Introduction
Cannon guilty plea
Cannon and Gallup relationship
Contractor's resulting exposure
Lessons learned: best practice for complying with revolving-door requirements
Comment



Introduction

Private industry frequently considers hiring existing and former federal government employees for their experience, knowledge base and skill set. As a reaction to the continuing perception that high-level federal employees jump from government to private industry and take sensitive government information with them, over the years Congress has introduced complex and often overlapping revolving-door legislation that imposes post-government employment restrictions on certain employees. While many government employees successfully transition to the private sector, failure to observe revolving-door laws and regulations can result in severe consequences for both contractors and government employees. A recent example of what can go wrong for both such parties is the case of Timothy Cannon and the Gallup Organisation.

Cannon guilty plea

On April 9 2013 Judge Jackson of the District Court for the District of Columbia sentenced Timothy Cannon, former director of the human capital division at the Federal Emergency Management Agency (FEMA), to two years of probation for conflict of interest violations.(1)

According to Cannon's plea, he helped Gallup to acquire a $6 million contract, while at the same time pursuing employment with the company. As a result of its alleged employment discussions with Cannon and related conduct, Gallup faces potential liability for civil damages and penalties under the False Claims Act(2) and the Procurement Integrity Act,(3) including treble damages and disgorgement of all money received under the contract. Moreover, these types of case always raise the risk of the contractor's suspension or debarment, which would preclude any new contract awards for up to three years. This case serves as a reminder for private contractors wishing to hire existing or former government employees that they must have rigorous internal controls in place in order to ensure compliance with post-government employment requirements.

Cannon and Gallup relationship

Gallup performs a variety of services for federal agencies, including market research, tracking studies, polling and surveying, interviewing and demographic analysis. It has contracts and subcontracts with several agencies, including a General Services Administration multiple award schedule contract from which agencies can order specific services.

According to Cannon, Gallup employees often met and communicated with Cannon between 2007 and 2008 for the purpose of convincing FEMA to provide Gallup with a consulting services contract. Gallup allegedly sent Cannon multiple price proposals, as well as a statement of work, which FEMA ultimately adopted almost verbatim. For his part, Cannon allegedly pushed FEMA to enter into a five-year fixed-price contract (the BEST Workforce Initiative) with Gallup valued at $6 million. As director of the human capital division, Cannon was head of the office that was responsible for overseeing the award and administration of the initiative. Gallup formally interviewed Cannon in January 2009 after FEMA had awarded the contract and increased the contract value three times, and after Gallup had formally extended an offer of employment to Cannon on February 5 2009.

Cannon retired five days later after receipt of his formal offer of employment, but failed to disclose the offer to FEMA. Only after some Gallup employees allegedly voiced concerns about the ethics of the hiring did Gallup request that Cannon obtain an ethics advisory opinion from FEMA. However, Cannon failed to disclose his Gallup employment offer to the ethics office. After FEMA employees had learned of Cannon's prospective employment with Gallup and red flags were raised within the agency, Gallup revoked its employment offer to Cannon on March 26 2009.

Contractor's resulting exposure

On October 21 2009 Michael Lindley, former director of client services at Gallup, filed a qui tam complaint (an action brought by a private individual against an entity which is believed to have violated the law in the performance of a government contract) seeking damages under the False Claims Act. Lindley's complaint alleged a host of act violations of contracts with multiple federal agencies, including knowingly submitting false estimates and inflated bills to the government and engaging in unlawful employment discussions with Cannon, who, according to Lindley, had "played a role" in the award of the FEMA subcontract. The US Attorneys' Office conducted an investigation into Lindley's allegations; it subsequently intervened in the civil False Claims Act claim and filed criminal charges against Cannon.

According to the government's complaint, Gallup had knowingly pursued discussions with a federal employee who was "personally and substantially" involved in the award and administration of a contract to Gallup and its primary contracting partner. Gallup's discussions with Cannon allegedly violated the Procurement Integrity Act and the organisational conflict of interest requirements in Federal Acquisition Regulation 9.505, and provided Gallup with an unfair competitive advantage in obtaining a subcontract from which it received an unreasonable 24% profit.

As a result of its alleged improper discussions with Cannon and its failure to disclose those discussions to FEMA, Gallup faces potential liability and civil penalties under both the False Claims Act and the Procurement Integrity Act. With respect to the False Claims Act claim, the government is asserting fraud in the inducement theory on the basis that FEMA "was falsely and/or fraudulently induced to enter into" contracts and task orders that it "would not have agreed had it known the truth". Gallup's liability for fraud in the inducement under the act could be as high as three times the total value of the contract, in addition to an $11,000 civil penalty for each of the tainted invoices.(4)

For its alleged violation of the Procurement Integrity Act(5) Gallup faces potential civil penalties of $500,000 per violation plus twice the amount of compensation offered to the individual. Additionally, FEMA may rescind the contract and recover the entire amount provided to the contractor under the contract. Finally, FEMA may suspend or debar Gallup from all federal government business.

Lessons learned: best practice for complying with revolving-door requirements

This case is a reminder to contractors that it is critical to have rigorous internal controls and compliance policies in place in order to ensure that well-meaning contractor personnel follow best practice when engaging in post-government employment with federal workers. A well-documented process can go a long way in preventing allegations of violations of the False Claims Act, the Procurement Integrity Act and conduct that could lead to suspension and debarment.

Recommended best practice includes the following:

  • Develop rigorous written compliance policies covering post-government employment issues:
    • All government contractors are presumed to know the law and its implementation as laid down in the Federal Acquisition Regulations, including the requirement to have a written code of business ethics and conduct that should include restrictions on post-government employment.
    • The post-government employment compliance policy should require that the potential government employee recuse himself or herself from any actual or potential contractual matters involving the contractor. The recusal must occur before engaging in any employment discussions. Failure of certain government employees to recuse themselves properly when required may result in the contractor being disqualified from bidding on pending contracts.
    • A potential employee should obtain a written opinion of approval from the government ethics office. Provided that the potential employee discloses the relevant facts to the ethics official, the resulting ethics advisory opinion protects both the potential employee and the contractor.
    • The contractor should have a standard questionnaire for the potential employee to complete and sign regarding potential issues related to post-government employment restrictions (eg, the scope of the employee's government work, particular projects that he or she was either responsible for or substantially and personally involved with and dates of responsibility for particular projects).
    • Understanding the facts early on will allow the contractor to assess whether the potential employee may be brought onto the team with no limitations or must be walled off from specific contractors or programmes, or whether hiring the employee will be too risky.
  • Provide compliance training to current employees:
    • It is not unusual in cases alleging violations of the False Claims Act and the Procurement Integrity Act that the contractor provided no compliance training to employees or training that was considered adequate by government enforcement officials.
    • A failure to provide adequate compliance training would likely be a factor in assessing both whether a contractor showed a "reckless disregard" for the truth under the False Claims Act and whether the contractor was responsible for purposes of the agency's decision to suspend or debar the contractor.
    • Contractors should initiate and document formal government contracts compliance training programmes for all employees, especially focusing on revolving-door requirements for those employees who obtain or work on federal contracts. Training should not be a one-off event, but instead should be conducted on a periodic basis.
  • Disclose early and often:
    • If a contractor wishes to engage in employment discussions with a potential government employee, the potential employee should be required to disclose the intent to discuss employment to any relevant contracting officers. The contracting officers can then ensure that appropriate recusal actions are taken if needed.
    • Failure to disclose properly will likely be a critical factor and weigh heavily on decisions of government enforcement officials as to whether to pursue any action against the contractor, including suspension and debarment.
    • Contractors in turn should consider following up on the potential employee's disclosure and engage their contracting officers early and in writing regarding employment discussions with any existing or former government employees. Involving the government throughout the process will go a long way to deflecting later False Claims Act and Procurement Integrity Act violations, as well as suspension or debarment actions.

Comment

Contractors should seek legal counsel and be certain that they understand the rules on post-government employment. They should also implement proper internal controls and a compliance programme before engaging in employment discussions with the existing group of former government employees. With their experience, knowledge base and skill set, government employees can be invaluable additions to a contractor's work force; however, this case demonstrates the pitfalls and risks that can occur when proper procedures are not followed.

For further information on this topic please contact Rick Vacura at Morrison & Foerster LLP's Northern Virginia office by telephone (+1 703 760 7700), fax (+1 703 760 7777) or email (rvacura@mofo.com). Alternatively contact Pablo A Nichols at Morrison & Foerster LLP's Washington DC office by telephone (+1 202 887 1500), fax (+1 202 887 0763) or email (pnichols@mofo.com).

Endnotes

(1) Cannon pleaded guilty to conflict of interest, 18 USC §§ 208(a) and 216(a)(2). Under the statute, Cannon faced up to five years in prison. His guilty plea and full cooperation during the investigation of his conduct resulted in a sentence of probation only. See United States v Cannon, No 1:13-cr-00001, ECF No 7 (DDC).

(2) 31 USC §§ 3729-3733.

(3) 41 USC §§ 2101-2105.

(4) Gallup allegedly submitted 268 separate invoices under the contract, collectively worth over $12.96 million.

(5) A contractor violates the Procurement Integrity Act when it engages in employment discussions with a federal employee and knows that the federal employee has not notified his or her agency or recused himself or herself from the procurement. 41 USC § 2103.

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