Nonprofits should take note that March has been another busy month on the responsibility front. As discussed below, the U.S. Department of State (DOS) issued a proposed rule to its suspension and debarment program, and the Federal Acquisition Regulation (FAR) Council is further modifying the Federal Awardee Performance and Integrity Information System (FAPIIS). We also discuss a recent change to the FAR regarding the allowability of costs incurred by a contractor in connection with a congressional investigation or inquiry. Certainly this is something that may make its way into an update to OMB's Uniform Guidance.
Proposed U.S. Department of State Rule Seeks to Update and Clarify Suspension and Debarment Process
The DOS proposes to amend the U.S. Department of State Acquisition Regulation (DOSAR) to update and streamline procedural aspects of its suspension and debarment process. Note that while the U.S. Agency for International Development (USAID) is an agency within DOS, USAID handles suspension and debarment matters separately from the rest of DOS; therefore, these changes would not impact the USAID suspension and debarment program.
In particular, DOS's proposed rule would:
- Revise the definition of "fact-finding official," from "chairperson of a three-member fact-finding panel" to "the individual designated by the debarring official;"
- Authorize the use of a single fact-finding official in lieu of a panel;
- Eliminate specific entitlements and deadlines not required by the FAR;
- Clarify that the referral file may be supplemented prior to determining whether to propose debarment; and
- Make various editorial changes to other sections.
These changes add clarity to DOS's suspension and debarment program, but certainly present some issues for nonprofit grant and contract recipients. For example, the appointment by the debarring official of a fact-finder presents certain risks, depending on whom the debarring official appoints. This also raises questions of whether this position will remain with one person or continually fluctuate, thereby potentially lending itself to inconsistent fact-finding determinations. Alternatively, the appointment of any fact-finding official (or body) is certainly preferred over some agencies' preference of having none at all, in which case the action attorney and/or the Suspension and Debarment Official becomes the de facto fact-finder, presenting clear conflicts of interest.
The updating of the file (i.e., administrative record) prior to determining whether to propose debarment also presents risk to nonprofit grant and contract recipients. For example, a nonprofit may be in continual communication with a suspension and debarment office, whereby they requested and received the administrative record previously, but unbeknownst to the nonprofit, additional information was added that is dispositive of a proposed debarment determination. One would hope that DOS would treat a request for the administrative record as ongoing, but this may be something nonprofits will have to do explicitly going forward.
Accordingly, while the clarity is useful, some of the proposed changes are certainly noteworthy and may create new considerations and challenges for nonprofits. However, since these changes are only being proposed, nonprofits have an opportunity to comment by May 27, 2016.
Federal Acquisition Regulation: Forthcoming Final Rule Will Make FAPIIS More Comprehensive; Could Affect Responsibility Determinations
The U.S. Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) are issuing a final rule, effective April 6, 2016, amending the FAR to include identification of (1) any immediate owner or subsidiary, and (2) all predecessors of an offeror that held a federal contract or grant within the last three years, in the FAPIIS for contracts that exceed the simplified acquisition threshold.
- Identifying information—e.g., the Commercial and Government Entity (CAGE) Code and the legal name—must be provided "to the extent practicable."
- The three-year period comprises the three years prior to signing the representation. Novation dates are not relevant.
- The following organizations, structures, and items are not exempt from the rule: publicly traded companies subject to U.S. Securities and Exchange Commission requirements, alternative structures where the ultimate owner remains the same before and after a transaction, and commercially available off-the-shelf (COTS) items. Furthermore, novations do not exempt organizations.
While there are many reasons why a parent-subsidiary arrangement/relationship between a nonprofit and for-profit or nonprofit entity can be attractive or necessary, nonprofit organizations should be careful to understand that the relationship could potentially expand responsibility determinations to include parent, subsidiary, and/or successor entities. However, the further the temporal and structural distance between entities, it would logically follow that the same should hold true for responsibility determinations (i.e., the less relevant the information may be in establishing an offeror's responsibility)—yet, it is unknown how such information might be used by an agency or, worse yet, by competitors seeking to sully one's reputation. As a consequence, nonprofit contractors and grantees should remain mindful of the responsibility determinations of not only their immediate legal entity but those related and affiliated entities, and take proactive steps to secure the reputation and present responsibility of all entities within a corporate family.
Prohibition on Reimbursement for Congressional Investigations and Inquiries
On February 17, 2016 the FAR Council proposed to amend the FAR to implement Section 857 of the National Defense Authorization Act for Fiscal Year 2015 (NDAA 2015). Section 857 of NDAA 2015 amended 10 U.S.C. § 2324(e)(1) to make unallowable "[c]osts incurred by a contractor in connection with a congressional investigation or inquiry into an issue that is the subject matter of a proceeding resulting in a disposition," such as a criminal conviction, a determination of contractor civil liability for fraud, a penalty for whistleblower reprisal, suspension or debarment, rescission of a contract, termination of a contract for default, or a settlement of an action that might have resulted in any of these penalties. 10 U.S.C. § 2324(e)(1)(Q), (k)(2). The proposed rule would amend FAR 31.205-47 to add as unallowable those costs incurred in any congressional investigation or inquiry that is associated with a criminal conviction, suspension or debarment, termination for default, etc., the costs of which are already unallowable under FAR 31.205-47. Even though Section 857 of NDAA 2015 applies only to DoD, NASA, and Coast Guard contracts, the proposed rule would make Section 857 applicable to all agencies subject to the FAR.
While this particular change is restricted to the FAR, nonprofits should keep a wary eye on whether a similar change is made to the Uniform Guidance's Cost Principles, which currently provide that certain types of costs associated with congressional inquiries are allowable. See 2 C.F.R. § 200.450.
UPDATE: Comment Period Extended on Paid Sick Leave Rule
As we touched on in a previous newsletter, on February 25, 2016, the U.S. Department of Labor (DOL) published its Notice of Proposed Rulemaking implementing Executive Order 13706, Establishing Paid Sick Leave for Federal Contractors. Executive Order 13706 requires parties, including nonprofits, that enter into contracts with the federal government to provide covered employees with up to seven days of paid sick leave on an annual basis, for such reasons as the employee's medical condition, care for a close family member's medical condition, and absences resulting from domestic violence, sexual assault, and stalking. The comment period was originally due to close on March 28, 2016. However, based on public comments received and the interest expressed, the DOL has extended the comment period until April 12, 2016.
Upcoming Nonprofit Luncheon/Program and Webinar
UBIT: What Your Nonprofit Needs to Know about Sponsorships, Advertising, Royalties, and Cause Marketing
Tuesday, April 5, 2016 | 12:00 - 2:00 p.m. ET
This program will focus on some of the most confusing yet important unrelated business income tax (UBIT) issues confronting nonprofit, tax-exempt organizations: corporate sponsorships, advertising, licensing arrangements, endorsements and royalties, and cause-related marketing. There are critical distinctions in this area that are important to understand and often misunderstood. In addition, when business deals between a nonprofit and for-profit company involve a combination of these arrangements, how do you best tackle the contractual and other documentation of the deal? There are a host of valuable planning techniques of which every nonprofit (and their advisers) should be aware and which will be shared during this program. The panel of experienced legal and tax professionals will focus on current IRS enforcement patterns in this area, proactive practical tips and suggestions, common pitfalls, and what to do if the IRS comes knocking. From the perspective of both in-house advisers and outside counsel, this will be an invaluable program for experienced nonprofit finance, legal, marketing, and operations staff, as well as those new to the area.
To view our prior publications on nonprofit government grant and contract issues, please click here.