoyt said. “It allows for a judgment call to be made by DAS.”

Addressing the purchasing analysts’ objections to sole-source contracts, Hoyt said they did not understand that the work was so specialized that it could not be obtained through the so-called staff augmentation contract at lower hourly rates. Analysts periodically have questioned supervisor justifications for some no-bid contracts, disagreeing that the work called for specialized expertise.

On June 4, 2015, acquisition analyst Andrew Miller flagged a $56,250 contract for Stonyhurst. “No competitive process has been completed,” he wrote. “I would recommend that the requester seek Controlling Board approval.” Davis responded that it was “not realistic” to seek the Controlling Board’s OK because the state fiscal year was ending June 30. Davis noted that the contract request was submitted in late April, but documents show the contract did not enter the state-vetting system until June 3. The contract called for one consultant to work 250 hours, at $225 an hour, during June, an average of 62.5 hours a week.

The Controlling Board waiver contains no language overriding Administrative Services’ three-price-quotes policy, which its own employees have written must be followed. The agency’s 127-page state procurement manual does not list any process for directly hiring “specialized” consultants through no-bid contracts. An internal department document also states that sole-source and no-quote contracts cannot be awarded in the manner used by the agency.

Opaque "transparency"

Most of the documents about the transactions are not easily accessible by the public. Administrative Services officials took more than four months to fulfill much of The Dispatch’s request for public records concerning vendors’ contracts. Some records still were being turned over last week — after nearly seven months.

A spokesperson for Kasich, who appoints the head of the Department of Administrative Services, referred questions to the agency.

The husband-and-wife team of Steven Zielenski and Jonelle St. John worked for a state IT contractor called Top5 before forming their own company, Stonyhurst Consulting. State purchasing analysts complained that the company’s first contract in 2015 for $128,100 to help with IT optimization efforts was unbid. Most of the company’s subsequent contracts also were flagged as “unbid” — a total of nearly $3.2 million in all.

Asked for comment, Zielenski responded in an email: “Stonyhurst LLC maintains strict confidentiality with respect to all our clients and our business relationships with them.”

See related article, It can be a tortured path to get state records.

Note that almost every article I reference in this blog gets sliced and diced. Here, for instance, there is much detail that has been left out and many bits of the article have been re-arranged to suit a didactic, rather than newsworthy, intent, as a case study of procurement law and (mal)practice.  

You are advised, therefore, always to go to the article at the provided link for the straight scoop.

Of park benches and benchmarks

The U.S. Chamber of Commerce recently held an event to make its members aware of the World Bank's Benchmarking Public Procurement (BPP) project, and present an opportunity for its members for doing business with foreign governments:

Benchmarking Public Procurement 2017

Following a G20 decision, the World Bank has evaluated and published the first Global Public Procurement Benchmarking for 180 countries. The conference launched the release of the benchmarking results to the public. The analysis from the report highlights the needs assessment for procurement as a prerequisite for efficient processes. There was a resounding theme of reform and progress towards openness, transparency, competition, value for money and accountability. Transparency was echoed as one of the key pillars to a grounded procurement system and a means to mitigate corruption.

The BPP itself, says,

The core principles of public procurement—transparency, equal treatment, open competition, and sound procedural management—should underlie every transaction that takes place when the government purchases goods or services from a private supplier. Transparency is essential at every stage of the process; a legal procurement system that ensures transparency creates an enabling environment for competition. By promoting the goals of transparency and competition, governments can make sure that the allocation of public resources and funds will be optimized by contracting with the most appropriate bidder for the tender and procuring the best quality of goods, works, and services at the best price.

An effective means of ensuring value for money in the award of contract is by allowing all qualified suppliers to bid for public contracts. The competitive tendering method will provide a range of contractors with variety of goods, works and services, enabling an organization to select the best available option, all things being equal. Conversely, ineffective and nontransparent public procurement rules can result in the public purchase of goods and services at inflated prices and can encourage rent-seeking by private companies.

With the emphasis on competition as well as transparency, it bears repeating that governments tend to like to hide procurement acts through third parties, confidentiality agreements, subcontractors, FOIA holes, and other rabbit holes.

One such suspicious rabbit hole is the one mentioned in this following article, which you should read at the link.

Commentary: Philly overdue for an overhaul of its procurement system By Maria D. Quiñones Sánchez, Councilwoman representing the Seventh District.

'Rebuild" - Mayor Kenney's $700 million initiative to make improvements in parks, playgrounds, libraries, and rec centers - is coming soon to neighborhoods around Philadelphia. As the city works to identify priority projects and creates a new bureaucracy to administer these investments, we must take advantage of this opportunity to finally attack the problem of much-needed procurement reform in Philadelphia.

Currently, the administration is considering contracting with one non-profit partner to administer Rebuild, instead of keeping the projects within our existing capital projects system. While nonprofit partners have a vital role to play, it is a mistake to outsource this initiative to just one entity.

The city spends a lot of money, and we're looking to spend more. In addition to the $700 million Rebuild, we have a $9.7 billion five-year capital plan; multibillion-dollar infrastructure investments planned for the airport and Water Department; and more than $1 billion is spent annually on goods and services.

The way we spend those dollars can have a tremendous impact in our neighborhoods, our business community, and our job market. Unfortunately, right now the rules that govern how we spend that money do not support our shared goals of efficiency, diversity, and inclusion.

Instead of using our investments to build communities, we practice business as usual and maintain the status quo. The vast majority of the work goes to the few big, savvy contractors who can navigate the process, and small businesses are largely shut out. We need to make major changes to bring fairness and clarity to this process. Here's how:

Prioritize project management: The groundbreaking is only the beginning - after the ceremonial shovels are put away, neighbors are too often left with a project that drags on, over budget, and months or years past deadline. This is why we have a years-long capital projects backlog now. To change this, we should institute project management requirements to hold contractors accountable to the city and to the community. This is where our private and nonprofit sector partners can bring their expertise to ensure compliance and accountability in these projects.

Welcome more small businesses as city contractors: Small businesses do exceptional work in every city neighborhood every single day. If we create supports to bring them into this process, they can compete with the big guys, creating jobs and wealth in their communities. We can be more welcoming to small contractors by debundling oversized contracts into manageable smaller ones, and developing insurance, bonding, and financing umbrellas to help them meet the cash-flow and back-office demands of participating in the city procurement process.

Develop diversity in the building trades: City Council's 2015 Annual Disparity Study showed us that the growth in certified minority- and women-owned contractors has not been matched by their participation on city worksites. The diverse workforce is growing, but it isn't being hired. Meanwhile, we continue to exempt contractors from our own diverse workforce requirements, accepting their excuses that there aren't people of color and women who are able to do these jobs.

Comprehensive reform of our procurement system is an ambitious undertaking, but the time is now for bold action. We are fortunate to have in Mayor Kenney a leader with the political will - and a very willing partner in Council - to finally get this done. The voters have entrusted us to manage our government and use resources to help spur economic growth and create jobs. Investing in public works as job-creation strategy has a proud history in our country and, if we do this right, Rebuild and our capital projects could be a transformative jobs program for Philadelphia.

And then there's this: State fiscal chief seeks more economic development oversight

New York state Comptroller Thomas DiNapoli says the ongoing bribery and bid-rigging scandal roiling Gov. Andrew Cuomo's administration shows more scrutiny is needed when it comes to state economic development programs. DiNapoli, a Democrat, proposed several changes Tuesday that would subject more state contracts to independent review and restore his office's oversight over state universities.

He also wants to prohibit state agencies from creating non-profit entities that allow them to funnel public dollars to projects while circumventing contracting and reporting rules.

Councilwoman Sanchez may want a word with NY Comptroller DiNapoli.

Transparency? You can't handle the transparency!

 NOTE: As usual, I have have changed the articles reported below, leaving material out, rearranging, and paraphrasing, to suit the purposes of this blawg. The obvious purpose here is the need to have adequate and effective transparency regimes in order to have and maintain good governance, in procurement as well as other aspects of government. You must read the full articles at the links to get the accurate version of the story.

Americans pay millions to whistleblower at BHP; we hound them out of their jobs

In Australia, those who flag corruption inside companies receive limited or no protection and are often sacked or mistreated, while in the United States, which paid for evidence that exposed alleged bribery by BHP Billiton, whistleblowers are encouraged to come forward. The calls for reform are being made as Fairfax Media can reveal new details of another whistleblower case that suggests serious ethical failings by a top Australian businesswoman and ABC board member, Kirstin Ferguson.

A Fair Work Commission complaint filed by the whistleblower alleges he was "victimised as a result of the disclosures" he made to Dr Ferguson about alleged corruption at mining services giant Thiess. Dr Ferguson is a director at Thiess' parent company, Leighton Holdings (now named CIMIC), and is responsible for company ethics as ethics committee chairwoman. Dr Ferguson declined to comment on detailed questions sent to her by Fairfax Media.

Key MPs Nick Xenophon, Jacqui Lambie and Andrew Wilkie, as well as the Greens and shadow attorney-general Mark Dreyfus have all said they will push in Parliament for stronger whistleblower laws to encourage reporting of corporate corruption.

In May, the US corporate watchdog, the Securities and Exchange Commission, revealed it would pay a bounty "to a company employee whose tip bolstered an ongoing investigation with additional evidence of wrongdoing". Legal sources have confirmed that the whistleblower was a BHP Billiton insider, paid US$3.75 million (about $4.96 million). The former employee provided detailed information to US investigators about the mining firm's activities overseas several years ago. The allegations remain the subject of an active Australian Federal Police bribery investigation.

It is the first time an employee of an Australian company has received a US whistleblower bounty. Under the US Sarbanes-Oxley Act, the SEC can reward whistleblowers by giving them a cut of a fine extracted from a company, with payouts often reaching many millions of dollars.

In May 2015, BHP Billiton agreed to pay $US25 million to the SEC to settle an inquiry into trips to the Beijing Olympics that the company gave to government officials. The officials represented countries where the miner was operating, and where it was sometimes seeking government permits. BHP Billiton said in a statement that, during that inquiry, the SEC had made no findings of bribery or corrupt intent against the company, and that the US Department of Justice had investigated but took no action. The company said it was not aware of the involvement of any whistleblower as part of either investigation. "We respect and fully support protections for all whistleblowers, and the importance of providing confidential avenues for reporting," the statement said.

Senator Lambie, who has taken up the cause of a Defence Department whistleblower, said she wanted "world's best practice" whistleblower laws which would "strengthen our democracy, prevent and uncover official corruption, decrease government waste, save lives, money and prevent damage to our environment".

Shadow attorney-general Mark Dreyfus said private sector employees should enjoy the same whistleblower protection as people in the public sector because their information is "just as valuable to our community, and they should not be treated differently under the law".

"Recently a string of brave private sector whistleblowers have come forward with valuable information, including those who have exposed wrongdoing in our banking sector. They deserve our protection," Mr Dreyfus said.

Mr Day says there was merit in compensating whistleblowers, although he cautioned against aspects of the US scheme. Senator Nick Xenophon has told Fairfax Media that "whistleblowers in the US get rewarded and protected, but here they get punished and ruined". Andrew Wilkie, who was recently elected as an independent MP in Tasmania, said Australia had a cultural problem in which whistleblowers were scorned as untrustworthy dobbers, or unhinged: "In the US whistleblowers are celebrated, but in Australia they're often vilified," he said.

"Greater whistleblower protection is one of the building blocks of a healthy democracy and ... of a healthy corporate culture."

ASIC executive Warren Day believes new whistleblowing laws could provide far greater clarity and protection for employees who wanted to report a range of misconduct, spanning financial crime and environmental or health and safety breaches although he cautioned against aspects of the US scheme. Minister for Financial Services Kelly O'Dwyer said the government was looking at strengthening Australia's corporate whistleblower regime. Minister O'Dwyer said that, as it looked to strengthen legislation, the government would "follow usual process, and will consult publicly".

The 'naively noble' man who could not get his voice heard

The words, coming from the chairwoman of the board's ethics committee, were intended to be reassuring: "I'm really glad to have you in that role. I really am," she said. Dr Kirstin Ferguson was speaking to "David" (not his real name) who for more than two years had been working to stamp out alleged corruption and misconduct within his company. David was suffering stress and anxiety because he feared - with good reason - that his boss was cutting him loose.

David's faith in his company was first shaken in November 2011. As one of Thiess' more senior figures, David came across a document, signed by his boss Bruce Munro more than three years earlier, as part of the company's 2008 tender for a $5.5 billion mining concession in India.

It quickly became clear that the deal might have had at its heart a corrupt arrangement. Documents and key emails suggested that Thiess' business partner in India would be paying $12 million to powerful Indian government officials - an apparently illegal payment under Australian law.

But two weeks after speaking to her, Ferguson's reassurances meant nothing. David was given three months' notice and told to go immediately on "garden leave".

The company was Thiess, part of Leighton group, which has been implicated in among the most serious foreign bribery and corruption cases in recent Australian history. David's boss was then Thiess managing director Bruce Munro, who later left the company under a cloud.

As for the ethics committee chairwoman, Dr Ferguson: she is still there, and still in the top integrity role at the firm, since renamed CIMIC. She has since scored one of the most high-profile jobs in Australia - she was appointed by the Coalition government as a director of the ABC board, where she is a member of its audit and risk committee, the body in charge of overseeing ethical behaviour.

David declined to speak to Fairfax Media, but his full story can now be told for the first time through documents held by Thiess and CIMIC, and leaked by a source close to both firms.

In the United States, someone who came forward with information about corporate malfeasance might be paid millions of dollars. In Australia, speaking out is a shortcut to dismissal, despair and unemployment. And so far in this country, whistleblowers cannot even console themselves that the bad guys will be held to account for the deeds exposed, given the difficulty often facing police or the corporate regulator in investigating, prosecuting and punishing large companies.

Inside Leighton, some were concerned the company might have a deep ethical problem. So a new confidential internal review, Project Mango, was ordered into whether Leighton might be exposed to corruption issues elsewhere. It turned up about 100 payments made by Thiess employees in Indonesia to the country's government, military and policing officials. Not everyone appreciated the revelation.

David's boss was then Thiess managing director Bruce Munro, who later left the company under a cloud. Munro was concerned that risk and compliance activities were cramping the style of those whose job it was to win contracts in difficult markets.

"I want you to ... have a look and tell them [senior management] that there is nothing to see here ... We are tying people up in paperwork. Our processes have gone too far".

In court documents linked to the whistleblower's case, it's alleged that Munro explained to the whistleblower that the sticklers for good process inside the firm would have "never let me sign it [a deal with the Indian partner]". Alarmed at what he had seen, David escalated the emails and Leighton senior management ordered an external investigation. It was codenamed "Project Orange."

When the Project Orange investigation was completed, it suggested Leighton may need to inform the Australian Stock Exchange of a foreign bribery matter. Munro had breached the company's code of ethics and internal policies, the report found. However, there was not yet enough evidence for criminal charges.

n March 2014, as Project Mango was underway, Leighton was taken over by a Spanish group and eventually renamed CIMIC. But if anyone hoped the change of management would lead to a more open culture, those hopes were quickly snuffed. The senior executives who had commissioned Project Mango were sacked and the new bosses wanted it shut down. The story about the payments to Indonesian soldiers was reported, via a leak, in Fairfax Media. But instead of performing a mea culpa, an internal witch hunt for the leakers began.

After that, precisely nothing happened. The market was not informed. Munro kept his job.

In July 2014, Dr Kirstin Ferguson, a former flight lieutenant in the air force, an expert in safety, a lawyer, a PhD in corporate governance and a professional company director, became the head of CIMIC's ethics committee.

Two weeks after her appointment, David rang her. He wanted to meet for coffee. He asked if she knew about what had happened in India, if she was aware of Project Orange. "If I were in your position, I would want to know this," he said of the "biggest ethical issue the company has and would be the biggest ever in Australia."

"I do. I really do," she replied, adding reassuringly: "I'm really glad that we have you in that role."

But a fortnight later, David received a call from the "manager of people" at CIMIC. He was told he "hasn't made it in the restructure". He'd lost his job, and was sent immediately on three months gardening leave.

Two days later, Dr Ferguson sent David a text. To a person humiliated, isolated and sacked for trying to report wrongdoing in front of him, the message rubbed salt into his wounds.

"Hi - just wanted to let you know I have been following up on your call and will be sure to call you when done," Dr Ferguson wrote. It might take another couple of weeks, she said.

David's lawyers later argued his conversation with Ferguson should have been a "protected disclosure" under Australia's flawed whistleblower regime.

See no evil

The State of Wyoming does not keep procurement statistics, so is self-inflicted blinded to a sole source cancer, according to this article.

Competitive bidding has largely become the exception

A Budget examination of state records has found that since June 2014, the state procurement office has doled out no-bid contracts roughly 2,000 times, while awarding competitively bid contracts just over 300 times. The no-bid deals over the last roughly two years total almost $594 million and represent about 80 percent of all contracts handled by the state procurement office.

The procurement office deals with contracts for all state offices, excluding the Wyoming Department of Transportation, the University of Wyoming, the Wyoming Business Council, the School Facilities Department and the Legislative Services Office.

The Budget has pending record requests with those offices. However, Doug McGee, of WYDOT, has already said that his office doesn’t keep electronic records for bid waivers, so there is no way of knowing what percentage of contracts receive competitive bidding. “Regarding what I would call our ‘goods and services,’ the majority of them are competitively bid, but there are some occasionally which are ‘sole source’ based on meeting certain requirements. We do not track those in any way. So I don’t have a database to draw from for you,” McGee wrote in an email.

In Wyoming, competitive bidding is required by law for major procurements exceeding $7,500 or $20,000 for an elected official. However, by obtaining a bid waiver, officials can skirt the requirement. And, as the records search showed, they often do. Regardless, officials maintain that there is nothing nefarious about how often the waiver loophole is utilized.

In a statement, Gov. Matt Mead said his administration follows “the spirit and letter” of the law and noted that the bid waivers are publicly posted online.

Lori Galles, the procurement office’s purchasing manager, said that no-bid contracts are given for several reasons. Sometimes they are awarded to companies based on existing contracts or because a vendor is certified for a certain geographic area; sometimes they are awarded because of compatibility issues with existing equipment; or the need to use a particular “proprietary” software; or because a company has “expertise” in a particular area and is the only one that can meet the requirements for a project.

A Budget analysis of the most common justifications for no-bid contracts found the following:

• nearly 1,000 no-bid contracts were awarded because the company was listed as the “sole source” for the job;

• 450 no-bid contracts weren’t competitively bid but were “negotiated” in some way;

• 350 were listed as change orders, where a company revises its contract after successfully bidding low;

Records obtained by the Budget through the state’s public records act show more than 40 capitol-related contracts that eschewed the competitive bidding process.

The contracts total almost $229 million, about half of which are change orders — a process often criticized because a company can bid low and then name its price later by citing additional work, causing project costs to balloon.

The controversy surrounding no-bid contracts stems largely from a long history of corruption around the world.

In recent years, there have been several examples of no-bid contract scandals across the country, many of which have led to the ouster or even prosecution of high-ranking officials.

Barbara Byrd-Bennett, the chief executive of Chicago Public Schools, pleaded guilty to a bribery scheme in which she steered more than $23 million to an organization for roughly $2.3 million in kickbacks.

In 2015, the Fresno Unified School District in California was investigated for the way it awarded a no-bid contract to build a school.

A $90 million contract extension in Texas was canceled after an American-Statesman investigation revealed a possible conflict of interest, problems with the bidding process and minimal oversight. The investigation resulted in resignations, lawsuits and state employees being put on leave.

And Kentucky’s former Gov. Steve Beshear drew heavy scrutiny after he awarded a $3 million contract on his last day to a company with which his office had ties.

The controversy surrounding no-bid contracts even led a Pennsylvania governor to issue an executive order banning them altogether in a hope for better transparency.

But when it comes to transparency, Wyoming ranks second-lowest in the country, trailing only Michigan.

The Center for Public Integrity, a nonpartisan investigative outlet in Washington D.C., recently downgraded the state, giving Wyoming an “F” in its annual State Integrity Report.

There's more in the article at the link above, including details of a pending suit alleging the non-compete process is illegal.