WHAT'S NEW - 2005

JOHN S. PACHTER ELECTED TO ABA HOUSE OF DELEGATES

We are pleased to announce that on November 12, 2005, the Council of the Section of Public Contract Law, American Bar Association, elected John S. Pachter as the Section's Second Delegate to the ABA House of Delegates. The House of Delegates is the policy-making body of the ABA . It meets twice each year, at ABA Annual and Midyear Meetings. John will join Court of Federal Claims Judge Mary Ellen Coster Williams in representing the Section of Public Contract Law in the House of Delegates. The House of Delegates consists of 547 members, representing each state as well as state bar associations, local bar associations, ABA Sections and other entities.

John has been active in the ABA Section of Public Contract Law since the 1970s. He has chaired several committees and was chair of the Section in 1991-92.

BURDENS ON CONTRACTORS TO INCREASE; COURT REJECTS DCAA SEGMENT CLOSING POSITION

Smith Pachter McWhorter PLC
Government Contracts Update:
Vol. I, No. 1 September, 2005

By Stephen D. Knight

Smith Pachter McWhorter PLCconstantly tracks current events, issues, and trends in Government Contracts to keep clients on the cutting edge of legal and policy developments.

Click here to view this e-letter.

Richard C. Johnson's Comments on FAR Case 2004-025

Richard C. Johnson, an experienced practioner in the area of government property matters, submitted comments on FAR Case 2004-025, Proposed Revisions to Federal Acquisition Regulation on Government Property. The proposed revisions would (1) eliminate passage of title to contractor overhead property under cost type contracts and thus significantly curtail the government contractor "sale for resale" exemption under state sales and use tax law, and (2) vest virtually unlimited discretion in government officials to provide any and all government property for contractor use "as is" under both fixed price and cost type contracts potentially eliminating the long-standing warranty of "fitness for use." In Mr. Johnson’s view, both changes are inimical to the public interest and should not be adopted. Click here to read the comments

Article Details New Opportunities and Risks for Medicare Contractors Provided by Medicare Prescription Drug Bill

John S. Pachter and Jonathan D. Shaffer, partners in the law firm of Smith Pachter McWhorter PLC, focus on new business opportunities and risks for health care companies, such as carriers and fiscal intermediaries, and information technology companies in an article entitled MEDICARE CONTRACTING REFORM: NEW OPPORTUNITIES, NEW RISKS. The article discusses the following:

The Medicare Prescription Drug, Improvement, and Modernization Act not only provides a prescription drug benefit for senior citizens but also dramatically changes the way contracts will be awarded by the Centers for Medicare and Medicaid Services to payors such as carriers and fiscal intermediaries. These changes will provide new business opportunities for prospective contractors and teaming possibilities for existing payors interested in retaining a market presence as Medicare Administrative Contractors for CMS.

Later this year, contracts will be awarded for the first time by CMS to Medicare Administrative Contractors based on full and open competition. These new contracts will be subject to the Federal Acquisition Regulation and the Cost Accounting Standards.

The FCR analysis describes the contracting changes mandated by the Medicare Modernization Act, the solicitation process contemplated by CMS, and some of the compliance issues that will face Medicare Administrative Contractors.

The article, available here, was co-authored by John S. Pachter and Jonathan D. Shaffer of Smith Pachter McWhorter PLC, Alexander J. Brittin of the Brittin Law Group, P.L.L.C., and William Keating and Frank Beatty of Navigant Consulting. For more information, contact John Pachter at jpachter@smithpachter.com or Jonathan Shaffer at jshaffer@smithpachter.com

March 2005 - Government Contracts Fraud and Audit Alert
by Stephen D. Knight
Smith Pachter McWhorter PLC

The last three months have brought significant developments in government contracts fraud enforcement and audit issues.

The government is renewing its efforts to probe government contractors for fraud, using new tactics and advancing novel theories of liability. On February 18, 2005, federal prosecutors in the Eastern District of Virginia announced that they have established The Procurement Fraud Working Group, which will include investigators from the Federal Bureau of Investigation, the Department of Defense, Homeland Security, the State Department, the Department of Transportation, and the National Reconnaissance Office. The Group will use, among other tools, data-mining software to search for suspicious transactions including multiple billings, and to review the flow of funds. Investigators will also become “embedded” with procurement officials to detect fraud early in the contracting process. See “Initiative to Probe Contractors for Fraud,” The Washington Post, E1 ( February 19, 2005).

Contractors are well advised to redouble their compliance efforts, especially relating to the interface between employees and government personnel. Fraud investigators will seek to scrutinize company statements and submissions. Contractors should pay particular attention to proposal submissions and negotiations relating to any pricing action. This change in government investigation tactics will magnify contractors’ risks of doing business and increase the time necessary to negotiate and administer contracts.

In an unprecedented move, the Department of Justice (“DOJ”) recently filed an unsealed amended complaint in Texas, alleging that a contractor’s failure to disclose estimates violated the Truth in Negotiations Act (“TINA”) and constituted fraud. United States ex rel. Woodless v. SAIC, Civil Action No. SA-02-CA-028 WWJ (W.D. Tex.). Also, in a December 20, 2004, “False Claims Act Alert,” the Air Force Office of Fraud Remedies agreed that estimates, risk reserves, quantitative risk analyses, internal analyses of inefficiencies and unanticipated schedule delays, are cost or pricing data that must be disclosed current, complete and accurate as of the date of price agreement. TINA case law, however, has for decades made clear that the definition of “cost or pricing data” distinguishes fact and judgment, and acknowledges that estimates are judgments, not fact. DOJ and the Air Force will now focus on estimates and “negotiated profit” in firm fixed price contracts. The government can now be expected to allege fraud if the contractor negotiates a particular profit level but anticipates making more profit due to undisclosed estimates of future events. Contractors should review their proposal processes and statements made internally by, e.g., the business development and marketing functions relating to anticipated profit. Internal management approval letters often carry marketing assessments of anticipated profit levels that may or may not be the same as profit levels discussed with government negotiators. Contractors should expect the government to argue that failure to disclose internal approval letters is potentially fraudulent.

In another fraud action, DOJ supported a qui tam relator’s position on appeal that a contractor fraudulently induced the Army Corps of Engineers to award a contract by submitting an intentionally undervalued bid, with the intention of obtaining increases in the contract price after award. United States ex rel. Bettis v. Odebrecht Contractors of California, Inc., (D.C. Cir. Jan. 11, 2005), aff’g 297 F. Supp. 2d 272 (D.D.C. 2004). This is yet another example of the government demonstrating a renewed aggressiveness in tactics and liability theories to charge contractors with fraud.

Finally, DCAA has issued numerous audit guidance memoranda, including one that pointedly requires DCAA auditors to discuss company efforts to comply with the Sarbanes-Oxley Act. Notwithstanding DCAA’s position, contractors are not required to coordinate with DCAA on Sarbanes-Oxley compliance, and should carefully assess the risks inherent in agreeing to do so.

For further information on these subjects, contact Steve Knight, 703 847 6284, sknight@smithpachter.com

Articles Authored By Partners in the Law Firm of Smith Pachter McWhorter PLC are Featured in Public Contract Law Journal

Articles authored by John S. Pachter and Richard C. Johnson, partners in the law firm of Smith Pachter McWhorter PLC, are featured in the Fall 2004 edition of the leading journal in the field of government contracts law, the Public Contract Law Journal, published quarterly by the American Bar Association.

Mr. Pachter's article is entitled, "What is a Procurement? And Why Can't DoD and the Courts Get It Straight?" 34 Public Contract Law Journal 1 (2004).

Mr. Johnson's article is entitled, "A Critical Look at the Compensation Cost Principle--Stock Options and Restricted Stock" 34 Public Contract Law Journal 103 (2004).

Val S. McWhorter Elected As Member of Prestigious American College of Construction Lawyers

Val S. McWhorter, a founding partner of the law firm Smith Pachter McWhorter PLC was recently elected as a member of the prestigious American College of Construction Lawyers ("ACCL"), effective in 2005. Over the last 30 years, Mr. McWhorter has focused his practice in the area of construction law, representing contractors in large, complex claims arising under federal, state, and local government contracts, as well as contracts between private parties. Mr. McWhorter joins his colleague Richard F. Smith, also a founding partner of the firm, in ACCL's membership ranks.

Founded in 1990, the ACCL is a national organization comprised of outstanding lawyers who have demonstrated skill, experience and high standards of professional and ethical conduct in the practice or in the teaching of construction law, and who are dedicated to excellence in the specialized practice of construction law. Membership in the college is by invitation only upon nomination and election.

The college provides advanced professional workshops and educational programs to its Fellows and identifies and contributes to the solution of major construction industry legal problems. It is a collegial forum for the exchange and development of ideas by experts in construction law.

John Pachter Named by Legal Times as One of the Top 12 Government Contract Lawyers in Washington, D.C.

Legal Times, a leading periodical covering the Washington area legal community, selected John S. Pachter as one of the top 12 government contract lawyers in Washington, D.C., based on interviews with in-house counsel, attorneys in private practice and academics. Mr. Pachter, a founding partner of Smith Pachter McWhorter PLC has practiced government contract law for more than 30 years. His practice includes litigation in federal and state courts, bid protests before the Government Accountability Office and the U.S. Court of Federal Claims, and counseling clients on federal procurement statutes and regulations. Mr. Pachter's government contract practice is broad-based, including a variety of industries such as defense, telecommunications, information technology, health care and food service. The Legal Times article is available here.

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