Government Contracts Federal Forecaster - Part 1

Relevant News For ENTITIES & INDIVIDUALS With Business

Concerns In The Areas Of Government Contracts, Grants & Trade

– SPRING 2009, Vol. V, No. 2

INDEPENDENT MONITOR...A GOVERNMENT AGENT OR TRULY

INDEPENDENT?

By Keith D. Coleman

For years, the contracting community has questioned the

effectiveness and fairness of the government's suspension and

debarment process. The process is viewed as ineffective because a

suspension or debarment results in reduced competition for goods

and services. Moreover, many contractors believe the suspension and

debarment process is unfair because it is often used to penalize

contractor misconduct, despite regulations that state that

penalization is not the purpose of the suspension and debarment

regulations.

To address these and other issues, the government is making

greater use of Compliance Agreements as an alternative to

suspension and debarment. Compliance Agreements are effective and

fair because they do not remove contractors from the competitive

process. Moreover, such agreements focus on assisting the

contractor with establishing or improving the company's

government contracting compliance program.

The purpose of this article is to alert clients and colleagues

to a potential pitfall in the use of Compliance Agreements. When

negotiating the terms of a Compliance Agreement, contractors must

ensure that an Independent Monitor—an individual assigned

by the government to oversee the contractor's adherence to the

agreement—is not an agent of the government.

Compliance Agreements

The government is finding the use of Compliance Agreements to be

a viable alternative to suspension and debarment. In a 2004

Federal Times article, the Department of the Army's

then Suspension and Debarment Official stated, "Compliance

Agreements provide continuing assurance that the interests of the

government will be sufficiently protected without resorting to a

suspension or debarment." See Robert Kittel,

"Not Just a Punishment: Debarment Can Be Tool to Improve

Acquisition System," Federal Times (2004). Moreover,

Compliance Agreements provide redress for the apparent inequities

of the suspension and debarment process. Id. Accordingly,

"the Army has encouraged the expanded use of Administrative

Compliance Agreements in those circumstances where their use

provides appropriate assurances of responsibility coupled with

continuing oversight." See "U.S. Army Contract

Appeals Division," Compliance Agreements (April 24,

2009), at https://www.jagcnet. army.mil (last visited

April 30, 2009).

There is no standard template for Compliance Agreements. Rather,

the precise terms and conditions of any Compliance Agreement are

based upon the specific facts and circumstances of each case.

However, in negotiating several Compliance Agreements, we have

found that the government always requires the contractor to: (1)

recognize the wrongdoing and provide adequate assurance that the

issue will not reoccur; (2) discipline or remove the wrongdoers

within the company; and (3) appoint an Independent Monitor to

oversee the contractor's compliance with the agreement.

Role of the Independent Monitor

The role of the Independent Monitor is to assess the

contractor's compliance with the terms and conditions of the

Compliance Agreement to ensure that the contractor performs its

obligations in a timely and satisfactory manner. This position is

critical to any successful Compliance Agreement and is usually held

by someone who is an independent attorney, certified public

accountant, or other expert knowledgeable in the area of government

contracts. The general responsibilities of the Independent Monitor

under a Compliance Agreement include: serving as the first point of

contact for all questions regarding the Agreement; conducting

internal audits; and investigating instances of alleged

improprieties in government contracting or business ethics.

While employed and paid by the contractor, the Independent

Monitor is not under the contractor's control. In fact, the

Compliance Agreement will clarify that the Independent Monitor is

not an agent of the Contractor, and the work produced by the

Independent Monitor will not be subject to the contractor's

assertion of the attorney-client privilege or the work-product

doctrine. However, the Compliance Agreement is usually silent as to

whether the Independent Monitor is an agent of the government.

Contractors must take steps to ensure that the Independent

Monitor is not an agent, or viewed as an agent, of the

government. The most basic and effective step a contractor can take

is to ensure that the Independent Monitor's status as a

non-agent of the government is a term and condition to the

Compliance Agreement. To support this position, contractors can

take advantage of the following legal and practical arguments: (1)

the Independent Monitor is not an agent under the general law of

agency; (2) he or she is not an employee or agent under relevant

federal government laws and principles; (3) deeming the Independent

Monitor as an agent of the government would violate 18 U.S.C.

§ 209; (4) the Independent Monitor cannot effectively perform

certain duties under the Compliance Agreement, if designated or

appointed as a government agent; and (5) deeming the Independent

Monitor to be a government agent would be inconsistent with a

Department of Justice policy concerning Independent Monitors.

The Independent Monitor is NOT an Agent Under the General

Law of Agency

The Principal-Agent Relationship –

Agency law is concerned with any "principal-agent"

relationship, which is a relationship where one person has legal

authority to act for another. See Duvall v. Craig, 15 U.S.

45 (1817). The law of agency is based on the Latin maxim:

"Qui facit per alium, facit per se," which means

"he who acts through another is deemed in law to do it

himself." See United States v. Gooding, 25 U.S. 460

(1827). Moreover, the "principalagent relationship"

creates an "employer-employee" relationship, whereby the

principal employs the agent to work on the principal's behalf.

See Meyer v. Holley, 537 U.S. 280 (2002). Thus, a

principal-agent relationship permits, and is premised upon, the

ability of one person to act with the authority of another. Assent

to create a principal-agent relationship is a prerequisite to the

existence of a principal-agent relationship.

Compliance Agreements Do Not Address the Issue of

Independent Monitor as Government Agent – Most

Compliance Agreements are silent with regard to whether the

government intends to create a principal-agent relationship with

the Independent Monitor. Under applicable authorities, the

principal and agent must each manifest their assent or intention to

create the "principal-agent" relationship through written

or spoken words or other specific conduct. See Jade Trading,

LLC v. United States, 81 Fed. Cl. 173 (2008); Restatement

(Third) of Agency § 1.03 (2006). Therefore, because it does

not address the issue, the typical Compliance Agreement lacks an

express manifestation of assent, which is an essential element of a

principal agent relationship.

Another key element of a principal-agent relationship is the power

of the principal to control the actions of the agent. See

44 Comp. Gen. 675, B-155602 (May 4, 1965). In the federal

acquisition context, the government's power to control the

specific activities of the putative agent is key. "The usual

test for determining whether a person is an agent or an independent

contractor is to establish whether the employer's will is

represented by the result only, as in the case of an independent

contractor, or by the means as well as the result, as in the case

of an agent." See Westinghouse Elec. Corp., ASBCA No.

21634, 80-2 BCA ¶ 14,726 (1980). To reiterate, "the

principal must have the right to control both the means and the

details of the process by which the alleged agent is to accomplish

the task." See Northwinds Abatement v. Empirs Ins.,

258 F.3d 345, 351 (5th Cir. 2001).

With regard to most Compliance Agreements, the government does not

control the actions of the Independent Monitor. Rather, the

Independent Monitor serves as an independent check on the

contractor's compliance with the agreement. Moreover, the

government, through the Compliance Agreement, will describe

objectives that the Independent Monitor must ensure the contractor

meets (e.g., establish a code of conduct, compliance

hotline, government contracting policies and procedures) in order

to show that the company is currently responsible. However, the

Compliance Agreement does not dictate how the objectives must be

accomplished. As such, the government does not expressly control

the actions of the Independent Monitor in performing his or her

duties under a Compliance Agreement. Therefore, the Independent

Monitor is not a government agent under agency law.

The Independent Monitor is NOT an Employee or Agent Under

Relevant Federal Government Laws and Principles

In addition to the general principles of agency discussed above,

federal laws and principles specifically address the appointment of

agents and employees of the government.

To be an agent of the government, the Independent Monitor would

have to be designated or appointed as a government employee. All

federal government employees must be appointed to their respective

positions by an authorized federal employee or officer, must

perform a federal function, and must be supervised by a federal

employee or officer. See 5 U.S.C. § 2105(a). The

federal function element is satisfied if the federal employee is

supporting a federal program, law, or regulation. Hedman v.

United States, 15 Cl. Ct. 304 (1988).

The mechanism for appointing an entity as the agent of the

government for purposes of entering into contracts on behalf of the

federal government is perhaps the most relevant example of the

requirements for an entity to be considered an agent of the

government. Contractors are not often designated or appointed as

agents of...