This Can’t be Ethical or Moral, but is it Legal?
If you’ve been following this blog you by now know that, when stripped to its core, our dispute with the DOD can be summarized as:</p?
- Save a token payment, in 2004 the Government was NOT paying Quimba for services rendered on the contract central to this dispute – until such time that Quimba’s indirect rates and accounting system were approved by Defense Corporation Audit Agency (DCAA.)
- While working to create an accounting system acceptable to the Government, Quimba founders deferred salary and continued to perform on the contract.
- The Government finally approved Quimba’s accounting system in 2005 after the contract had been completed and delivered.
- Quimba billed for the past-due amounts, received payment and began normal salary payments to its founders.
- The Government is now attempting to exploit an accounting technicality, created when the calendar rolled from December 31, 2004, to January 1, 2005, to substantially reduce the value of this contract, by as much as 48%, when the Government has received full value from Quimba’s effort and has never questioned the number of hours spent on the project by Quimba staff.
You may also remember that our ACO, Mr. Craig Studley, made an error in determining how much the Government had paid to Quimba (the Token Payment, referenced above) and as the result levied a $91K+ debt on Quimba, as discussed in an earlier post. You may also recall that, as we detailed in this post, we provided the proof of ACO’s error to Srikanti Schaffner, the DCMA attorney representing the Government, who asked for a 60 day stay to investigate but decided to let the case proceed.
Attorney Schaffner’s decision baffled us since we thought attorneys, as Officers of the Court, have a duty to stop prosecuting a case when they know, for a fact, that their case has significant material defects. Further, in our humble opinion, ACO Studley’s error is not only relevant, but also is the “main pin” for the whole case – at least to us.
So we wrote a letter to Honorable Judge Mark N. Stempler, the Acting Chairman of ASBCA, requesting he review attorney Schaffner’s conduct. You can download a copy of the letter here.
What do you think? Are we right to think this way? Or are we just a bunch of cry babies?
Stay tuned. I’ll update you with Judge Stempler’s response shortly.
People in this post:
Bob Dourandish – bob@quimba.com
Srikanti Schaffner, Esq. – Srikanti.Schaffner@dcma.mil
Craig Studley – Craig.Studley@dcma.mil
The Honorable Judge Mark N. Stempler – No email on file.
Top Five Small Business Mistakes After Winning a Federal Government Award (part 4 of 5)
Fourth post in a series.
Mistake Number 2: Not maintaining meticulous record of EVERY contact with ANY employees of DCAA or DCMA
A hard lesson to learn – at least for us and I am told we are not alone in that classroom – was the fact that so far as an ACO or an auditor is concerned an email is meaningless, a phone call is meaningless, and, of course, a discussion is meaningless. In fact the only legal document the DCAA auditors or the DCMA ACOs acknowledge as binding is the contract or any formal modifications to it. In this post, I focus on documentation strategies you will need to implement to give yourself the best chance of getting paid the full amount the government agreed to pay.
I need to remind you again that the contract is not done until the government says it’s done, which requires a final audit, which, typically, will be performed some two years (at least) after you have delivered everything that was specified in the Statement Of Work.
In our experience, a sufficient DCAA/DCMA communications strategy must, at a minimum, incorporate the following:
a. Avoid phone calls. You’ll find, however, that doing so is a lot easier said than done, as the old cliché goes. In our experience DCAA auditors and audit supervisors are particularly slippery when it comes to written communications. Despite all their incessant complaints about deadlines, DCAA staff typically prefer not to use the more efficient email and will call instead – setting off a chain of time consuming phone tags. In our experience ACOs generally preferred email and, looking back, they only used the phone when they did not want to have a “paper trail” of the conversation.
b. Document all verbal communications. Right after you get off the phone with a DCAA or DCMA employee, or right after a meeting, make notes of what was said. If you have concerns about the conversation, send a follow up email stating your understanding of the conversation. Be specific about your understanding of what was discussed, particularly anything that relates to deliverables and deadlines. Ask them to let you know, either way, if your understanding of the conversation matched their. If you simply want to document the conversation, email a note to yourself. I advocate using email because all notes and email correspondence can be searched and, of course, be listed chronologically. You will need both these features if things go wrong.
c. Always request for “Return Receipt” when sending an email to any DCAA or DCMA employee. You will, however, find that many DCMA and, particularly, DCAA employees have disabled automatic acknowledgements of email receipt. In my personal opinion their systems should not allow a public employee to disable email acknowledgement when requested by the sender. Yet the fact is, by disabling the feature they can always claim they did not receive your email – something that has in fact happened to us several times with one specific DCAA auditor in the DCAA Denver Branch. If you do not receive an acknowledgement in a day or so, follow up with another email, explicitly asking for acknowledgment. If that fails, as it repeatedly did with the above-mentioned auditor, simply print the email, sign it, copy it (after you’ve signed it) and send it via registered mail with return receipt requested. When you get the Post Office acknowledgement, attach it to the copy of your signed email and keep it.
d. Never discuss any issues with either DCAA or DCMA employees if you can not take notes during the conversation. This means while driving, during another meeting, at lunch, etc.
e. Most small businesses outsource government accounting services and DCAA interface. If you do so, make sure your vendor emails you a note documenting every conversation they had with a DCAA or DCMA employee.
I know some of you will think this is overkill. I wish it were…. Learn from our pain!
Happy New Year!
A quick note to thank everyone who has been sending email, either suggesting ideas for us to find justice somewhere within the DoD, or simply offering words of support. I also want to wish one and all a fantastic 2012.
Sadly our search for justice is far from over. In December we were handed a set back by ASBCA – they granted government’s motion to dismiss our complain on jurisdictional grounds, so we are of course heading to the Court of Federal Claims. So we’ll be back with more updates, news, and commentary starting January.
In the meantime, we hope all of you will have a safe and wonderful New Year celebration. See you soon.
Bob Dourandish
Update
This is a follow-up to our previous update, posted on October 30, 2011.
Unfortunately, looks like I was right in not believing that the DCMA attorney is going to do the right thing. We were notified that she is going to continue with her motion to dismiss.
In a short email on November 17th, Ms. Sri Schaffner, the DCMA attorney handling the case for the government, wrote:
We have reviewed the issues in this appeal, and are withdrawing our request for a stay. We are going to notify the Board to proceed with issuing a decision on our motion to dismiss.
She did not explain how paying us around $30K and demanding a refund of $90K+ in overpayment figured in her decision – despite the DFAS statement that proved the payment amounts to Quimba.
This, in my opinion, is a bit of playing the odds, combined with loophole lawyering. Again, in my opinion, she is betting that her motion to dismiss will be granted and that she won’t have to deal with the case. Given the facts of the case, she knows she will lose in trial since you can’t get $60K+ as refund in monies the government did not pay. So, in my view, so she is turning tail.
Sad, really. She had a chance to do the right thing and intentionally ignored it.
If the motion to dismiss is granted, we’ll have to push this to the Federal Court which, as you may imagine, will become more expensive for us – and that, right there, speaks loudest about the ethics, morality, and practices of the DCMA.
People in this post:
Bob Dourandish – bob@quimba.com
Srikanti Schaffner, Esq., Srikanti.Schaffner@dcma.mil
Top Five Small Business Mistakes After Winning a Federal Government Award (part 3 of 5)
Third post in a series.
Mistake Number 3: Not understanding the DCAA and DCMA roles
Another key mistake is to misunderstand the roles these supposedly independent agencies play in the government contracting industry. In our experience, we found that they do share the mission to reduce contract values by any and all means possible. Although you probably won’t find this written down anywhere, except as a “save taxpayers money” doublespeak. I promise you, however, that a DCAA auditor that consistently does not find “something wrong” with contractor cost calculations will probably be banished to the children’s table at their annual agency picnic! Same is true, though with a twist, of DCMA staff, particularly the Administrative Contracting Officers or the ACOs. An ACO who fails to perform as a de facto employee of DCAA and follow the auditor “recommendations” will probably not be invited to DCMA’s holiday party.
For those who may find this critique of the agencies harsh, first I again remind you that my opinion is based on our direct experiences with the two agency staffers – and the fact that we still are trying to get paid on a contract that we delivered in 2005. Next, I would also refer to you to 2008 review of DCAA where whistleblowers unambiguously reported improper influence by DCAA supervisors that resulted in findings (DCAA-speak for audit results) more favorable to large federal contractors, as reported here. As for DCMA, a recent Inspector General’s review of the DCMA operations in Afghanistan found that “of of the 221 DCMA personnel training records reviewed from a universe of 1,170 from FY 2004 through FY 2009: 103 DCMA personnel were not fully qualified for the position occupied, and 57 quality assurance representatives did not have or could not produce proof of Defense Acquisition Workforce Improvement Act certification.” If an agency fosters such a defective management infrastructure that it handles assignments to support a decade-old war in such a shabby and sub-standard way, how much care and thought do you think DCMA’s leadership has put in equitably treating your little two- or three-man small business? You can read the Inspector General report here.
Now that we have hopefully established the environment where small businesses must function, you need to absolutely understand that despite what FAR says, ACOs will typically only act as executioners of the DCAA audits. This means two things – First and foremost, in our direct experience, the whole “DCAA only makes recommendations” is just pure, unadulterated deception. The ACOs who do not carry on DCAA’s “recommendations” are often chastised. In fact, DCAA has an internal process set up for auditors to report ACOs that show any sign of anything but full submission to DCAA’s will. Secondly, don’t expect any help from your ACO. Assuming s/he actually understands the problem, chances are the ACO won’t risk his or her pension or promotion just to be fair or equitable. And invoking FAR 1.602-2(b) won’t help either. Trust me, we tried with our ACO. I suspect all we accomplished was to give a him laugh.
Lesson Learned: While the above opinions are formed through our direct experience with both DCAA and DCMA, you should keep in mind that both agencies are huge and there is always chance that your experience will be different or, hopefully, at least a bit less punishing than ours. It does, just the same, make sense that you err on the side of caution and treat both DCMA and DCAA employees with civility but as adversaries.
Update…
I wanted to give a quick update on our situation.
The government attorneys have asked us for a 60 day delay to investigate the ACO error. They took this step after we secured written proof from the Defense Finance and Accounting Service (DFAS) that corroborated our claim of how much we were paid on the contract in question, in 2004. As I’ve said before, that amount is some $60,000 less that what the ACO had claimed.
We continue to believe that an ACO error on such a basic element as cash payments on a contract, proves he never really cared enough (or at all) to learn the facts of the case; and that he simply was going to act as a DCAA enforcer-employee, no matter what. However, we did agree to their request and, of course, are curious as to what the DCMA attorney will come up with next. Our attorney thinks they (DCMA) have now realized they “screwed up” and will try to settle this quietly. I think the DCMA attorney, once shown irrefutable proof of DCMA error, needed time to re-structure her case, and will attempt to come at us from a different angle. I don’t think she gets any points from DCMA leadership if she does the right by a small business, or has any personal desire to do so since, after all, we had given her fairly strong reasons to believe the accuracy of our assertions before – which she simply ignored.
But we’ll see. I will of course keep you posted.
Top Five Small Business Mistakes After Winning a Federal Government Award (part 2 of 5)
Second post in a series.
Mistake Number 4: Not Understanding the difference between the deliverables and the contract
Almost all small businesses new to federal contracting get this wrong at least once. In an odd paradox, the more experience small business founders have with commercial contracting, the more likely they will miss this point.
You need to understand that after the contract is signed the government actually does not at all care what you deliver as long as (a) it matches the negotiated, customary, or industry-standard quality, and (b) it is precisely as written in the Statement Of Work attached to the contract, or a follow-on modification. The next thing you have to comprehend is that the agency personnel you are working with on the delivery, i.e., the customers or end users, are going to be long gone when the Defense Contract Management Agency (DCMA) decides to uphold a Defense Contract Audit Agency (DCAA) audit review that disallows a big chunk of your costs because the costs did not support contract deliverables. In our case, for example, the DCAA disallowed pizza and snacks we occasionally included in our engineering meetings. To me, as a co-founder, it was money well-spent because we didn’t lose momentum by breaking for lunch. The DCAA auditor did not see it that way. I will always remember his comment that “we don’t get pizza here [at DCAA] when we have to work through lunch.” It wasn’t a lot of money – If I recall correctly, the bill for an entire year was less that $1000. So we just shook our heads and let it go. However, the costs could easily ad up if you, even at your customer’s request, incur travel expenses, use material, or perform tasks that were not included in the original budget or a follow-on modification.
Lesson Learned: Working for the federal government is not the same as working for a private entity. Most things that would make you a “preferred vendor” in the private world (e.g., on time and on budget delivery or going beyond the contractual obligations) do not mean a thing to the federal government. Mistaking deliverables for the contract IS an expensive error that could, easily, push you into bankruptcy. So take the time to learn what is in your contract, particularly with respect to the governing FAR clauses.
How DCMA Works as an Institution
In the past posts, I have stated that in my opinion DCMA institutionally supports a defective management and supervisory structure that encourages its personnel, specifically the ACOs, to abuse small businesses and lower contract values by as much as possible. This attitude seems to be entrenched in every aspect of how DCMA conducts business, including their legal department. This is critical to comprehending how DCMA works since, universally, attorneys have an obligation, as so-called officers of the court, not to knowingly advocate a position that they know is wrong. Yet, DCMA attorneys seem to be rather fine with knowingly advocating an erroneous position.
So what makes me say this?
Since this matter started, we have twice provided the DCMA attorney sufficient proof that our ACO, Mr. Craig Studley, made a significant error in determining how much money Quimba was paid on the contract in question in 2004. First proof was a signed statement from me, stating how much we actually were paid. The second piece of proof was a statement we obtained from the officials at the Defense Finance and Accounting Service (DFAS) that confirmed my statement. In short, there is no doubt that ACO Studley made a mistake – and if an ACO can’t even get the “how much” part right, it stands to reason that he never actually paid any attention to any documents provided by us, including detailed correspondance.
You would think that with so much overwhelming proof as the statement by another branch of the DoD, the DCMA attorney would be inclined, if not required, to stop pushing along the legal path. You’d think that but you’d be wrong. In fact, a couple of days after we provided the DCMA attorny with my signed statement, she filed a motion (with ASBCA) to dismiss our complaint on jurisdictional grounds. Curiosuly, at the time she filed her motion, we had only filed our notice of intent to file and the actual complaint was not filed yet. The message this clearly sent me was that she was not at all interested in right or wrong. She saw a potential technicality she could exploit and she was going to exploit it.
There is a good chance that her motion will be granted and we will have to file a complaint with the Court of Federal Claims – making this even more expensive and arduous for Quimba EVEN BEFORE we are heard by a judge.
And that, my friends, is the best evidence of the kind of organization the DCMA leadership fosters.
People in this post:
Bob Dourandish – bob@quimba.com
Craig Studley – Craig.Studley@dcma.mil
Srikanti Schaffner, Esq., Srikanti.Schaffner@dcma.mil
Top Five Small Business Mistakes After Winning a Federal Government Award (part 1 of 5)
I have gotten a number suggestions via email asking to include Lessons Learned while I share our story. I think that is a terrific idea. I’ve put together five key lessons we learned and will interweave these lessons as we continue. Thanks for your suggestions, and reading our blog.
To provide context, let me note that for small businesses, particularly those still in the startup mode, winning a federal government contract (or grant) is cause for celebration. Because most federal awards are made on competitive basis, the win validates the company’s product, service, or research idea. Even more importantly, it brings in cash that could, theoretically anyway, put the company on the path to growth. Unfortunately, the win could also put your small company on a long and painful road to disappointment, even bankruptcy, leaving it, as well as its founders and directors open to significant abuse.
In my experience, small businesses in the government contracting industry tend to make five key mistakes. Sadly, I speak from direct experience.
Mistake Number 5: Rushing through the negotiation cycle
After being notified of selection, you will enter negotiation with a Procurement Contracting Officer (PCO). You need to understand that government employees do not operate under the same constraints, performance criteria, or incentives as is the norm in the private industry. Further, you’d be well-advised to keep in mind that, as a general rule, the government has forever to make a decision. This combination can create a frustratingly slow “negotiation” cycle for small businesses. You need to recognize that the negotiation pace is deliberate. It is designed to create a timing advantage for the government and the government will exploit it to squeeze you for every penny before the contract is signed. Most importantly, however, you need to accept this as a fair business practice.
In my experience, small businesses are far too anxious to “close the deal” and get the contract signed. As the result they end up cutting their own throat by accepting lower pricing (than what they bid) through terms, often with the government employee’s “guidance”. Our experience after winning our first SBIR Phase II award at Quimba serves as a very good case study.
Winning a Phase II award is a major accomplishment for any small business and, naturally, created a celebratory mood at Quimba. We just couldn’t wait to get started. However, when the Procurement Contracting Officer (PCO) reviewed our cost proposal, she objected that we had discounted our G&A and Overhead rates in order to bring the proposal under the congressionally mandated ceiling. That created a delay in the process. Eventually, she suggested that we use a different contracting vehicle, namely a Cost Sharing type contract. The catch? Cost Sharing contracts do not permit the contractor to receive a “fee” or profit. We, make that I, made the mistake of accepting the change. In making that decision I was primarily motivated by our cash flow problem. I therefore rationalized that we would leverage the award to win more contracts and make up for the loss of our profit on this one. As it turned out the award actually became a hindrance to any new contracts. We soon lost several bids because reviewers felt we had plenty of work at our staffing level and that additional awards represented a “delivery risk” to the government. In the meantime, since the fee component of a federal award is the only portion of the payment that the company has discretionary spending rights to, we did not, despite a very large contract, have the funds to hire sales staff or initiate any marketing programs to expand our business in the private sector.
Lesson Learned: We should have realized that the PCO would not factor in our best interest or needs when making her “suggestion.” We, again make that I, lost sight of the fact that the government and us were engaged in a zero-sum negotiation process. What we should have done is to renegotiate smaller deliverables and not to allow the PCO’s “guidance” take away our profit.
FAR 1.602-2(b): The Insider Joke
Mention FAR 1.602-2(b) to any contractor who has delivered more than a couple of contracts and you’ll probably get a sarcastic chuckle. The clause reads: “[The Contracting officer shall] Ensure that contractors receive impartial, fair, and equitable treatment.” What can go possibly wrong with so many warm-and-fuzzy words (“impartial”, “fair”, “equitable”) jammed into a clause the is part of the regulation collective that manages contractors’ relationship with the government?
What exactly do these words mean? Well, I confess. I haven’t a clue and wouldn’t want to venture a guess except to take the whole clause to mean that the government is, in a legal and contractual sense of the word, taking responsibility to ensure that a transaction meets a generally-acceptable level of fairness and equity. One of those “you know it when you see it” kind of situations. Yes, it is vague but given the context here, it is reasonable to interpret the clause as Uncle Sam’s explicit promise not to screw a contractor.
Now let me share the relevant details of our case and ask if you think DCMA, representing the United States of America, upheld the above promise and, specifically, whether or not our ACO, Mr. Craig Studley, did perform his duty. I’ll even invite you to judge for yourself!
The dispute in this contract is over the costs we claimed in 2004 on a Cost Plus Fixed Fee (CPFF) contract to deliver sophisticated software research to the Air force Research Labs (AFRL), the end user. In 2004 we spent 1212.5 hours on the project which neither AFRL, nor the DOD oversight agencies (DCAA or DCMA) have ever questioned. The contract had a total value (ceiling or maximum) of $199,950, of which the government has (present tense) only paid $192,159.47. The rest of the due amount has been held by DCMA since 2005 until the final audit of the contract is completed. We’ll of course come back to that issue at a later point but, if you are with me so far, the bottom line is that in totality, the government has paid us $192,159.47 for the entire contract. Period. Not a penny more. OK, keep that in mind.
Now, let’s turn our attention to the Contracting Officer’s Final Decision that instigated our dispute. In his decision, ACO Studley claimed that we were overpaid by $91,992.77. For the moment, let’s suppose that all of ACO Studley’s financial assumptions to support his computations were correct. Even so, as you can clearly calculate for yourself, there is no other way for this math to add up except that the government wants almost 50% of what they paid us back. It is important to again note that none has ever questioned the number of hours we spent on this contract. I might also add that the results of our work was so exceptional that our Principal Investigator and AFRL staff co-authored a technical paper that was published in a prestigious peer-reviewed journal.
You should first convince yourself that there are no math tricks here. Next, try to think of any situation where a contractor delivers every contractual obligation (and then some) but is only entitled to slightly more than 50% of the monies the employer promised them. After that, you’ll immediately see why we consider DCMA abusive and, further, why we view FAR 1.602-2(b) to be a joke but, as promised earlier, I invited you to absolutely judge for yourself.
