Although poor management decisions or negligence may give rise to possible indications of fraud, the difference between fraud and negligence is a fine line called intent. All that fraud indicators can do is to point the way for further detailed inquiry.

USAID OIG[1]

[A couple of weeks ago we did a blog on the procurement mess over at HHS, and more particularly on Secretary Sebelius’ request that the HHS Inspector General investigate what happened with Healthcare.gov.[2] Since then new information, in the form of an article in the Washington Post[3], has leaked out.  Larry’s read the most recent version of the article, and has done some additional research, so I’ve asked him to come around and give us the benefit of his thoughts.]

Right. Well, last time you described the role of the Office of the Inspector General in HHS and many other agencies, and made the point that IG investigators do management consulting, but also look for crimes that may have occurred in government contracting. They have “indicators of fraud” to guide them. You commented that, if the contract at issue over there was awarded on a sole source basis, that in itself might attract the attention of the criminal investigators. Sole source contracts may serve as fraud indicators. Why? Because if there were other qualified sources, excluding them from the competition might show favoritism, and a hidden, criminal agenda.

Well, the Washington Post said, among many other things, that HHS made no sole source award in this case. Instead, it restricted competition for this work to a pre-established list of contractors, and made an award within that group. The award went to CGI Federal, the Post said, because federal officials determined that the company had submitted a “technically superior” proposal.[4] The article is based on “documents” the reporters reviewed, plus input from “people familiar with the decision.” I haven’t seen any of that material.

[Anonymous sources? We don’t like those, but let’s take the article as correct for the purposes of our discussion. Can you do that in Government contracting? I mean, restrict competition to a pre-established list?]

To answer that I had to look at the Federal Acquisition Regulation,[5] the guidebook for most government contracting, and a very thick and heavy one it is. In general, Government policy is that contract awards will be made only after “full and open.” competition. Not only is that policy, it’s also law.[6] Basically it means that all responsible sources “must be permitted to compete.”[7]

However, being a very big book, the FAR has exceptions. One of them is that a contracting officer can do full and open competition “after exclusion of sources.”[8]

[That doesn’t sound very full, or open to me. What’s the rationale for saying you must have competition, except when you don’t want to?]

You’re right; it sounds something like two steps forward and one back, or perhaps three. Nevertheless, agencies can exclude sources from a competition if they determine that doing so will help them maintain alternate sources for what they need. But their authority is limited. The can do this only if it increases competition for future requirements; ensures continuous availability of a reliable source of supplies or services; satisfies projected needs for supplies or services in high demand; satisfies a critical need for medical, safety, or emergency supplies; or meets various national defense requirements.[9]

[Well, that sounds somewhat limited. Which reason did HHS give for excluding sources?]

I don’t know.  If this authority was used, and we don’t really know it was, the decision to limit competition must be signed by the head of the agency or somebody he or she designates.[10] There should be a detailed explanation in the contract file. If such paperwork exists, it may leak out someday but, more important, the HHS IG has access to such documents as a matter of right.

[What about sole sources? Those are permitted as well, aren’t they?]

Yes indeed. The FAR gives seven separate reasons for avoiding full and open competition.[11]  And these can be used to support a sole source.[12] However, decisions like these must be documented extensively,[13] and generally get bucked up to high levels within the agency. And, remember, according to the Washington Post, there was no sole source authorized at HHS.

[OK, Larry, suppose you were at HHS and doing an independent review of the contract files relevant to the CGI Federal award. How would you do that?]

Well, in general I’d start with the acquisition plan. There’s supposed to be a detailed one, answering specific questions, before any actions are taken. Then I’d move up the timeline and review the documents that reflect critical points in the solicitation, evaluation and award of the key contract(s). If I found documentation that was inadequate, backdated or missing, I’d ask questions, lots of them.

Then there’s the issue raised by the Washington Post. The reporters pretty much imply that the evaluation of CGI’s proposal, which was deemed “technically superior,” was biased because it didn’t consider the company’s past performance under other government contracts.

[Does the Government have to look at past performance?]

Yes. The FAR says that ‘responsible” contractors should be allowed to compete[14], and awards should be made only to them. And it’s quite clear that the Government has to evaluate past performance before determining responsibility.[15] If a contractor has a recent history of unsatisfactory performance, it will be presumed non-responsible.[16]

[Ouch! What was the problem with CGI Federal?]

At best it qualifies as an alleged problem. At the moment all we have as evidence is the Washington Post. Basically, in 2004 CGI Federal acquired another company, American Management Systems. AMS had a number of federal contracts, and a doubtful performance record with them. HHS awarded the contract for Healthcare.gov in 2011. So, did HHS consider the subsidiary when evaluating CGI Federal’s prior performance?

[I would think the answer would be “yes.” Yes?]

It’s not that clear, at least on the facts we have. Generally an “affiliated[17]” concern, such as a subsidiary, is not evaluated with its parent, unless the affiliate will actually work on the new contract[18]. For me, the first issue is whether AMS’ performance data needed to be considered at all. Was seven year old information relevant to a new procurement? Also, who was responsible for the bad performance: AMS or the Government? Usually there are two sides to every argument when performance is an issue.

If a reasonable person decided the data was relevant, and found that the primary fault lay with AMS, then logically there are more questions. (1) Did the CGI Federal actually propose to use its subsidiary to work on the Healthcare.gov website? (2) If so, did it identify the subsidiary’s problems with other Government programs? (3) If not, did it in fact use employees of its subsidiary on the contract work? (4) If CGI Federal did that, when did the Government find out?

[I take it that we can’t answer any of these questions?]

That’s correct; not on the information we have. All we have is an unsourced report, and I wouldn’t bet my reputation, such as it is, on that. Basically, who knows the truth at this point?

[How about another question?  As far as I know, making mistakes or violating procurement rules are not per se criminal acts. It requires more, perhaps the criminal intent obliquely referenced in our introductory quote. So, if I were an investigator, and suspected a crime, what would I look for?]

Crimes, of course. Most federal crimes are defined in Title 18 of the United States Code[19], although there may be some in other places as well. Probably you would look for evidence that money changed hands, or that other types of improper influence were brought to bear on the procurement process. To name a few, these situations might include, but definitely are not limited to

  • Bribing or attempting to bribe public officials, by offering “anything of value” to influence their decisions, recommendations, etc.; or accepting such bribes. The prohibition applies to both those who give, and those who receive.[20]
  • Offering someone a public job, or asking for one, as a reward for taking, or not taking a government action;[21]
  • Participating personally or substantially as a government employee in a government matter where one has a “financial interest” of any kind in the outcome.[22]
  • Making false claims against the United States.[23]
  • Committing “major fraud” against the United States.[24]
  • Making false statements to government officials in connection with the procurement or any follow-on investigation.[25]
  • Making false demands on the United States.[26]

And so forth. This is a small and totally inadequate sample of what prosecutorial tools that could be available to investigators/prosecutors once they get their blood up. It all depends on how the facts develop.

Of course, most likely you’re not going to find direct evidence of criminal activity in the contract files. At some point an IG, or other criminal investigator, might want to look at internal Government email, and possibly private email as well, to see if there are any untoward relationships between government and non-government types. Of course, they’d need a subpoena for a lot of that, especially where non-government documents are involved. Then there are the telephone metadata that NSA accumulates these days. Apparently metadata are useful in identifying “affinity groups,” i.e., who talks to who, and who the ones contacted talk to as well. So theoretically with that kind of data one could identify “affinity groups” between government and contractor people, and proceed from there. You know, separate the possible wolf packs from the sheep, and investigate the wolves.

[Well, those are some cheerful thoughts to put and the end of this piece. Neither you nor I want to prejudge the outcome of any investigations, so let’s just sit back and wait for results. But it is interesting to see a procurement problem hit the news in this Administration. We’ve seen this kind of thing before. I wonder if the people in charge will handle this kind of problem any better than their predecessors did.]


 


[1] See Office of the Inspector General, Investigations, USAID, Fraud Indicators (no date), available at http://oig.usaid.gov/sites/default/files/fraud_awareness_handbook_052201.PDF   

[2] See the blog of 12/17/2013, Reform that Procurement!, at https://opsrus.wordpress.com/2013/12/17/reform-that-procurement/

[3] See The Washington Post, Markon & Crites, HealthCare.gov contract: Politics not a factor, but neither were firm’s ties to failed projects (December 22, 2013) at http://www.washingtonpost.com/politics/healthcaregov-contract-politics-not-a-factor-but-neither-were-firms-ties-to-failed-projects/2013/12/22/61728fca-6753-11e3-a0b9-249bbb34602c_story.html

[4] See citation at note 3.

[5] Citations here will be to the Federal Acquisition Regulation (FAR), and will be shown as “FAR ____.” You can get a good copy of the  FAR at https://acquisition.gov/far/

[6] See FAR 6.101, Policy: “10 U.S.C. 2304 and 41 U.S.C. 253 require, with certain limited exceptions (see Subpart 6.2 and 6.3), that contracting officers shall promote and provide for full and open competition in soliciting offers and awarding Government contracts.”

[7] See FAR 2.101, Definitions: “’Full and open competition,’ when used with respect to a contract action, means that all responsible sources are permitted to compete.”

[8] See FAR 6.2, Full and Open Competition After Exclusion of Sources.

[9] See FAR 6.202, Establishing or maintaining alternative sources, especially subparagraph (a)

[10] See FAR 6.202(b)(1)

[11] These are in addition to the reasons that support full and open competition “with exclusion of sources.” Don’t ask me to explain the difference between the two categories. I’m not sure I understand it. A page of history can be worth a volume of logic.

[12] See FAR 6.302, Circumstances permitting other than full and open competition.

[13] See FAR 6.303, Justifications.

[14] See FAR 2.101, Definitions: “’Responsible prospective contractor’ means a contractor that meets the standards in 9.104.”

[15] See FAR 9.104-1, General Standards: “To be found responsible, a contractor must – …(c) Have a satisfactory performance record (see 9.104-3(b) and Subpart 42.15). A prospective contractor shall not be determined responsible or nonresponsible solely on the basis of a lack of relevant performance history, except as provided in 9.104-2; (d) Have a satisfactory record of integrity and business ethics (for example, see Subpart 42.15) … and (g) Be otherwise qualified and eligible to receive an award under applicable laws and regulations (see also inverted domestic corporation prohibition at 9.108).”

[16] See FAR 9.104-3(b): “(b) Satisfactory performance record. A prospective contractor that is or recently has been seriously deficient in contract performance shall be presumed to be nonresponsible, unless the contracting officer determines that the circumstances were properly beyond the contractor’s control, or that the contractor has taken appropriate corrective action. Past failure to apply sufficient tenacity and perseverance to perform acceptably is strong evidence of nonresponsibility. Failure to meet the quality requirements of the contract is a significant factor to consider in determining satisfactory performance. The contracting officer shall consider the number of contracts involved and the extent of deficient performance in each contract when making this determination. If the pending contract requires a subcontracting plan pursuant to Subpart 19.7, The Small Business Subcontracting Program, the contracting officer shall also consider the prospective contractor’s compliance with subcontracting plans under recent contracts.”

[17] See FAR 19.101, Explanation of Terms: “’Affiliates.’ Business concerns are affiliates of each other if, directly or indirectly, either one controls or has the power to control the other, or another concern controls or has the power to control both. In determining whether affiliation exists, consideration is given to all appropriate factors including common ownership, common management, and contractual relationships; provided, that restraints imposed by a franchise agreement are not considered in determining whether the franchisor controls or has the power to control the franchisee, if the franchisee has the right to profit from its effort, commensurate with ownership, and bears the risk of loss or failure. Any business entity may be found to be an affiliate, whether or not it is organized for profit or located in the United States or its outlying areas.”

[18] See FAR 9.104-3(c): “(c) Affiliated concerns. Affiliated concerns (see “Concern” in 19.001 and “Affiliates” in 19.101) are normally considered separate entities in determining whether the concern that is to perform the contract meets the applicable standards for responsibility. However, the contracting officer shall consider the affiliate’s past performance and integrity when they may adversely affect the prospective contractor’s responsibility.”

[19] You can get Title 18 online, from Cornell University’s Legal Information Institute, at http://www.law.cornell.edu/uscode/text/18?qt-us_code_tabs=0#qt-us_code_tabs

[20] 18 U.S.C. §201, et seq.

[21] 18 U.S.C. §207.

[22] 18 U.S.C. §208.

[23] 18 U.S.C. §287. See also 18 U.S.C. §285, Taking or Using Papers Relating to Claims.

[24] 18 U.S.C. §1031.

[25] 18 U.S.C. §1001, et seq.

[26] 18 U.S.C. §1003.