Thursday, November 29, 2012

Buying Security Services under USAID Awards

This one is for those working in more and more dangerous and unpredictable environments, which require security services contracts.

As we all know, USAID’s funds cannot be used to directly procure weapons or military grade equipment, therefore the only way for a USAID implementer to obtain security for its staff in the field is to procure “turn-key security services” on some sort of fixed price basis, which does not allow direct procurement and ownership by the implementer of prohibited equipment. 

What does that mean? How do you compete and award a contract for “turn-key” security?  What type of contract do you need and what compliance safeguards are needed to be put in place?

Wednesday, October 10, 2012

Home Leave or How To Stay American Without Incurring Disallowances

The question of allowability of “home leave” (additional vacation days) and “home leave airfares” (additional airfares reimbursed by USAID to take such home leave days in the US) takes the prize for the most confusion on either side of the contract.

Now, I would like to preface this post by saying that it only pertains to contractors implementing cost reimbursable contracts AND to non-profits which are implementing grants AND cost type contracts from USAID. 

The reason why the distinction is important is because NGOs which do not work under USAID contracts have different standards of allowability for allowances than those Non-Profits or For-Profits which implement both contracts and grants. 

Non-Profit NGO allowances are not limited by AIDAR and instead controlled by general allowability principles in their applicable cost principles.

However, once a non-profit starts getting contracts, it all changes.  AIDAR applies to you whether or you are a for-profit or a non-profit implementing a USAID cost type contract.  My suggestion is always to review your policies and adopt the most stringent one (AIDAR based) if you are going to implement both contracts and grants to avoid any allowability and compliance issues.

Now back to home leave…  The “Home Leave” concept is, in my mind, a strictly  US Foreign Service concept and pertains to Foreign Service officers accruing additional “home leave” vacation days and airfares after long postings overseas, which they can take as a “lump sum” leave in the US, normally between their overseas assignments. 

The leave was designed to allow Foreign Service Officers to return to the bosom of the United States, eat some burgers, shop in Whole Foods, watch some NASCAR or do whatever it takes to re-assimilate and re-kindle their American identity before they embark on their next long tour overseas.

The leave is given with restrictions and you would have had to have spent 2 years with no R&R and then come back to post for additional 2 years.  The additional 2 year tour then serves as home leave eligibility period for the next 2 year tour and so on.

Similar (more or less) “home leave” restrictions and limitations, apply to reimbursement of such leave and airfares by USAID to contractors.    The limitations are set in AIDAR 752.7031 Leave and Holidays (for calculation of home leave days) and by AIDAR  752.7002 Travel and Transportation (for limitations on air travel etc). 

AIDAR 752.7031 basically states that that “home leave” may be earned at a rate of 15 days per year for up to 30 days on a 4 year assignment and will be reimbursed by the Government if the employee serves a 2 year appointment and returns for another 2 year appointment ON THE SAME CONTRACT (unless the Mission Director approves a shorter return term).    Additionally, the first 2 years must be served without more than 30 days of total vacation/sick/leave-without- pay, spent by that employee in the United States.  Coming back for another 2 years ON THE SAME contract is mandatory and, in any case, cannot be any less than another 1 year and only if the Mission Director approves such change.

 What this basically means is that unless you have a guaranteed 4 year contract with USAID  where you place a long term employee at post and that employee does not take any vacation/leave in the US for more than 30 days during his/her first 2 years, that employee will be entitled to 30 days of additional “home” leave vacation time which she/he can take ONLY in the US, provided that employee comes back to the contract and works an additional 2 year period.

The period of service eligibility for home leave DOES NOT transfer between different USAID contracts overseas, so the home leave eligibility and reimbursement must occur on the same contract and charged to the Government under that contract – this is supported by AIDAR language (“under this contract”) and also through the general concept of allocability of costs (cost must be allocable to the contract to which they are charged) which must be met at all times. 

So, now that it is all clear as mud, what is the simple solution?

The simple solution to the “home leave” dilemma is to NOT have “home leave” as a benefit at all.

The less simple solution is to manage “home leave” eligibility contract by contract and only on contracts 4 years or longer where you can ensure uninterrupted service and direct charge the home leave days and airfares to USAID in compliance with AIDAR clauses.

And if you ask me how the “simple solution” would affect your poor employees, who need to eat burgers and watch NASCAR to feel American again, I offer you the following:

The R&R regulations allow for R&R leave to be taken in the designated R&R relief point worldwide (See FAM for a list) OR in the United States.  R&R leave is allowable every 12 months of service as long as you come back for another 12 months (basically once every 24 months).  The R&R airfare to the Unites States does not have to be within the amount you would spend on the airfare to the designated R&R relief point.  R&R airfares to the US will be reimbursed as long as the travel is by the most economical fare to one point of destination in the United States selected by the employee.  In other words, the employee can be reimbursed for an R&R airfare from Amman to Cleveland, but will not be reimbursed for an airfare from Amman to Cleveland and then onward to San Francisco and then onward to DC.

AIDAR allows employees to accrue up to 26 days of vacation leave plus 13 sick leave per year on each contract.  These days can be used for such R&R in the US.

The penalty for not complying with the AIDAR clauses is that USAID will not reimburse any non-compliant leave days or airfares (presumable directly or indirectly) for more than the allowable amount of standard leave stated in the AIDAR (i.e. 26 days of vacation and 13 days of sick leave per year).  The vacation/sick days, incidentally, are not transferrable under different contracts either and must be forfeited or paid out with approval from USAID (if there is a reason why they were not taken) at the end of each contract.

Tuesday, October 9, 2012

Grants Under Contract - So Why No Fee Again? The Answer

So, after some more research, I came to find the reason why Contracting Officers insist that no fee should be assessed on the GUC amounts ...

And the reason is because the outsourcing of the grant-making ability from USAID to the Contractor is done through purchasing essentially a "professional support service" from the Contractor, for which the Contractor can charge USAID a fee that will apply to the labor costs.  The idea is that the Contractor will not be responsible for the actual amounts given as grants, but only for making sure it performs correctly the "support services" that it is being paid for.  Therefore, those Contractor personnel who will be performing such services can be charged with a fee, however no fee (i.e. no risk) can be applied to the total amount of actual grants.

What this means is that the outsourcing of services approved by OFPP under GUCs is only supposed to cover the TECHNICAL services which USAID may purchase from the contractor in selecting, awarding and monitoring grantees, i.e. "outsourced support services", normally performed by USAID directly.

The Contractor should not be indemnifying USAID against the risk that GUC grantees may represent (even after and in spite of the contractor's doing its due diligence in selection and monitoring).  The Contractor is only supposed to be responsible for doing what is required under the scope of the "services" to SUPPORT USAID's grant making authority and should not be responsible for guaranteeing that the grants program will succeed or that all grantees will turn out to be models of integrity.

In that, it is cosmically different from the Contractor's responsibility for its subcontractors, since the Contractor shares the risk with the subs for non-performance and those risks are allowed to collect fee.

Therefore,  it is crucial to ask USAID to indemnify the Contractor against GUC grantee failure and not hold the Contractor responsible in cases where the grantees do not perform or steal or whatever...unless USAID can link such failures to be the direct result of the Contractor's actions in performing "support services".

See my post  Grants Under Contract - Are you prepared to take the risk?

The Contractor's scope under GUCs should  only be limited to the specific pre-award services and specific post-award services; therefore the Contractor should only be held responsible for complying with and performing that scope of work (heavily influenced by USAID's involvement), as opposed to being on the hook for the entire GUC amounts.

This means that if USAID CO insists on no fee being assessed on the GUC amounts, then USAID should be clear and include an additional Section H clause, which describes the protections USAID is willing to offer to the Contractor in the form of allowable “write off of bad debt”, in cases where grantees misuse funds, or incur unallowable costs which cannot be collected: 

"The Contractor shall have no liability to USAID with respect to its awarding and administration of grants on behalf of USAID hereunder, or with respect to the acts or omissions of its grantees hereunder, except to the extent that losses to the USAID foreign assistance program arise from the Contractor's negligence or bad faith in performing its responsibilities hereunder"

Thursday, October 4, 2012

Source, Nationality.... and Origin - New "Prohibited Sources"

USAID has recently updated its Source and Nationality Regulations contained at 22CFR228, which mandate new Geographic Codes for procurement of goods and services and update the definition of “prohibited sources”.

Now, instead of having a list of countries from which procurement is prohibited with USAID funds, it provides the following regulation chain of command:

22CFR228.03 Identification of the authorized principal geographic procurement codes.
 (a) USAID has established principal geographic codes which are used by USAID in implementing instruments. This regulation establishes a presumptive authorized principal geographic code, Code 937, for procurement of commodities and services unless otherwise specified in the implementing instrument. Code 937 is defined as the United States, the cooperating/recipient country, and developing countries other than advanced developing countries, and excluding prohibited sources (emphasis added). USAID maintains a list of developing countries, advanced developing countries, and prohibited sources, which will be available in USAID's Automated Directives System, ADS 310.

22CFR228.01 Definitions
Prohibited sources means countries to which assistance is prohibited by the annual appropriations acts of Congress or other statutes, or those subject to other executive branch restrictions, such as applicable sanctions administered by the U.S. Treasury Department's Office of Foreign Assets Control. USAID maintains a list of prohibited sources, available in USAID's Automated Directives System, ADS 310 (emphasis added).

ADS 310 states the following:
310.3.1.4 Countries Which Are Prohibited Sources Effective Date: 02/06/2012
No services may be procured from suppliers with a nationality from countries designated by USAID as “prohibited sources.” Additionally, no goods may be procured from source countries that are designated as prohibited sources. Note that the definition of “source” in ADS 310 and 22 CFR Part 228 does not have the same meaning as the word is defined in the term “prohibited sources;” the latter term denotes a list of countries that for policy reasons are deemed ineligible for procurement. The list of countries designated as prohibited sources is attached as Mandatory Reference 310mac, List of Prohibited Source Countries. Countries may be added to or removed from this list by the Administrator and upon receiving foreign policy guidance from the Department of State, as appropriate. Notwithstanding the foregoing, goods and services may be procured from a country identified as a “prohibited source” in the Mandatory Reference on a case-by-case basis (e.g., on a by grant or by program basis) with the approval of the cognizant Assistant Administrator or Deputy Assistant Administrator or Independent Office head or deputy head. This authority may not be re-delegated.

Mandatory Reference 310mac states the following:
List of Prohibited Source Countries
There are currently no prohibited source countries. Other legal restrictions on procurement, e.g., OFAC sanctions, may apply to particular procurements of specific source or nationality. Consult your RLA/GC based on particular circumstances.

This creates a dilemma for prime contractors and recipients.  The regulation seems to say that “no prohibited sources” exist, but references restriction on some transactions by OFAC, which seems to contradict the fact that “no prohibited sources exist”, since OFAC regulations currently prohibit transactions with some countries almost entirely and those OFAC sanctions are included in the definition of “prohibited sources” at 22CFR228.01.

Additionally, Geographic Codes 935 and 937 exclude “prohibited sources” (which by definition at 22CFR228.01 include OFAC sanctioned countries); therefore this means that source/nationality of commodities/supplier which equals such "prohibited sources" would not be allowable.

What about where goods are manufactured?  As you remember,  the new 22CFR228 removes the concept of origin...   But not so fast.  The definition of "source" at 22CFR228.01 basically says that commodities manufactured in "prohibited sources" countries can not be shipped to the cooperating country, even if the country from which they are shipped is included in authorized Geographic Code.  This basically re-introduces the concept of "origin", at least as it relates to the "prohibited sources" countries.

This also means that prime recipients and contractors must monitor OFAC restricted programs and updates for any additional restrictions and ALSO monitor and update their subs complying with the restrictions, since 22CFR228 must be flown down.  This could be a very burdensome procedure, since local subs would not be able to comb through or often understand the OFAC programs unless prime contractors/recipients list all the OFAC countries from which transactions are or may be prohibited in the sub instrument agreement and include some language, which reserves the right by the prime to update those countries if changes are made by OFAC.

Recommendation for Compliance
OFAC lists the 17 Country Sanction Programs (below and at

The review of these programs seem to restrict generally all procurements of goods or services by US persons or companies from companies registered in or goods made in:  North Korea, Cuba, and Iran. 

Syria sanctions are listed as “being updated”, so it is unclear what the recent guidance is, but the last updated Executive Order and references therein seem to point out that all goods/services from Syria are still prohibited.
The rest seem to have restrictions directed specifically at certain entities or individuals, which are hopefully the same as listed in EPLS (EPLS includes SDN list published by OFAC) and therefore can be easily checked. 

There are also specific restrictions for import to the United States from countries like Burma, North Korea and Sudan etc.

Guidance to Procurement Field Offices & Subs
Procurement Officers should continue to be prohibited to procure on general basis (unless OFAC license exists for a prticular contract/grant) from suppliers of goods or services meeting the nationality and source definitions (22CRF228.11 and 12) of Iran, Syria, North Korea or Cuba.  They should similarily be prohibited from procuring goods manufactured (origin) in Iran, Syria, North Korea or Cuba due to Geo Code 937 and 935 exclusions (again unless OFAC license exists).

Procurement Officers should seek guidance from their Contracts & Grants Specialists in the Home Office or other Designated Authority for Compliance in cases where they are considering any transactions involving goods produced in any of the countries listed below or services/goods supplied by a supplier meeting the nationality and/or source definition (22CFR228.11 and 12) of the countries listed below:
OFAC Sanction Countries (as of October 4, 2012):                                                                                                                                           

1                    Balkans    
2                    Belarus     
3                    Burma      
4                    Cote d'Ivoire (Ivory Coast)         
5                    Democratic Republic of the Congo         
6                    Iraq           
7                    Lebanon   
8                    Former Liberian Regime of Charles Taylor         
9                    Libya        
10         Somalia    
11                Sudan       
12               Yemen      
13         Zimbabwe

The same guidance as above should be included in the subcontracts or subgrants and require subcontractors or grantees to inform the prime and seek guidance for any transactions involving OFAC restricted countries.  The subcontracts should also state that "the list is non-exclusive and may be updated by the prime at anytime" (if you want total control), or "the list is non-exclusive and the subcontractor is required to follow and comply with the most recent list which can be found on OFAC website at" (if you want less control and more protection in case you fail to update the list timely).
This will provide an additional compliance tool for the prime to make sure that subs are complying with the restrictions that the prime will be held accountable for.

Thursday, September 27, 2012

Electronic Documentation for Audit and USAID Approvals by E-Mail

Electronic Record Keeping

The ability to keep records in electronic format for the purpose of an audit by DCAA can save money on storage and improve record keeping and speed of audits.  Here is what you need to have in order to be compliant in this area:

1. Policy and Systems to Archive Documents electronically in proper manner, including an established indexing system

2. Ability to keep originals after scanning/imaging for at least 12 months

This is based on the following regulations:

DCAA "Information for Contractors Manual" refers to FAR 4.7 guidance in regard to Electronic Imaging of all Audit Documentation:

FAR 4.703
 (c) Nothing in this section shall be construed to preclude a contractor from duplicating or storing original records in electronic form unless they contain significant information not shown on the record copy. Original records need not be maintained or produced in an audit if the contractor or subcontractor provides photographic or electronic images of the original records and meets the following requirements:
(1) The contractor or subcontractor has established procedures to ensure that the imaging process preserves accurate images of the original records, including signatures and other written or graphic images, and that the imaging process is reliable and secure so as to maintain the integrity of the records.
(2) The contractor or subcontractor maintains an effective indexing system to permit timely and convenient access to the imaged records.
(3) The contractor or subcontractor retains the original records for a minimum of one year after imaging to permit periodic validation of the imaging systems.

This guidance technically only applies to contractors under FAR based contracts.  For USAID grantees, 22CFR226.53 (c) governs and requires written approval of USAID for those grantees who wish to retain copies of original records in lieu of originals.

Grantees should seek permission from USAID based on DCAA’s guidance and FAR 4.703. 

USAID Approvals by Email
Are emails (vs signed letters) sufficient to serve as “written” approval of USAID CO/AO?

FAR Part 2.101 applies for all approvals that are required “in writing”:

See FAR 2.101 In Writing – means any worded or numbered expression that can be read, reproduced, and later communicated, and includes electronically transmitted and stored information.

Friday, August 24, 2012

Allowability of Relocation Costs for Employees who Resign or are Fired by Contractors/Recipients

This situation has been receiving some attention recently as DCAA recommends disallowance of costs associated with relocation of staff that quit or are dismissed by contractors/recipient for cause within 12 months of being posted overseas.

The question arises as to whether relocation costs including airfares to and from post are allowable in those circumstances where the employee is fired for cause or released for non-performance since the meaning of "reasons beyond control" isnot defined in any of the regulations.

Monday, May 21, 2012

Lazy Sub-Contracting by Flow Down – Just Don’t Do It!

Okay, I know the title is a little self-righteous….  Who has the time to write beautiful and meaningful subcontracts when there are a million regulations that change every minute and contract requirements that change even faster?  Well, actually, the answer is …lawyers….(I luv lawyers!), but then, who has the money to pay lawyer fees in the time of austerity and the reign of DCAA and IG?  Having said that, do you remember what the Monty Python used to say?  ”Nobody expects the DCAA inquisition, but it is coming”… or something like that…

GRANTS UNDER CONTRACT- are you ready to assume the risks?

As more often and larger “Grants under Contract (GUC)” components appear in USAID CPFF prime contract solicitations, there arise multiple issues for contractors bidding on such work, especially in the cases where USAID Contracting Officers direct contractors not to assess any “fee” on the GUCs component of the contract.

Wednesday, March 28, 2012

Semantics of FAR 52.244-2 – When is Consent to Subcontract required?

This issue has come up now in recent days several times, so I thought I would do some research, ask some smart people and also some friendly lawyers ( just kidding, most lawyers are smart people J) and put together some guidance as it relates specifically to USAID contracts, which contain FAR Clause 52-244-2 Subcontracts.

The said clause is normally included in cost reimbursement prime contracts or fixed price prime contracts with value above $150,000 under which unpriced actions are anticipated.

The clause basically requires that, unless your company has an approved Contractor Purchasing Review System (CPSR), a notification and consent request must be submitted to and written consent must be obtained from your Contracting Officer if you are awarding a subcontract which is

 a) cost reimbursable, time and materials or labor-hour type of any value,
b) fixed price and either exceeds the simplified acquisition threshold (currently set at $150,000) or exceeds 5% of the total estimated price of the prime contract

So far, pretty straight forward.

The questions, which I am being asked again and again and which make up the reason for this post are:

1.  What constitutes a subcontract?   Is “lease” of an office space, a “subcontract” for the purpose of the consent requirement?  Is a Service Agreement for Internet Services a “subcontract”?  Is a Purchase Order for bananas, a “subcontract”?


2.  Does the consent requirement apply to modifications of such subcontracts for which CO’s consent has already been given?

These are the burning questions, which contract geeks like me ask themselves and lie sleepless at night wondering about…   Well, fear no more, here comes your Sleep Aid!

As my new favorite person at the Department of Justice’s fabulous team in Kabul says “let’s just eat this bear in small pieces”….

Piece Number #1 - What is a Subcontract?

FAR 52.244-2 (a) Definitions already has an answer: “Subcontract” means any contract, as defined in FAR Subpart 2.1, entered into by a subcontractor to furnish supplies or services for performance of the prime contract or a subcontract. It includes, but is not limited to, purchase orders, and changes and modifications to purchase orders.

Aha, so subcontract = definition of contract at FAR Subpart 2.1, which is:

Contract means a mutually binding legal relationship obligating the seller to furnish the supplies or services (including construction) and the buyer to pay for them. It includes all types of commitments that obligate the Government to an expenditure of appropriated funds and that, except as otherwise authorized, are in writing. In addition to bilateral instruments, contracts include (but are not limited to) awards and notices of awards; job orders or task letters issued under basic ordering agreements; letter contracts; orders, such as purchase orders, under which the contract becomes effective by written acceptance or performance; and bilateral contract modifications. Contracts do not include grants and cooperative agreements.

So, this means that any written agreement to provide service or goods is a “contract” and therefore a “subcontract” for the purpose of consent requirement.   

The next question you should ask is "is it required in the performance of the contract"?  Let's say the contract says that the contract "shall provide all logistical, facilities and life support (which includes food services) in the performance of the contract".  And so, to attend to our earlier examples, that would include a “lease of office space” and “service agreement for Internet services” and  “purchase order for bananas”. 

However, remember that the consent requirement only applies to subcontracts which are:

a) cost reimbursable, time and materials or labor-hour type of any value,
b) fixed price and either exceed the simplified acquisition threshold (currently set at $150,000) or exceed 5% of the total estimated price of the prime contract

therefore, unless you are buying $150,001 worth of bananas, you are good on that Purchase Order not requiring consent.  If your office lease or Internet services agreement, however, exceeds the $150,000 threshold or 5% of your estimated contract value, it does require CO’s consent under the clause.

We all agree that it is pretty burdensome both for the contractor and for COs to ask for consent to enter into office leases and Internet services agreements, therefore my practice tip of the day is to clear this with your CO in advance in your “Advance Agreement” document at the time of award and make sure you have negotiated additional exemptions for consent requirements then. 

Piece #2 – Does the consent requirement apply to modifications?

As you can see from the definition of “contract” under FAR Subpart 2.1, which equals definition of “subcontract” under the clause FAR 52-244-2, bilateral modifications, i.e. modifications signed by both parties meet the definition of “contract”, and therefore meet the definition of “subcontract” for the purpose of consent requirement. 

Therefore, the same rules apply.  If the modification:

a) cost reimbursable, time and materials or labor-hour type of any value,
b) fixed price and either exceeds the simplified acquisition threshold (currently set at $150,000) or exceeds 5% of the total estimated price of the prime contract

then the consent is required and should be applied for under this clause.  The limits above for modifications are CUMULATIVE.  In other words, if your fixed price subcontract is $150,000 and you have received consent, and then you issue a change order, which makes the subcontract $160,000, the modification to document the bilateral change order is considered to be a cumulative modification of $160,000, and a new consent/notification is required.

Thursday, February 9, 2012

The Government is Not Your Mother..... So Drop the Attitude! ;-)

Do you remember your mother saying that you should just “be yourself” and “be honest”? Well, these are our main tips for working with your US Government Agency. At the end of the day, if you pay attention to your contract terms, clarify things you do not understand with the Contracting Officer (in writing), perform to the best of your company’s ability, provide timely notifications of things you are not able to do and acceptable solutions, and be “abnormally” thorough about accuracy of your costs and invoicing — you have it made! The Government is not out there to get you! For the most part, they would like this project that you are working on to be accomplished — that is why they bid it out and award it in the first place.

Thursday, January 19, 2012

Guidance on New USAID Rules for Source and Nationality (Revised 22CFR228)

The revised final 22 CFR Part 228 (Procurement of Commodities and Services Financed by USAID Federal Program Funds) sets out the following rules which must be followed as of the effective date of February 6th, 2012:


Under USAID Prime Contracts and/or Grants and Cooperative Agreements, there are restrictions related to procurement of goods and services from designated geographic code countries.

Under the new rules, all contracts and grant/cooperative agreements will include one of the following codes:

• 937 (USAID Principle Geographic Code )
• 935 (Free World – all countries except prohibited source countries)
• 110 (New Independent State – former USSR republics)

Under USAID Cooperative Agreements and Grants, an additional order of preference may apply, even if the Geographic Code listed in the award is 935 (Free World). The order of preference is normally contained in a Mandatory Standard Provision “USAID Eligibility Rules for Goods and Services” and requires that a memo to file is kept documenting the choice of source and nationality in accordance with the preference order.


The rules of Source and Nationality apply to all individual transactions above $25,000.

Any individual transaction not exceeding $25,000 can be performed from a Source/Nationality of Geographic Code 935 (Free World excluding prohibited sources).

The $25,000 exclusion DOES NOT apply to those transactions covered by special procurement rules (i.e. ag commodities, vehicles, pharmaceuticals, pesticides, fertilizer and used equipment).

Attached is an overall guidance on the new Rules of Source and Nationality and how they are applied for procurements of goods and services under USAID financed programs.