Document:

ex10_2bylaws.htm

    EXHIBIT
      10.2

    

    

    

    AMENDED
      AND RESTATED BY-LAWS

    

    OF

    

    NESTOR,
      INC.

    
      

    

    

    

    ARTICLE
      I

    

    OFFICES

    

          SECTION
      1.1 REGISTERED OFFICE. The registered office shall be established and maintained
      at the office of the United States Corporation Company, in the City of Dover,
      in
      the County of Kent, in the State of Delaware, and said corporation shall be
      the
      registered agent of this corporation in charge thereof.

    

          SECTION
      1.2 OTHER OFFICES. The corporation may have other offices, either within or
      without the State of Delaware, at such place or places as the Board of Directors
      may from time to time appoint or the business of the corporation may
      require.

    

    ARTICLE
      II

    

    MEETINGS
      OF STOCKHOLDERS

    

          SECTION
      2.1 ANNUAL MEETINGS. Annual meetings of stockholders for the election of
      directors and for such other business as may be stated in the notice of the
      meeting, shall be held at such place, either within or without the State of
      Delaware, and at such time and date as the Board of Directors, by resolution,
      shall determine and as set forth in the notice of the meeting. In the event
      the
      Board of Directors fails to so determine the time, date and place of meeting,
      the annual meeting of stockholders shall be held at the registered office of
      the
      corporation in Delaware on

    

                If
      the date of the annual meeting shall fall upon a legal holiday, the meeting
      shall be held on the next succeeding business day. At each annual meeting,
      the
      stockholders entitled to vote shall elect a Board of Directors and they may
      transact such other corporate business as shall be stated in the notice of
      the
      meeting.

    

          SECTION
      2.2 OTHER MEETINGS. Meetings of stockholders for any purpose other than the
      election of directors may be held at such time and place, within or without
      the
      State of Delaware, as shall be stated in the notice of the meeting.

    

          SECTION
      2.3 VOTING. Each stockholder entitled to vote in accordance with the terms
      of
      the Certificate of Incorporation and in accordance with the provisions of these
      By-Laws shall be entitled to one vote, in person or by proxy, for each share
      of
      stock entitled to vote held by such stockholder, but no proxy shall be voted
      after three years from its date unless such proxy provides for a longer period.
      Upon the demand of any stockholder the vote for directors and the vote upon
      any
      question before the meeting, shall be by ballot. All elections for directors
      shall be decided by plurality vote; all other questions shall be elected by
      majority vote except as otherwise provided by the Certificate of Incorporation
      or the laws of the State of Delaware.

    

                A
      complete list of the stockholders entitled to vote at the ensuing election,
      arranged in alphabetical order, with the address of each, and the number of
      shares held by each, shall be open to the examination of any stockholder, for
      any purpose germane to the meeting, during ordinary business hours for a period
      of at least ten days prior to the meeting, either at a place within the city
      where the meeting is to be held, which place shall be specified in the notice
      of
      the meeting, or, if not so specified, at the place where the meeting is to
      be
      held. The list shall also be produced and kept at the time and place of the
      meeting during the whole time thereof, and may be inspected by any stockholder
      who is present.

    
      
        
        

      

      
        -1-

        
          

        

      

      
        
        

      

    

    

    

          SECTION
      2.4 QUORUM. Except as otherwise required by Law, by the Certificate of
      Incorporation or by these By-Laws, the presence, in person or by proxy, of
      stockholders holding a majority of the stock of the corporation entitled to
      vote
      shall constitute a quorum at all meetings of the stockholders. In case a quorum
      shall not be present at any meeting, a majority in interest of the stockholders
      entitled to vote thereat, present in person or by proxy, shall have power to
      adjourn the meeting from time to time, without notice other than announcement
      at
      the meeting, until the requisite amount of stock entitled to vote shall be
      present. At any such adjourned meeting at which the requisite amount of stock
      entitled to vote shall be represented, any business may be transacted which
      might have been transacted at the meeting as originally noticed; but only those
      stockholders entitled to vote at the meeting as originally noticed shall be
      entitled to vote at any adjournment or adjournments thereof.

    

          SECTION
      2.5 SPECIAL MEETINGS. Special meetings of the stockholders for any purpose
      or
      purposes may be called by the President or Secretary, or by resolution of the
      directors.

    

          SECTION
      2.6 NOTICE OF MEETINGS. Written notice, stating the place, date and time of
      the
      meeting, and the general nature of the business to be considered, shall be
      given
      to each stockholder entitled to vote thereat at his address as it appears on
      the
      records of the corporation, not less than ten nor more than sixty days before
      the date of the meeting. No business other than that stated in the notice shall
      be transacted at any meeting without the unanimous consent of all the
      stockholders entitled to vote thereat.

    

          SECTION
      2.7 ACTION WITHOUT MEETING. Unless otherwise provided by the Certificate of
      Incorporation, any action required to be taken at any annual or special meeting
      of stockholders, or any action which may be taken at any annual or special
      meeting, may be taken without a meeting, without prior notice and without a
      vote, if a consent in writing, setting forth the action so taken, shall be
      signed by the holders of outstanding stock having not less than the minimum
      number of votes that would be necessary to authorize or take such action at
      a
      meeting at which all shares entitled to vote thereon were present and voted.
      Prompt notice of the taking of the corporate action without a meeting by less
      than unanimous written consent shall be given to those stockholders who have
      not
      consented in writing.

    

    

    ARTICLE
      III

    

    DIRECTORS

    

          SECTION
      3.1 NUMBER AND TERM. The number of directors which shall constitute the whole
      Board of Directors shall be determined from time to time by resolution of the
      Board of Directors, but in no event shall be less than three (3) nor more than
      eleven (11).  The number of directors may be decreased at any time and
      from time to time by a majority of the directors in office, but only to
      eliminate vacancies existing by reason of the death, resignation, removal or
      expiration of the term of one or more directors.  Directors shall be
      elected at the annual meeting of the stockholders and each director shall be
      elected to serve for such term as set forth in the Certificate of Incorporation
      and until his successor shall be elected and shall qualify.

    

          SECTION
      3.2 RESIGNATIONS. Any director, member of a committee or other officer may
      resign at any time. Such resignation shall be made in writing, and shall take
      effect at the time specified therein, and if no time be specified, at the time
      of its receipt by the President or Secretary. The acceptance of a resignation
      shall not be necessary to make it effective.

    

          SECTION
      3.3 VACANCIES. Subject to any agreement in writing between the stockholders
      and
      the corporation, if the office of any director, member of a committee or other
      officer becomes vacant for any reason, including without limitation from an
      increase in the authorized number of directors, the remaining directors in
      office, though less than a quorum by a majority vote, may appoint any qualified
      person to fill such vacancy, who shall hold office until the next annual meeting
      of the stockholders and until his successor shall be duly chosen.

    

          SECTION
      3.4 REMOVAL. Except as herein provided and subject to any agreement between
      the
      stockholders and the corporation, any director or directors may be removed
      for
      cause at any time by the affirmative vote of the holders of a majority of all
      the shares of stock outstanding and entitled to vote, at a special meeting
      of
      the stockholders called for the purpose and the vacancies thus created may
      be
      filled, at the meeting held for the purpose of removal, by the affirmative
      vote
      of a majority in interest of the stockholders entitled to vote.

    

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

     

          SECTION
      3.5 INCREASE OF NUMBER. The number of directors may be increased by amendment
      of
      these By-Laws by the affirmative vote of a majority of the directors, though
      less than a quorum, or, by the affirmative vote of a majority in interest of
      the
      stockholders, at the annual meeting or at a special meeting called for that
      purpose, and by like vote the additional directors may be chosen at such meeting
      to hold office until the next annual election and until their successors are
      elected and qualify.

    

          SECTION
      3.6 POWERS. The Board of Directors shall exercise all of the powers of the
      corporation except such as are by law, or by the Certificate of Incorporation
      of
      the corporation or by these By-Laws conferred upon or reserved to the
      stockholders.

    

          SECTION
      3.7 COMMITTEES. The Board of Directors may, by resolution or resolutions passed
      by a majority of the whole board, designate one or more committees, each
      committee to consist of two or more of the directors of the corporation. The
      board may designate one or more directors as alternate members of any committee,
      who may replace any absent or disqualified member at any meeting of the
      committee. In the absence or disqualification of any member of such committee
      or
      committees, the member or members thereof present at any meeting and not
      disqualified from voting, whether or not he or they constitute a quorum, may
      unanimously appoint another member of the Board of Directors to act at the
      meeting in the place of any such absent or disqualified member.

    

                Any
      such committee, to the extent provided in the resolution of the Board of
      Directors, or in these By-Laws, shall have and may exercise all the powers
      and
      authority of the Board of Directors in the management of the business and
      affairs of the corporation, and may authorize the seal of the corporation to
      be
      affixed to all papers which may require it; but no such committee shall have
      the
      power or authority in reference to amending the Certificate of Incorporation,
      adopting an agreement of merger or consolidation, recommending to the
      stockholders the sale, lease or exchange of all or substantially all of the
      corporation's property and assets, recommending to the stockholders a
      dissolution of the corporation or a revocation of a dissolution, or amending
      the
      By-Laws of the corporation; and, unless the resolution, these By-Laws, or the
      Certificate of Incorporation expressly so provide, no such committee shall
      have
      the power or authority to declare a dividend or to authorize the issuance of
      stock.

    

          SECTION
      3.8 MEETINGS. The newly elected directors may hold their first meeting for
      the
      purpose of organization and the transaction of business, if a quorum be present,
      immediately after the annual meeting of the stockholders; or the time and place
      of such meeting may be fixed by consent in writing of all the
      directors.

    

                Regular
      meetings of the directors may be held without notice at such places and times
      as
      shall be determined from time to time by resolution of the
      directors.

    

                Special
      meetings of the board may be called by the President or by the Secretary on
      the
      written request of any two directors on at least two day's notice to each
      director and shall be held at such place or places as may be determined by
      the
      directors, or as shall be stated in the call of the meeting.

    

                Unless
      otherwise restricted by the Certificate of Incorporation or these By-Laws,
      members of the Board of Directors, or any committee designated by the Board
      of
      Directors, may participate in a meeting of the Board of Directors, or any
      committee, by means of conference telephone or similar communications equipment
      by means of which all persons participating in the meeting can hear each other,
      and such participation in a meeting shall constitute presence in person at
      the
      meeting.

    

          SECTION
      3.9 QUORUM. A majority of the directors shall constitute a quorum for the
      transaction of business. If at any meeting of the board there shall be less
      than
      a quorum present, a majority of those present may adjourn the meeting from
      time
      to time until a quorum is obtained, and no further notice thereof need be given
      other than by announcement at the meeting which shall be so
      adjourned.

    

          SECTION
      3.10 COMPENSATION. Directors shall not receive any stated salary for their
      services as directors or as members of committees, but by resolution of the
      board a fixed fee and expenses of attendance may be allowed for attendance
      at
      each meeting. Nothing herein contained shall be construed to preclude any
      director from serving the corporation in any other capacity as an officer,
      agent
      or otherwise, and receiving compensation therefor.

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

    

          SECTION
      3.11 ACTION WITHOUT MEETING. Any action required or permitted to be taken at
      any
      meeting of the Board of Directors, or of any committee thereof, may be taken
      without a meeting, if prior to such action a written consent thereto is signed
      by all members of the board, or of such committee as the case may be, and such
      written consent is filed with the minutes of proceedings of the board or
      committee.

    

    

    

    ARTICLE
      IV

    

    OFFICERS

    

          SECTION
      4.1 OFFICERS. The officers of the corporation shall be a President, a Treasurer,
      and a Secretary, all of whom shall be elected by the Board of Directors and
      who
      shall hold office until their successors are elected and qualified. In addition,
      the Board of Directors may elect a Chairman, one or more Vice-Presidents and
      such Assistant Secretaries and Assistant Treasurers as they may deem proper.
      None of the officers of the corporation need be directors. The officers shall
      be
      elected at the first meeting of the Board of Directors after each annual
      meeting. More than two offices may be held by the same person.

    

          SECTION
      4.2 OTHER OFFICERS AND AGENTS. The Board of Directors may appoint such other
      officers and agents as it may deem advisable, who shall hold their offices
      for
      such terms and shall exercise such powers and perform such duties as shall
      be
      determined from time to time by the Board of Directors.

    

          SECTION
      4.3 CHAIRMAN. The Chairman of the Board of Directors, if one be elected, shall
      preside at all meetings of the Board of Directors and he shall have and perform
      such other duties as from time to time may be assigned to him by the Board
      of
      Directors.

    

          SECTION
      4.4 VICE CHAIRMAN. The Vice Chairman shall have and perform such duties as
      shall
      be assigned to him by the Board of Directors.

    

          SECTION
      4.5 PRESIDENT. The President shall be the chief executive officer of the
      corporation and shall have the general powers and duties of supervision and
      management usually vested in the office of President of a corporation. He shall
      preside at all meetings of the stockholders if present thereat, and in the
      absence or non-election of the Chairman of the Board of Directors, at all
      meetings of the Board of Directors, and shall have general supervision,
      direction and control of the business of the corporation. Except as the Board
      of
      Directors shall authorize the execution thereof in some other manner, he shall
      execute bonds, mortgages and other contracts in behalf of the corporation,
      and
      shall cause the seal to be affixed to any instrument requiring it and when
      so
      affixed the seal shall be attested by the signature of the Secretary or the
      Treasurer or an Assistant Secretary, or an Assistant Treasurer.

    

          SECTION
      4.6 VICE-PRESIDENT. Each Vice-President shall have such powers and shall perform
      such duties as shall be assigned to him by the directors.

    

          SECTION
      4.7 TREASURER. The Treasurer shall have the custody of the corporate funds
      and
      securities and shall keep full and accurate account of receipts and
      disbursements in books belonging to the corporation. He shall deposit all moneys
      and other valuables in the name and to the credit of the corporation in such
      depositaries as may be designated by the Board of Directors.

    

                The
      Treasurer shall disburse the funds of the corporation as may be ordered by
      the
      Board of Directors, or the President, taking proper vouchers for such
      disbursements. He shall render to the President and Board of Directors at the
      regular meetings of the Board of Directors, or whenever they may request it,
      an
      account of all his transactions as Treasurer and of the financial condition
      of
      the corporation. If required by the Board of Directors, he shall give the
      corporation a bond for the faithful discharge of his duties in such amount
      and
      with such surety as the board shall prescribe.

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

    

    

          SECTION
      4.8 SECRETARY. The Secretary shall give, or cause to be given, notice of all
      meetings of stockholders and directors, and all other notices required by law
      or
      by these By-Laws, and in case of his absence or refusal or neglect so to do,
      any
      such notice may be given by any person thereunto directed by the President,
      or
      by the directors, or stockholders, upon whose requisition the meeting is called
      as provided in these By-Laws. He shall record all the proceedings of the
      meetings of the corporation and of the directors in a book to be kept for that
      purpose, and shall perform such other duties as may be assigned to him by the
      directors or the President. He shall have the custody of the seal of the
      corporation and shall affix the same to all instruments requiring it, when
      authorized by the directors or the President, and attest the same.

    

          SECTION
      4.9 ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. Assistant Treasurers and
      Assistant Secretaries, if any, shall be elected and shall have such powers
      and
      shall perform such duties as shall be assigned to them, respectively, by the
      directors.

    

    ARTICLE
      V

    

    MISCELLANEOUS

    

          SECTION
      5.1 CERTIFICATES OF STOCK. Certificate of stock, signed by the Chairman or
      Vice
      Chairman of the Board of Directors, if they be elected, President or
      Vice-President, and the Treasurer or an Assistant Treasurer, or Secretary or
      an
      Assistant Secretary, shall be issued to each stockholder certifying the number
      of shares owned by him in the corporation. Any of or all the signatures may
      be
      facsimiles.

    

          SECTION
      5.2 LOST CERTIFICATES. A new certificate of stock may be issued in the place
      of
      any certificate theretofore issued by the corporation, alleged to have been
      lost
      or destroyed, and the directors may, in their discretion, require the owner
      of
      the lost or destroyed certificate, or his legal representatives, to give the
      corporation a bond, in such sum as they may direct, not exceeding double the
      value of the stock, to indemnify the corporation against any claim that may
      be
      made against it on account of the alleged loss of any such certificate, or
      the
      issuance of any such new certificate.

    

          SECTION
      5.3 TRANSFER OF SHARES. The shares of stock of the corporation shall he
      transferable only upon its books by the holders thereof in person or by their
      duly authorized attorneys or legal representatives, and upon such transfer
      the
      old certificates shall be surrendered to the corporation by the delivery thereof
      to the person in charge of the stock and transfer books and ledgers, or to
      such
      other person as the directors may designate, by whom they shall be cancelled,
      and new certificates shall thereupon be issued. A full record shall be made
      of
      each transfer and whenever a transfer shall be made for collateral security,
      and
      not absolutely, it shall be so expressed in the entry of the
      transfer.

    

          SECTION
      5.4 STOCKHOLDERS RECORD DATE. In order that the corporation may determine the
      stockholders entitled to notice of or to vote at any meeting of stockholders
      or
      any adjournment thereof, or to express consent to corporate action in writing
      without a meeting, or entitled to receive payment of any dividend or other
      distribution or allotment of any rights, or entitled to exercise any rights
      in
      respect of any change, conversion or exchange of stock or for the purpose of
      any
      other lawful action, the Board of Directors may fix, in advance, a record date,
      which shall not be more than sixty nor less than ten days before the date of
      such meeting, nor more than sixty days prior to any other action. A
      determination of stockholders of record entitled to notice of or to vote at
      a
      meeting of stockholders shall apply to any adjournment of the meeting; PROVIDED,
      HOWEVER, that the Board of Directors may fix a new record date for the adjourned
      meeting.

    

          SECTION
      5.5 DIVIDENDS. Subject to the provisions of the Certificate of Incorporation,
      the Board of Directors may, out of funds legally available therefor at any
      regular or special meeting, declare dividends upon the capital stock of the
      corporation as and when they deem expedient. Before declaring any dividend
      there
      may be set apart out of any funds of the corporation available for dividends,
      such sum or sums as the directors from time to time in their discretion deem
      proper for working capital or as a reserve fund to meet contingencies or for
      equalizing dividends or such other purposes as the directors shall deem
      conducive to the interests of the corporation.

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

    

    

          SECTION
      5.6 SEAL. The corporate seal shall be circular in form and shall contain the
      name of the corporation, the year of its creation and the words "CORPORATE
      SEAL
      DELAWARE." Said seal may be used by causing it or a facsimile thereof to be
      impressed or affixed or reproduced or otherwise.

    

          SECTION
      5.7 FISCAL YEAR. The fiscal year of the corporation shall be determined by
      resolution of the Board of Directors.

    

          SECTION
      5.8 CHECKS. All checks, drafts or other orders for the payment of money, notes
      or other evidences of indebtedness issued in the name of the corporation shall
      be signed by such officer or officers, agent or agents of the corporation,
      and
      in such manner as shall be determined from time to time by resolution of the
      Board of Directors.

    

          SECTION
      5.9 NOTICE AND WAIVER OF NOTICE. Whenever any notice is required by these
      By-Laws to be given, personal notice is not meant unless expressly so stated,
      and any notice so required shall be deemed to be sufficient if given by
      depositing the same in the United States mail, postage prepaid, addressed to
      the
      person entitled thereto at his address as if appears on the records of the
      corporation, and such notice shall be deemed to have been given on the day
      of
      such mailing. Stockholders not entitled to vote shall not be entitled to receive
      notice of any meetings except as otherwise provided by Statute.

    

                Whenever
      any notice whatever is required to be given under the provisions of any law,
      or
      under the provisions of the Certificate of Incorporation of the corporation
      or
      these By-Laws, a waiver thereof in writing, signed by the person or persons
      entitled to said notice, whether before or after the time stated therein, shall
      be deemed equivalent thereto.

    

    ARTICLE
      VI

    

    AMENDMENTS

    

                These
      By-Laws may be altered or repealed and By-Laws may be made at any annual meeting
      of the stockholders or at any special meeting thereof if notice of the proposed
      alteration or repeal or By-Law or By-Laws to be made be contained in the notice
      of such special meeting, by the affirmative vote of a majority of the stock
      issued and outstanding and entitled to vote thereat, or by the affirmative
      vote
      of a majority of the Board of Directors, at any regular meeting of the Board
      of
      Directors, or any special meeting of the Board of Directors, at any regular
      meeting of the Board of Directors, or at any special meeting of the Board of
      Directors, if notice of the proposed alteration or repeal, or By-Law or By-Laws
      to be made, be contained in the notice of such special meeting.

    

    ARTICLE
      VII

    

    INDEMNIFICATION

    

                The
      Corporation shall (a) indemnify any person who was or is a party or is
      threatened to be made a party to any threatened, pending or completed action
      or
      suit by or in the right of the Corporation to procure a judgment in its favor
      by
      reason of the fact that he is or was a director or officer of the Corporation
      or
      is or was serving at the request of the Corporation as a director, officer,
      employee or agent of another corporation, partnership, joint venture, trust
      or
      other enterprise, against expenses (including attorneys' fees) actually and
      reasonably incurred by him in connection with the defense or settlement of
      such
      action or suit, and (b) indemnify any person who was or is a party or is
      threatened to be made a party to any threatened, pending or completed action,
      suit or proceeding, whether civil, criminal, administrative or investigative
      (other than an action by or in the right of the Corporation), by reason of
      the
      fact that he is or was a director or officer of the Corporation, or served
      at
      the request of the Corporation as a director, officer, employee or agent of
      another corporation, partnership, joint venture, trust or other enterprise,
      expenses (including attorneys' fees), judgments, fines and amounts paid in
      settlement actually and reasonably incurred by him in connection with any such
      action, suit or proceeding, in each case to the fullest extent permissible
      under
      subsections (a) through (e) of Section 145 of the General Corporation Law of
      the
      State of Delaware or the indemnification provisions of any successor statute.
      The foregoing right of indemnification shall in no way be exclusive of any
      other
      rights of indemnification to which any such person may be entitled, under any
      bylaw, agreement, vote of shareholders or disinterested directors or otherwise,
      and shall inure to the benefit of the heirs, executors and administrators of
      such a person.

    
      
        
        

      

      
        -6-exv10w1

 

Exhibit 10.1

AGREEMENT BETWEEN ENVIRONMENTAL TECTONICS CORPORATION

AND THE DEPARTMENT OF THE NAVY

1. This Agreement is entered into between the Department of the Navy, on behalf of the Department
of Defense (collectively, the “Government”), and Environmental Tectonics Corporation (hereinafter
“ETC”). The purpose of this Agreement is to evidence that ETC is presently responsible to contract
with the Government by ensuring that ETC has and will continue a program of acceptable contracting
practices and procedures, and by establishing and implementing a program of compliance reviews,
audits, and reports. For purpose of this agreement, ETC shall mean ETC as a body corporate, its
predecessors, successors, affiliates, subsidiaries, and/or divisions and all owners, directors,
officers, employees and/or consultants of any of the aforesaid entities.

2. This Agreement addresses those causes for suspension that are stated in the Government’s Notice
of Suspension, with enclosures, dated October 2, 2007, attached hereto as Annex 1 (hereinafter “the
Notice”). This Agreement shall not be used for any purpose with regard to any criminal, civil, or
administrative charge, claim, or action by or against ETC related to or arising out of any criminal
or civil investigation conducted by any component of the Department of Justice or the Government.

3. By this Agreement, ETC recognizes its corporate responsibility to ensure that ETC fully
complies with all federal procurement laws and regulations when contracting, directly or
indirectly, with the Government. In this regard, all aspects of ETC’s corporate and business
operations shall be conducted according to the highest code of corporate ethics, generally
prevailing law and honest behavior, and the guidelines set by the letter and the spirit of this
Agreement.

4. To fulfill its corporate responsibilities, ETC has begun and shall, in accordance with the
Schedule attached hereto as Annex 2 (hereinafter “the Schedule”), fully implement a Compliance
Program by which ETC can and will adhere to lawful and ethical procedures and practices in all
areas of and relating to its provision of goods and services as a Government contractor and/or
subcontractor. This Compliance Program shall have the following components:

     A. WRITTEN CODES OF CONDUCT AND ETHICS: In 2004, ETC established written Codes of Conduct
and Ethics which provide notice to all employees that the highest standard of conduct and business
ethics are mandated (collectively, the Codes). A copy of the Codes are attached as Annex 3.

          (1) The Codes shall be reviewed on an annual basis by ETC’s duly appointed legal counsel and
updated as required for compliance with statutory and/or regulatory changes.

 

 

          (2) All ETC directors, officers, employees, and consultants shall be required to sign, on an
annual basis, a certificate stating that they have read the Codes and that they agree to abide by
them.

          (3) The signature of the Navy’s Debarring Authority on this Agreement shall signify
acceptance of the current Codes.

     B. AN ETHICS ADVISOR: ETC has established and shall, for at least the duration of this
Agreement, maintain a position designated as the Ethics Advisor.

          (1) The Ethics Advisor reports directly to and, on all issues related to ethics, is only
responsible to the Board of Directors of ETC.

          (2) The identification and qualifications of the current Ethics Advisor are set forth in
Annex 4. The signature of the Navy’s Debarring Authority on this Agreement shall signify
acceptance of the current Ethics Advisor.

          (3) Should the current or any subsequently appointed Ethics Advisor leave the position, that
fact shall be reported to the Navy Debarring Authority, in writing, within 10 days of said leaving.
A replacement shall be selected by ETC and reported to the Navy Debarring Authority within
forty-five calendar days of said leaving. Appointment of a replacement Ethics Advisor shall be
subject to approval by the Navy Debarring Authority, which approval shall be solely within the
discretion of the Navy Debarring Authority. Denial by the Debarring Authority of approval of any
replacement Ethics Advisor shall be a “Failure by ETC” as the phrase is used in paragraph 11 of
this Agreement.

          (4) The Ethics Advisor shall assist ETC in identifying and reporting violations of its Codes.
It shall be the duty of every ETC officer, director, manager, and employee to promptly notify the
Ethics Advisor of any suspected or alleged instances of violations of the Codes or Conduct and
Ethics, including, but not limited any alleged or suspected criminal offenses occurring in
connection with any individual’s performance of duties for or on behalf of ETC.

          (5) The Ethics Advisor shall investigate all instances of suspected misconduct and shall
report in writing the findings to the Audit Committee of the Board of Directors and management.
Management shall have thirty days to provide to the Audit Committee of the Board of Directors a
written response to the Ethics Advisor’s report. The Audit Committee of the Board of Directors
shall then forward to the Navy’s Debarring Authority, the Ethics Advisor’s report, the Management
response and the Audit Committee of the Board of Directors’ decision concerning the incident,
including any remedial measures taken, in time to be received within ten working days of when said
Board of Director’s decision was created.

          (6) The Ethics Advisor shall, within 10 working days after the end of each fiscal quarter,
prepare and deliver to the Navy Debarring Authority a synopsis of each instance of suspected and/or
confirmed misconduct which became known to the

2

 

Ethics Advisor during the fiscal quarter. This synopsis shall be made without regard to the
degree to which the Ethics Advisor has been able, as of the due date of the report, to investigate
the misconduct. This synopsis shall include disclosure of any remedial action taken to date.

     C. A HOT LINE: ETC established in 2004 as part of its Whistleblower Policy and shall, for at
least the duration of this Agreement, maintain a “hot line” to facilitate the reporting of
misconduct by or within ETC. The policies and procedures of this component are fully presented in
Annex 5. The signature of the Navy’s Debarring Authority on this Agreement shall signify
acceptance of this component by the Navy’s Debarring Authority.

     D. A WRITTEN CONTRACTING PROCEDURES MANUAL AND FEDERAL CONTRACTING RESOURCE CENTER: A manual
containing the regulatory standards and acceptable practices for doing business with the Government
and/or Government prime contractors shall be developed, implemented and maintained (regularly
reviewed and updated) by ETC. These practices and procedures shall be applied to all of ETC’s
business dealings involving Government contracts or subcontracts. Also, ETC shall maintain in a
central location, readily available to management and employees, current regulations and
authoritative guidance for doing business with the Government and/or Government prime contractors.

          (1) The Contracts Procedures Manual is affixed hereto as Annex 6.

          (2) The Navy’s Debarring Authority may, at its sole discretion, approve or disapprove of the
Contracting Procedures Manual. Failure to gain Navy Debarring Authority approval of the
Contracting Procedures Manual shall be a “Failure by ETC” as the phrase is used in paragraph 11 of
this Agreement.

     E. A WRITTEN AUDIT AND COMPLIANCE REVIEW PROCEDURE: ETC shall establish and, for at least
the duration of this Agreement, maintain an Audit and Compliance Review Procedure.

          (1) The Audit and Compliance Review Procedure (the “A&C Procedure”) is affixed hereto as
Annex 7.

          (2) The Navy’s Debarring Authority may, at its sole discretion, approve or disapprove of
ETC’s A&C Procedure. Failure to gain Navy Debarring Authority approval shall be a “Failure by ETC”
as the phrase is used in paragraph 11 of this Agreement.

          (3) In addition to any other provision that the A&C Procedures may have, the A&C Procedures
shall provide for yearly audits of each procedure that is a component of this Compliance Program.

3

 

               (a) The audits shall be conducted by the Ethics Officer in conjunction with the appropriate
ETC management personnel.

               (b) The audits shall begin no earlier than December 1, and shall be completed no later than
December 30 of each calendar year during the term of this Agreement.

               (c) A report, which describes and discusses the findings made during the audits, shall be
part of the Ethics Officer’s Quarterly report for the quarter during which the audits are
conducted.

     F. TRAINING1: ETC shall create and implement a curriculum of training designed to
familiarize each of its directors, officers, employees, and consultants with the concepts and
precepts of each component of this Compliance Program. This training shall occur in accordance
with the Schedule that is attached at Annex 2 and shall be affixed hereto as Annex 8.

          (1) The Navy’s Debarring Authority may approve or disapprove of the curriculum, at its sole
discretion. Failure to obtain Navy Debarring Authority approval of the curriculum, or any part
thereof, within the time stated in the preceding subparagraph “(a)” shall be a “Failure by ETC” as
the phrase is used in paragraph 11 of this Agreement.

          (2) The training to be provided shall be given on the dates set forth in the Schedule at
Annex 2. Proof of attendance shall be made at the time and site of presentation, and a copy
thereof shall be submitted to the Navy’s Debarring Authority as an enclosure to the next subsequent
Quarterly report by the Ethics Officer.

          (3) In addition to any other training they may receive, each director, officer, employee,
and/or consultant who misses the training given on the dates indicated on the Schedule, and any
director, officer, employee, and/or consultant who joins, is hired by, or contracts with ETC after
said training is completed shall be required, within thirty days of their association with ETC, to
read the course materials. Each person who completes the reading required by this paragraph shall
sign a certification that the reading has been completed. Each such certification shall be
maintained in a clearly identified file by the Ethics Advisor. In addition, the Ethics Advisor
shall, as part of each Quarterly report, identify each such person, state the date when the person
joined ETC, and state whether the person has successfully met the training requirements stated in
this paragraph “(3).”

          (4) In addition to any other training, each ETC director, officer, employee, and consultant
shall be informed of any change to any component of this Compliance Program, which took place since
the next previous training session.

 

			
	1	 	The training proposed by ETC will be for each of its
directors and officers, as well as, those employees, consultants and contract
employees that ETC reasonably expect to perform services on Government
contracts.

4

 

5. ETC further agrees to:

     A. Complete all compliance actions identified by this Agreement on or before the date stated
in the Schedule. ETC’s management shall then provide reasonable notice to the Government of ETC’s
compliance with such deadline.

     B. Include an ethics and compliance component in the performance evaluation criteria of
management level employees. ETC’s Executive Performance Appraisal – Ethics, is attached as Annex
9.

     C. ETC’s management shall, within ten (10) working days after the end of each fiscal quarter
(July, October, January and April) prepare and provide a report to the Navy Debarring and
Suspending Official, or his designee, describing ETC’s implementation of this agreement.

     D. ETC’s Ethics Officer shall, within ten (10) working days after the end of each fiscal
quarter, report regarding: (1) All instances of disciplinary action for violations of the Codes;
(2) all known, ongoing criminal investigations; (3) all known qui tam suits; (4) all known or
suspected defective pricing cases; (5) instances in which there are reasonable grounds to suspect
that ETC, its directors, officers, employees, consultants, suppliers and/or Government personnel
have violated Federal laws or regulations relating to U.S. Government procurements; (6) all hotline
calls received by the Ethics Advisor including a description of the complaint and any remedial
action taken or planned; and (7) any other matter which might affect ETC’s present responsibility
status, including but not limited to actual or potential suspension and/or debarment actions by
other Government and quasi-governmental agencies.

     E. Allow designated representatives of the Navy’s Debarring Authority to interview ETC
personnel and to examine ETC’s financial books, records, and other company documents for the
purpose of evaluating ETC’s compliance with the terms of this Agreement. Such materials described
above shall be made available by ETC after reasonable notice for inspection, audit and/or
reproduction, provided, however, the Navy’s Debarring Authority shall not be entitled to examine
documents properly subject to the attorney client or attorney work product privileges, nor to copy:
(1) Documents containing technical data or computer software, except in accordance with government
contract data rights provisions or (2) Documents containing trade secrets, or (3) Financial records

     F. In addition to the reports made pursuant to paragraph 5.C. and D., disclose, within 30
calendars days of its alleged occurrence, to the Department of Defense and to the prime Government
customer if such customer is not a DoD component, all instances in which there are reasonable
grounds to suspect that ETC, its directors, officers, employees, consultants, suppliers and/or
Government personnel have violated Federal laws or regulations relating to U.S. Government
procurements. Further, ETC shall take immediate corrective measures to remedy the matter
disclosed, and to notify the

5

 

Department of Defense, and the prime Government customer, if the matter relates to a non DoD
contract, of the corrective action taken and ETC’s opinion regarding any impact the matter may have
on the Government.

     G. Cooperate fully with any investigation by the Department of Justice or the Department of
Defense of which ETC knows or learns in the future.

     H. Upon a conviction of ETC for violation of any Federal criminal statute, take appropriate
disciplinary action against all responsible individuals.

     I. Upon an indictment of, or the entering of a guilty plea or plea of nolo contendere by any
director, officer, employee or consultant of ETC for violation of any criminal statute, which
violation occurred in connection with the individual’s performance of duties for or on behalf of
ETC, immediately remove the director, officer, employee or consultant from active status with the
Company relating to any dealings with the U.S. Government.

     J. Upon an unappealed conviction of, or after an unsuccessful appeal by any director,
officer, employee or consultant of ETC for fraud or any other felony arising out of a contract with
the DOD, promptly take appropriate action to impose the prohibitions of Title 10, U.S.C. § 2408,
including termination of such officer, employee or consultant from service to ETC, or removal of
such director from the ETC Board of Directors.

     K. Treat all costs associated with the termination, severance and/or removal of any director,
officer, employee or consultant of ETC under paragraph H, above, as unallowable for Federal
Government Contract purposes.

6. During the term of this Agreement, ETC shall not knowingly employ, engage or accept the
services of an individual who is listed by a Federal Agency as debarred, suspended, or otherwise
ineligible for Federal contracting. Reasonable inquiry shall be made into the suspension/debarment
status of any potential employee or consultant prior to the offer of employment or engagement of
services. Further, ETC shall promptly terminate the employment of or contract for services with
any individual who was suspended or debarred during the term of this Agreement or as of the
effective date of their association with ETC. Moreover, ETC shall immediately remove such
individual from responsibility for or involvement with Government contract matters until the
resolution of any question there might be regarding their suspension or debarment status during the
term of this Agreement and as of the time of their association with ETC.

7. During the term of this Agreement, ETC shall not knowingly enter into any subcontract or other
business relationship relating to Federal Government contracts with any individual or business
entity listed as debarred, suspended, or otherwise ineligible for contracting by a Federal Agency
(hereinafter “listed contractor”) without prior approval by the Navy Debarring Authority.

6

 

     A. ETC shall make reasonable inquiry into the listed contractor status of each prospective
business associate.

     B. Whenever the inquiry required by the preceding paragraph “(A)” reveals that the prospective
business associate is a listed contractor, ETC shall submit a notice to the Navy’s Debarring
Authority in form and content as specified in FAR 9.405-2(b).

     C. ETC shall also give written notice of the prohibition effected by paragraph 7 to each
prospective business associate.

8. In addition to those costs stated in paragraphs 5.K and 9, ETC agrees that the costs described
below shall be unallowable for United States Government contract purposes and shall not be charged
directly or indirectly to any such contract or subcontract:

     A. All costs of performing the actions set forth in this Agreement accomplished by ETC
subsequent to its learning of the investigation that resulted in the proposed debarment.

     B. All costs of legal services whether performed by in house or private counsel,
administrative and clerical services, services of accountants and consultants, salaries and wages
of employees, officers, and directors, travel, and any costs directly related to the aforesaid,
incurred in the implementation of and/or continued compliance with the terms of this agreement.

9. Within thirty days of the effective date of this agreement, ETC will remit the sum of
$5,000.00, made payable to the Treasury of the United States, as and for final payment of those
investigative and administrative costs incurred, or to be incurred, by the Government because of
the matters which gave rise to the causes for debarment as stated in the Notice, which include but
are not limited to the costs of investigating the charges, and of monitoring, reviewing, enforcing,
and administering this Agreement.

10. Except as provided in paragraph 15, the execution of this Agreement by the Government in no way
waives any criminal, civil, contractual, or administrative remedy or right that the Government may
have for the acts described in the Notice, or for any other conduct that would give rise to such
remedies.

11. Failure by ETC to meet any of its obligations under the terms or spirit of this Agreement, not
cured to the reasonable satisfaction of the Navy’s Debarring Authority within 30 working days, or
as otherwise permitted by the Navy Debarring Authority after receipt by ETC of written notice of
such failure, shall constitute a cause for suspension subject to the procedures established by the
Federal Acquisition Regulation and any other applicable statute or regulation.

12. By execution of this Agreement, ETC releases the United States, its employees, agents, and
instrumentalities, in either their Authority or personal capacities, of any and all liability
arising out of or otherwise related to this Agreement. Further, ETC agrees not

7

 

to file any claim against the United States, its employees, agents, and instrumentalities, in
either their Authority or personal capacities, in any forum or jurisdiction, with regard to any
matter arising out of or otherwise related to this Agreement.

13. By execution of this Agreement, ETC avers that any adverse action taken or to be taken against
any ETC director, officer, employee, consultant, or agent, with regard to any matter arising out of
or related to the facts and circumstances set forth in the Notice, are the result solely of ETC’s
initiatives and decisions, and are not the result of any action by or on behalf of the United
States, its employees, agents or instrumentalities.

14. ETC agrees to indemnify the Government against, and hold the Government harmless from, any and
all claims, liabilities, obligations, and causes of action of whatsoever kind or nature for injury
to, or death of, any person, and for any injury or damage to or destruction of any property,
arising out of or as a result of the basis for suspension referenced in Annex 1, even if the
Government’s liability to any person arises out of the acts or omissions of the Government, its
employees, agents, invitees, or representatives of any other description whatsoever.

15. In recognition of the actions by and covenants of ETC set forth herein, the Government will
rescind ETC’s suspension as of the effective date and will not debar ETC based upon the facts and
for those causes set forth in Annex 1.

16. This Agreement is a public document and may be disclosed by the Government throughout the
Executive Branch of the Government and to other interested parties in accordance with the
requirements of the Privacy Act and the Freedom of Information Act.

17. Modification to this Agreement may be made but shall have no effect until the terms of the
Modification are expressly incorporated in a writing, which has been executed by both parties.
Neither party shall seek or accept the benefit of a judicial or quasi-judicial order directing the
other to execute a writing, which would, if executed, modify this agreement.

18. For purposes of interpretation of this Agreement or any part hereof by any court of competent
jurisdiction (or any other judicial or quasi judicial body), this Agreement shall be deemed to have
been drafted equally by all parties hereto.

19. This Agreement shall become effective on the date of the last signature hereto and shall
continue for three years thereafter, or until both reports and decision mentioned in Paragraph
4.B.(5) have been received by the Navy Debarring Authority, whichever occurs last. In addition,
should ETC for any reason cease to be in full compliance with the letter and spirit of this
agreement, this agreement shall be extended for a period of three years following reestablishment
of full compliance as determined by the Navy Debarment Authority.

8

 

20. This Agreement constitutes the entire agreement between the parties and supersedes all prior
agreements and understandings, oral or written, with respect to the subject matter hereof. This
agreement shall inure to the benefit of, and be binding upon, the parties and their respective
successors and assigns.

DEPARTMENT OF THE NAVY

	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 
	Mark O. Wilkoff	 	 
	Suspending and Debarring Authority	 	 
	Department of the Navy	 	 
	 
	 	 	 	 	 	 
	Dated:	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	ENVIRONMENTAL TECTONICS CORPORATION	 	 
	 
	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	William F. Mitchell
	 	 
	 	 	President and CEO
	 	 
	 
	 	 	 	 	 	 
	Dated:	 	 	 	 
	 

	 	 	 	 

	 	 

9

 

ANNEX 1

					
	 	 	 	 	 
	
	 	DEPARTMENT OF THE NAVY

OFFICE OF THE GENERAL COUNSEL

720 KENNON STREET SE RM 214

WASHINGTON NAVY YARD DC 20374-5012
	 	  

CERTIFIED MAIL – RETURN RECEIPT REQUESTED

William F. Mitchell, President

Environmental Tectonics Corporation

County Line Industrial Park

125 James Way Road

Southampton, PA 18966

RE:    SUSPENSION OF ENVIRONMENTAL TECTONICS CORPORATION

Dear Mr. Mitchell:

     On behalf of the Department of the Navy, I am suspending your company, Environmental Tectonics
Corporation (ETC), effective as of the date of this letter. Based upon my review of the entire
Administrative Record, which includes the enclosed “Memorandum for the Department of the Navy
Suspending and Debarring Official,” I find the facts to be as stated in the enclosed Memorandum,
and I further find that the facts support causes to suspend your company. The causes and reasons
for proposing suspension are also stated in the Memorandum, which I adopt and incorporate herein by
reference.

     Subpart 9.4 of the Federal Acquisition Regulation (FAR), as supplemented by Subpart 209.4 and
Appendix H of the Department of Defense FAR Supplement (DFARS) state the procedures governing
suspension. Copies of these regulations are enclosed with and made a part of this notice to you.

     The immediate effect of suspension is that your company name, Environmental Tectonics
Corporation, will be published in the Excluded Parties List System (“the List”). The List is a
publication of the General Services Administration that contains the names of contractors debarred,
suspended, proposed for debarment, or declared ineligible by any agency of the Federal Government.
You may access the List on the Internet at http://www.epls.gov.

     As provided at FAR Subpart 9.405, and at 32 Code of Federal Regulations Part 25, the effects
of being placed on the List are:

     (1) Throughout the Executive Branch of the Federal Government, offers will not be solicited
from, contracts will not be awarded to, and existing contracts will not be

 

 

renewed or otherwise extended for ETC unless the head of the agency taking the contracting
action or a designee states in writing a compelling reason to do so.

     (2) No Government contractor may award a subcontract equal to, or in excess of, $30,000 to
ETC unless there is a compelling reason to do so and the contractor first notifies the contracting
officer and further complies with the provisions of FAR 9.405-2(b).

     (3) If ETC is proposed as a subcontractor for any subcontract subject to Government consent,
no contracting officer of any Federal Executive Branch Agency shall give consent unless the
acquiring agency’s head states in writing compelling reasons for this approval action.

     (4) ETC is excluded from conducting business with the Government as an agent or
representative of other contractors.

     (5) ETC is excluded from conducting business with the Government as an agent or
representative of other contractors.

     (6) ETC is excluded from acting as individual sureties.

     Within 30calendar days after receipt of this notice, you or a representative on your behalf
may submit, in person or in writing, or both, information and argument in opposition to the
suspensions, in accordance with FAR 9.406-3(c)(4), and the standard procedures enclosed with this
notice. Any written submission of Matters in Opposition should be forwarded in duplicate and
addressed to:

Joseph K. Moore

Associate Counsel

Acquisition Integrity Office

Office of the General Counsel

720 Kennon Street SE, Rm 213-K

Washington Navy Yard DC 20374-5012

     Yon may contact Mr. Moore directly at (202) 685-7262.

     The suspension shall remain in effect pending the completion of an investigation and such
legal proceedings as may ensue.

	 	 	 	 	 	 	 
	 	 	Sincerely,	 	 
	 	 		 	 
	 	 	     MARK O.WILKOFF	 	 
	 	 	Suspending and Debarring Official	 	 
	 	 	     Department of the Navy	 	 
	 
	 	 	 	 	 	 
	 

	 	Date:
	 	10/02/07	 	 

Enclosures

 

 

					
	 	 	 	 	 
	
	 	DEPARTMENT OF THE NAVY

OFFICE OF THE GENERAL COUNSEL

720 KENNON STREET SE RM 214

WASHINGTON NAVY YARD DC 20374-5012
	 	  

October 2, 2007

MEMORANDUM FOR THE DEPARTMENT OF THE NAVY

     SUSPENDING AND DEBARRING OFFICIAL

Subject: SUSPENSION OF ENVIRONMENTAL TECTONICS CORPORATION

BACKGROUND

     On June14, 2007, in response to a complaint Environmental Tectonics Corp. (ETC) previously
filed in the U.S. Court of Federal Claims, the Government filed its answer asserting counterclaims
in fraud against ETC. The Acquisition Integrity Office received information indicating ETC had
violated the Special Plea in Fraud, 28 U.S.C. §2514; the anti-fraud provision of the Contract
Disputes Act, 41 U.S.C. §604; and the False Claims Act, 31U.S.C. §3729.

INFORMATION IN THE RECORD

     On November 19, 1997, the United States Navy (“Navy”) issued a solicitation requesting
proposals for the design, fabrication, assembly, testing, and delivery of a pair of submarine
decompression chambers (“SDCs”). The final due date for the submission of proposals was March 25,
1998.

     EITC submitted a proposal on March 24, 1998, and a “best and final offer” on September 25,
1998.

     On September 25, 1998, the Navy awarded Contract N47408-98-C-2103 (“Contract’’) to ETC. The
contract was funded in phases: contract line item numbers (“CLINs”) 0001-0007, relating to the
preliminary design, were awarded for a total of $839,536.58; and contract modification P00004
exercised CLIN’s 0008-0032, relating to the final design and manufacturing, for an additional
amount of $2,401,807.00.

     The contract required final delivery within two years after contract award. Contract
modifications increased the contract by $189,960.58 to $3,431,304.16, and extended the completion
date to August 31, 2003. As of the date of this memorandum, testing of the SDC segments was
nearing completion.

     On May 6, 2003, ETC submitted a certified claim in the amount of $5,166,401. ETC submitted
claim amendments on August 6, 2003, January 6, 2004, and April 28,

 

 

2004, increasing the total of the claim to $6,028,093. All of ETC’s claim amounts included an
estimate of the cost to complete the project.

     According to the claim, ETC experienced direct and indirect costs as the result of
uncompensated changes made to the Contract by the Navy. These changes were allegedly the result of
defective and deficient contract drawings and specifications and deficient contract administration.

     The Defense Contract Audit Agency (DCAA) audited ETC’s claim, and in a memorandum dated
February 10, 2004, from DCAA to the Naval Criminal Investigation Service (NClS), DCAA reported that
ETC had mischarged costs and that ETC’s mischarging served to increase the value of ETC’s certified
claim. In the memo, DCAA provided “information which suggests a reasonable basis for suspicion of
fraud, corruption, or other unlawful activity affecting Government contracts.” It was DCAA’s
opinion that the following accounting practices that ETC used in developing its certified claim
should be further investigated by NCIS: accounting mischarging, as a possible violation of FAR 31;
accounting mischarging-improper transfer; false claims/certifications-equitable adjustment claim;
and materials-claimed costs that have already been paid.

     The contracting officer issued a final decision denying ETC’s claim in full on July 22, 2004.

     ETC filed a complaint in the United States Court of Federal Claims on July 11, 2005, seeking
$9,109,617.50. Following the filing of the Government’s motion to dismiss elements of ETC’s
complaint, ETC filed an amended complaint on May 16, 2006, seeking $7,995,398.00.

     In the course of discovery and other case preparation, evidence came to light indicating ETC
knowingly submitted a certified claim to the Navy that was false and fraudulent by (1) setting the
amount of the claim before performing the analysis, (2) including amounts for technical issues for
Which ETC knew it was responsible, (3) deliberately assigning a percentage of each ETC’s employee’s
time to the SDC project, (5) using incorrect overhead and G&A rates in its claim, (6) including
costs for technical issues that it knew were covered by bilateral contract mods, (7) including
costs for months of analysis that ETC knew was a wasted effort because of the incompetence of the
analysts, and (8) including other amounts that were wholly unsupported.

     On June 4, 2007, the Government filed a motion to amend its answer to ETC’s amended complaint
to assert counterclaims pursuant to the Special Plea in Fraud, 28 U.S.C.§2514, the anti-fraud
provision of the Contract Disputes Act, 41U.S.C. § 604, and the False Claims Act, 31 U.S.C. §3729,
against ETC for submitting false and fraudulent claims under its contract with the Navy.

     On June 14, 2007, the Court granted the Government’s motion to amend. On June 14, 2007, the
Government filed its answer to the amended complaint in which the Government asserted counterclaims
in fraud against ETC.

 

 

     On June 26, 2007, ETC and the Government filed a joint motion to dismiss with prejudice ETC’s
complaint. By order dated June 28, 2007, the Court granted the motion to dismiss.

     ETC and the United States have entered into negotiations in an attempt to resolve all claims
and counterclaims arising out of or relating to this matter. ETC has offered to settle all of the
claims raised in the Government’s counterclaims for payment by ETC to the Government of three
million, three hundred thousand dollars ($3,300,000), and to deliver the two SDCs to the Navy.

ANALYSIS

     The Federal Acquisition Regulation (FAR) provides, in pertinent part, that “[a]gencies shall
solicit offers from, award contracts to, and consent to subcontracts with responsible contractors
only.” FARS 9.402(a). The FAR further provides that “[d]ebarrnent and suspension are
discretionary actions that, taken in accordance with this subpart are appropriate means to
effectuate this policy.” Id. The FAR also mandates that in order to “be determined
responsible, a prospective contractor must...[h]ave a satisfactory record on integrity and business
ethics.” FAR 9.104-1.

     Moreover, the FAR instructs that suspension is a serious action to be imposed on the basis of
adequate evidence, pending the completion of investigation or legal proceedings, when it has been
determined that immediate action is necessary to protect the Government’s interest. 9.407-1(b)(1).
In order to effectuate these policies, the FAR provides that a contractor may be suspended for any
of those causes stated in the FAR at Subpart 9.407-2. That regulation provides, in pertinent part,
as follows:

	 	(a)	 	The suspending official may suspend a contractor suspected, upon adequate
evidence, of –

	 	(1)	 	Commission of fraud or a criminal offense in connection with—

	 	(i)	 	Obtaining;
	 
	 	(ii)	 	Attempting to obtain; or
	 
	 	(iii)	 	Performing a public contract or subcontract.

	 	(3)	 	Commission of embezzlement, theft, forgery, bribery,
falsification or destruction of records, making false statements, tax evasion,
or receiving stolen property; [or]
	 
	 	(7)	 	Commission of any other offense indicating a lack of business
integrity or business honesty that seriously and directly affects the present
responsibility of a Government contractor or subcontractor.

	 	(c)	 	The suspending official may upon adequate evidence also suspend a -contractor
for any other cause of so serious or compelling a nature that it affects the present
responsibility of a Government contractor or subcontractor.

The information contained in the Administrative Record provides the requisite evidence to suspend
for the causes stated in FAR 9.407-2(a)(1), (3), (7) and(c). The documents therein serve as
adequate evidence of participation by this contractor in false claims against the

 

 

Government and demonstrate a willingness to disregard legal duties and established practices in
furtherance of personal objectives. ETC’s actions indicate a lack of business integrity or business
honesty that seriously and directly affects the present responsibility of ETC to participate in the
United States Government procurement process. These causes, either collectively or individually,
are serious enough to warrant suspension because they are based upon the willingness of ETC to
engage in criminal, unethical and dishonest business practices in connection with performing a
contract or subcontract with the Department of the Navy.

CONCLUSION:

The Administrative Record contains adequate evidence to support the suspension of Environmental
Tectonics Corporation under FAR 9.407-2(a)(1), (7) and(c). Therefore, pending the completion of
investigation or legal proceedings, suspension of Environmental Tectonics Corporation, under
FAR9.407-2(a)(1), (7) and (c) is necessary and warranted to protect the Government’s interests.

RECOMMENDATION:

That you sign the enclosed letter notifying Environmental Tectonics Corporation that the Department
of the Navy is placing its name on the “Excluded Parties List System” as being suspended.

JOSEPH K. MOORE

Associate Counsel

Acquisition Integrity Office

 

 

ANNEX 2

SCHEDULE OF IMPLEMENTATION

	 	 	 
	Adoption of Code of Conduct and Code of Ethics

	 	Done
	 
	 	 
	Hot Line Implementation

	 	Done
	 
	 	 
	Ethics Advisor Position Established

	 	Done
	 
	 	 
	Revisions and Amendments to Code of Conduct,
Code of Ethics and Whistleblower Policy

	 	Done
	 
	 	 
	Employee Re-Notification Re: Hot Line

	 	10 days after the Administrative Agreement is fully executed
	 
	 	 
	Employee Acknowledgements of Codes

	 	10 days after the Administrative Agreement is fully executed
	 
	 	 
	Commence Reporting/Investigation of Suspected Misconduct

	 	10 days after the Administrative Agreement is fully executed
	 
	 	 
	Employee Eligibility Screening Procedure Implemented
	 	 
	(Existing Employees and New Applications)

	 	10 days after the Administrative Agreement is fully
executed
	 
	 	 
	Contract Procedures Manual

	 	Done
	 
	 	 
	Audit and Compliance Review Procedure

	 	Done
	 
	 	 
	Federal Contracts Library

	 	Done
	 
	 	 
	Training Programs

	 	Implemented, see Annex 8
	 
	 	 
	Executive Performance Appraisal — Ethics

	 	Done, see Annex 9

 

ANNEX 3

Environmental Tectonics Corporation

Code of Ethics

Chief Executive Officer and Senior Financial Officers

The Company’s Chief Executive Officer (“CEO”) and senior financial officers hold important and
elevated roles in corporate governance in that they are uniquely capable and empowered to ensure
that shareholders, creditors and other stakeholders’ interests are appropriately balanced,
protected and preserved. This policy emphasizes the role of the CEO and senior financial officers
in the conduct and practice of financial management and provides that the CEO and senior financial
officers shall follow and advocate.

SENIOR FINANCIAL OFFICERS

Senior financial officers include the Company’s Chief Financial Officer (“CEO”), Controller, and
the chairperson of the Company’s disclosure committee should those positions exist by name or
responsibility.

HONESTY AND INTEGRITY

The CEO and senior financial officers shall observe high standards of business and personal ethics
and practice honesty and integrity in every respect of dealing with the public, the business
community, stockholders and government authorities.

COMPLIANCE WITH LAWS AND REGULATIONS

The CEO and senior financial officers shall comply with applicable laws, regulations and related
rules and are prohibited from engaging in any activities that could involve the Company in any
unlawful practice.

AVOIDANCE OF CONFLICTS OF INTERESTS

The CEO and senior financial officers shall not engage in apparent, potential or actual conflicts
of interest, improper solicitation of business, conflicts based on outside interests and political
contributions of Company funds.

FULL, FAIR, ACCURATE, TIMELY AND UNDERSTANDABLE FINANCIAL DISCLOSURE

The CEO and senior financial officers are responsible for the Company’s accounting controls and
procedures, and the protection of shareholder interests. The responsibility includes the full,
fair, accurate, timely and understandable disclosure in reports and documents filed or submitted to
the Securities and Exchange Commission, American Stock Exchange, public communications made by the
Company, other regulatory or required reports and internal reports.

 

 

COMPLIANCE

The CEO and senior financial officers shall comply with this Code and the ETC Code of Conduct.
Moreover, the CEO and senior financial officers shall report any alleged or suspected violations of
this Code and the ETC Code of Conduct to the Audit Committee of the Board of Directors. Failure to
comply with this Code or the ETC Code of Conduct will result in appropriate sanctions administered
with principles of fairness and equity, up to and including termination of employment.

Personal Participation

Personal participation in political activities is separate from corporate activities. The company’s
name, trademarks and other property, i.e., stationery, business cards, etc., and work time are not
to be used in connection with such activities. Political campaigning on company property is
prohibited.

Payments to Government Officials

ETC employees do not offer, promise, authorize or arrange any payment or gift of any kind to a
political party or candidate, government or military employee or agent, or their families anywhere
in the world. Nominal gratuities may be permissible in limited situations, but not without first
consulting with appropriate management personnel.

To report information under this policy, direct all correspondence and inquiries to:

	 	 	 	 	 
	 

	 	Howard Kelley

ETC Audit Committee Chairman

3249 Saint James Avenue

Jacksonville, FL 32205

1-904-384-0022

hkelley@aspergantis.com
	 	 
	 
	 	 	 	 
	 

	 	and/or	 	 
	 
	 	 	 	 
	 

	 	Duane D. Deaner, Ethics Advisor

C/o Environmental Tectonics Corporation

County Line Industrial Park

125 James Way Road

Southampton, PA 18966

1-888-569-0551

ethics@etcusa.com	 	 

 

 

Environmental Tectonics Corporation

Company Code of Conduct

STATEMENT OF PRINCIPLES

ETC is committed to quality, innovation and above all integrity. Meeting this commitment is only
possible because each employee of ETC follows high standards of ethical conduct and business
practices. Individual integrity supported by a dedicated corporate culture is the pledge that
enforces the company’s code of conduct. All members of ETC — directors, officers, employees,
subsidiaries and affiliates — strive to protect the ethical regard of the company.

The Code of Conduct is the foundation for creating customer-focused quality. The pursuit of quality
is the driving force of our company. This pursuit leads to profitability which sustains us. At the
heart of our success is a trust placed in us by our stakeholders — customers, employees, suppliers,
shareholders as well as the countries and communities in which we live and work.

There shall never be question about ETC’s trust or integrity. This means all ETC people throughout
the world shall commit to the following:

	 	•	 	Strict abeyance to the law
	 
	 	•	 	Honesty in personal and business dealings
	 
	 	•	 	Fairness and respect to all
	 
	 	•	 	Concern about ETC’s affects on others
	 
	 	•	 	Proactive in taking initiative to address issues before they become problems
	 
	 	•	 	Personal responsibility as an employee and citizen
	 
	 	•	 	Exercise of good judgment in business dealings and operational decisions affecting
the conduct of ETC

On rare occasions, these principles may mean loss of business. However, the company’s principles of
integrity and trust are not available for compromise. Violations of the Code of Conduct at any
level are not tolerated and may result in disciplinary action as well as civil or criminal process.

Management and supervisors are to be consulted at any time violations to the code are observed or
suspected. Employees have a duty to report any alleged or suspected violations of the code and, to
do so, without fear of retribution. The company assures that such reports will be kept in strictest
confidence. Reports may be made in person or anonymously or in writing, via email or telephone to
the Ethics Advisor or the Chairman of the Audit Committee of the Board of Directors.

SPECIFIC AREAS OF CONDUCT

Customer Satisfaction

ETC is dedicated to meeting or exceeding the expectations of our customers better than are any
competitor. We provide our customers with products, information and support yielding them a

 

 

competitive advantage. Customer satisfaction and repeat business is a measure of our success. At
every opportunity we take the steps to truly satisfy our customers.

ETC’s Products

ETC’s products are an extension of the company itself. In all aspects of design, manufacture, sale
and support the company provides the highest level of quality and innovation. ETC is committed to
safe products meeting or exceeding performance, durability and reliability needs of our customers.
As part of our dedication to environmental stewardship, our products meet or surpass applicable
environmental standards.

Terms of Commercial Transactions

ETC competes commercially throughout the world within all regulatory and legal requirements. At all
times ETC employees practice the high standards of business ethics; never permitting the reputation
or legal standing of the company to be jeopardized or questioned.

ETC’s Competitors

ETC competes vigorously with companies who provide similar products and services. The competition
is based on fairness and marketplace integrity. Employees do not disparage competitors or their
products. Employees do not fraternize with the competitors if such conduct may give the appearance
of collusion or unfair trading practices.

ETC respects confidential information about its competitors and does not solicit or accept
confidential or proprietary competitor data. Employees, who inadvertently receive any confidential
information or become aware of an offer of such information, should immediately contact the Legal
Department.

Supplier Selection/Conflicts of Interest

All of ETC’s employees use non-discriminatory practices throughout the supplier and vendor
selection process. Every employee avoids any situation in which personal or family interests may
conflict with the interests of the company. Any employee with a financial interest in an actual or
potential supplier or customer must disclose that interest to management.

Receipt and Giving of Gifts

In general, employees should neither accept nor offer gifts to customers or suppliers unless the
gifts are designated as part of a recognized business event. Gifts exceeding US $50 in value may be
given or accepted only with the concurrence of an employee’s supervisor. All gifts (except minor
promotional token items) not approved by the employee’s supervisor must be turned in to the Human
Resources Department for further disposition.

Antitrust and Competition Laws

Employees comply with the antitrust laws of the United States and similar laws of other countries
in which the company does business. These laws may cover agreements among competitors, agreements
with sales agents/representatives, price discrimination, and other acts that may unfairly reduce
competition.

Government Contracts

2

 

Because ETC is a supplier to federal, state and local governments in the U.S. and around the world,
ETC employees are expected to comply with all laws and regulations relating to government
contracting and to cooperate fully with authorized government representatives who require
information in connection with such contracts.

Import/Export Controls, Boycotts and Bribes

ETC transacts business on a global basis. Each ETC employee involved with the sale or shipment of
products across international borders is expected to know and comply with applicable import/export
control laws and regulations of the U.S. Government. Questions in this regard, should be directed
to ETC’s Export Administrator.

U.S. Anti-Boycott regulations prohibit any agreement by a U.S. company to comply with certain
boycott activities of foreign countries. In this connection, ETC may be required to report boycott
requests to relevant government authorities.

The U.S. Foreign Corrupt Practices Act (FCPA) prohibits the offering of bribes to foreign customers
or government agents for the purpose of obtaining business or receiving special treatment. Any
questions regarding boycott activities or the FCPA should be directed to ETC’s Contracts or Legal
departments. Equal Employment Opportunity/Diversity ETC is an equal opportunity employer. We make
employment decisions without regard to race, color, religion, sex, age, national origin, disability
or any other characteristic irrelevant to the job. The company’s recruitment, hiring, transfer,
promotion and compensation policies are non-discriminatory. Quite apart from legal requirements,
diversity of backgrounds makes ETC stronger and is essential to our operating as a world-class
competitor.

Treatment of Others in Work Situations

Each employee treats every other employee, customer, vendor or those dealt with in the course of
business with dignity and respect. Harassment of any type in the workplace is not tolerated.

Safe Working Environment

ETC is devoted to maintaining a workplace free from hazards which could cause physical harm to
anyone. Prevention of occupationally related injuries and illnesses is the responsibility of every
ETC employee. All employees are expected to report unsafe or hazardous working conditions
immediately to their supervisors. No retaliatory action or other reprisal shall be taken as a
result of an employee’s making a good faith report.

Drug, Alcohol and Smoking Policy

Possession, sale, use or being under the influence of illegal drugs (including prescription drugs,
except in strict adherence to the prescription) or alcohol while on company property, or during
work hours, is strictly prohibited. Likewise, use of tobacco products within ETC facilities or
property is prohibited.

Company time

Full-time, regular exempt employees may not hold full or part-time positions or directorships
outside the company without expressed permission from their manager.

3

 

CONDUCT OF MEETING COMPLIANCE

Shareholder Value

ETC is committed to providing a sustainable long-term financial return to our shareholders and to
protecting and improving the value of their investment through prudent application of corporate
resources, and by observing high standards of legal and ethical conduct in all company business
dealings.

Securities Law Compliance

All employees are bound by the company’s Insider Trading Policy. (See ETC Insider Trading Policy)

Accuracy of Financial Records/Financial Representations

All employees are bound by the company’s Whistle Blower Policy. (See ETC Whistle Blower Policy)

Responsible Citizenship

ETC is a responsible corporate citizen committed to improving the communities in which we operate.

ETC entities actively support initiatives designed to improve the communities in which they reside.

ETC encourages employees to take part in community activities. In doing so, employees act only on
behalf of themselves and not as representatives of the company unless authorized to do so by
management.

CONDUCT REGARDING ETC FACILITIES AND PROPERTY

Environmental Compliance

ETC manages its business in ways protective of the environment and conservation of energy and
natural resources. In addition to complying with applicable environmental laws and regulations, ETC
recognizes excellence in environmental management as being among the highest corporate priority.

Computer Equipment/Copyrights

Company computer hardware, software and data may be used only by authorized personnel and for only
company business. Likewise, provisions and copyright restrictions of others are respected and
protected as company assets. Company computer assets may be used on a limited basis in support of
community service work only with the approval of a supervisor.

Other Company Property

Company property, equipment and facilities are not used for anything other than company business
without prior permission of the employee’s supervisor.

Confidential and Proprietary Information

Consistent with the ETC Employee Agreement, which is executed at the time of hiring, no employee
discloses confidential or proprietary information to anyone other than those within the Company who
have a “need to know.” Employees use every effort to protect and safeguard such information.
Similarly, ETC employees respect confidentiality obligations stemming from their former employers.

4

 

CONDUCT REGARDING POLITICAL CAMPAIGNS AND GOVERNMENT OFFICIALS

Personal Participation

Personal participation in political activities is separate from corporate activities. The company’s
name, trademarks and other property, i.e., stationery, business cards, etc., and work time are not
to be used in connection with such activities. Political campaigning on company property is
prohibited.

Payments to Government Officials

ETC employees do not offer, promise, authorize or arrange any payment or gift of any kind to a
political party or candidate, government or military employee or agent, or their families anywhere
in the world. Nominal gratuities may be permissible in limited situations, but not without first
consulting with appropriate management personnel.

To report information under this policy, direct all correspondence and inquiries to:

	 	 	 	 	 
	 

	 	Howard Kelley

ETC Audit Committee Chairman

3249 Saint James Avenue

Jacksonville, FL 32205

1-904-384-0022

hkelley@aspergantis.com
	 	 
	 
	 	 	 	 
	 

	 	and/or	 	 
	 
	 	 	 	 
	 

	 	Duane D. Deaner, Ethics Advisor

C/o Environmental Tectonics Corporation

County Line Industrial Park

125 James Way Road

Southampton, PA 18966

1-888-569-0551

ethics@etcusa.com	 	 

5

 

ANNEX 4

Duane D. Deaner

40 Pennington Ct.

Delanco, NJ 08075

Background: Over thirty years of senior level experience in accounting systems and
controls, financial oversight and supervision. Advanced college education (MBA-Finance).

Professional Experience:

Chief Financial Officer, Environmental Tectonics Corp. (Southampton, PA)     
1/96-Present

AMEX designer, manufacturer, and international distributor of specialized pilot training devices,
entertainment rides and management services. Annual revenues of approximately $40 million.

	 	 	Responsibilities: Directly responsible for all of the classical accounting areas including
systems, financial, treasury, investor relations, acquisitions and human resources.

Vice-President of Finance, Pennfield Precision Inc. (Sellersville, PA)      9/88 — 12/95

Precision manufacturer of metal components with annual revenues exceeding $15 million.

	 	 	Responsibilities: Senior finance executive in charge of all accounting, finance, treasury
and contracts.

Director of Corporate Accounting, Decision Industries, Inc. (Horsham, PA)      9/84-8/88

NYSE manufacturer and worldwide distributor of IBM compatible systems and software with annual
revenues of $190 million.

	 	 	Responsibilities: Chief technical accountant. Prepared all monthly reporting,
quarterly/annual SEC filings and annual budgets.

Manager, Budgets and Financial Reporting, Proctor Silex/Wearever (Chillicothe, OH)      1/81-8/84

Consumer products manufacturer with annual revenues $250 million.

	 	 	Responsibilities: Prepared annual budgets and strategic plans. Coordinated monthly reports
and financial and operational analysis.

 

ANNEX 5

Environmental Tectonics Corporation

Whistleblower Policy

ETC does not shirk its responsibilities from wanting to know if any employee has information or
suspicion of financial or ethical wrongdoing within the company.

Federal law requires publicly traded companies to have a formal policy and procedures in place to
receive information, methods of dealing with the information, and protections for employees who
report who report their suspicions. ETC’s Audit Committee — which is composed of independent
directors of ETC’s Board of Directors, is charged with that responsibility.

THE ETC WHISTLEBLOWER POLICY

	1.	 	Filing a Complaint. Any employee of ETC may submit on a confidential, anonymous basis if the
employee desires, any concerns regarding financial or ethical conduct. Such areas may include
the following:

	 	•	 	Financial statement disclosures
	 
	 	•	 	Accounting practices
	 
	 	•	 	Internal accounting controls
	 
	 	•	 	Auditing matters
	 
	 	•	 	Violations of ETC’s Code of Ethics for Senior Management
	 
	 	•	 	Violations of ETC’s Code of Business Conduct
	 
	 	•	 	Failure to comply with applicable rules, regulations and agreements

Submit in Writing. All such concerns may be sent in writing and forwarded in a sealed
envelope to the chairman of the Audit Committee. The sealed information may be submitted for
forwarding to the Audit Committee Chairman by ETC’s Ethics Advisor or it may be sent
directly to the Audit Committee Chairman at the address below. Any such envelopes received
by ETC’s Ethics Advisor shall be forwarded promptly and unopened to the Audit Committee
Chairman. The employee may also send the information via email directly to the Audit
Committee Chairman at the email address referenced below.

Submit to Hotline. Complaints may also be submitted to ETC’s Whistleblower Hotline using
the toll-free telephone number below. Any message received via the ETC Whistleblower
Hotline will be transcribed and delivered promptly to the Audit Committee Chairman by the
Ethics Advisor.

Discussing the Complaint. If an employee wishes to discuss any matter with the Audit
Committee, the employee should indicate this in the submission and include a telephone
number at which he or she might be contacted if the Audit Committee deems it appropriate.

	2.	 	Company Response. ETC shall promptly forward to the Audit Committee any complaints that it
has received regarding financial statement disclosures, accounting, internal accounting
controls or auditing matters.

 

 

	3.	 	Investigation. Following the receipt of any complaints, the Audit Committee will
investigate each reported matter so reported and take corrective and disciplinary actions,
if appropriate. Actions by the Audit Committee may include, alone or in combination, a
warning or letter of reprimand, demotion, loss of merit increase, bonus or stock options,
suspension without pay or termination of employment.

Investigative Assistance. The Audit Committee may enlist employees of ETC and/or outside
legal counsel, accounting or other advisors, as appropriate, to conduct any investigation of
complaints submitted under this policy.

Confidentiality. In conducting any investigation, the Audit Committee shall use reasonable
efforts to protect the confidentiality and anonymity of the complainant.

	4.	 	Retaliation. ETC does not permit retaliation or retribution of any kind against employees for
complaints submitted under this policy that are made in good faith.
	 
	5.	 	Reports to the Board. The Audit Committee shall report to the full Board of Directors at
least on a quarterly basis the number and nature of any complaints and the status of
determination.
	 
	6.	 	Record Retention. The Audit Committee shall retain as a part of the records of the Audit
Committee any such complaints or concerns for a period of no less than seven (7) years.

To report information under this policy address all correspondence to:

Howard Kelley

ETC Audit Committee Chairman

3249 Saint James Ave.

Jacksonville, FL 32205

904-384-0022

hkelley@aspergantis.com

Complaints may be sent directly to the Audit Committee Chairman (as indicated above) or delivered
to the ETC Ethics Advisor (as indicated below) in a sealed envelope addressed to the Audit
Committee Chairman. Complaints will be forwarded promptly and unopened to the Audit Committee
Chairman by the Ethics Advisor.

Duane D. Deaner, Ethics Advisor

c/o Environmental Tectonics Corporation

County Line Industrial Park

125 James Way

Southampton, PA 18966

1-888-569-0551

ethics@etcusa.com

 

 

Complaints may also be submitted via the ETC Whistleblower Hotline (1-888-569-0551). Any message
received via the ETC Whistleblower Hotline will be transcribed and delivered promptly to the Audit
Committee Chairman by the Ethics Advisor.

 

 

ANNEX 6

ENVIRONMENTAL TECTONICS CORPORATION

GOVERNMENT CONTRACTING PROCEDURES MANUAL

 

 

CHAPTER 1 — INTRODUCTION

	1.	 	Introduction
	 
	 	 	The business of U.S. Government contracting is far different than commercial contracting due
to the highly regulated procurement system as dictated by law and regulation that covers the
entire process, from the solicitation stage through contract award and final completion.
This Manual seeks to generally present the elements of that process as they are put into
practice at Environmental Tectonics Corporation (ETC or Company).
	 
	2.	 	Table of Contents

CHAPTER 1 — INTRODUCTION

Introduction

Table of Contents

Terminology

Guide to Usage of the Manual

Overview of the Contracting Process with ETC

Authority within ETC to Sign a Contract

ETC Responsibilities

ETC Code of Conduct and Ethics

CHAPTER 2 — CONTRACTING BASICS

Contract Types

Intellectual Property Rights & Protection

Payment & Financing

Standard Contract Language and Forms

Overview of the FAR and DFARS

ETC Contract Checklist

CHAPTER 3 — OBTAINING GOVERNMENT CONTRACTS

Preliminary ETC Business Considerations and Decisions

The Solicitation: IFBs and RFPs

Standard Contract Language in Competitive Procurement

Forms and Certifications for Competitive Procurement

ETC Process and Procedure Checklist for submission of Bids and Proposals

Procurement Integrity

Protecting Procurement Information

Organizational Conflicts of Interest

TINA Compliance — Defecting Pricing

Buy American Act

CHAPTER 4 — CONTRACT PERFORMANCE & ADMINISTRATION

Purchasing

Subcontracting

Change Management

1

 

The Disputes Process

Cost Accounting Accuracy and Consistency

Indirect Rates

Time Charging

Product Substitution

Forms and Certifications for Contract Administration

The Role of Contract Administrator/Manager

The Role of Project Manager

The Overall Role of Management

Record Keeping

Termination of the Contract

Closing of Contracts/Checklist

CHAPTER 5 — CONTRACT CLAIMS

Understanding Contract Requirements

Importance of Bid Documents

Early Claim Discovery During Performance

Managing Claims

Preparation of Claim Narrative

Pricing the Claim

Supporting Documentation & Sign-offs

Claim Certification

Sanctions for Non-Compliance

	3.	 	Terminology
	 
	 	 	The terms used in this Manual have the definitions attributed to them in the Federal
Acquisition Regulation (FAR), unless specifically defined herein or in the Glossary, at the
end of this Manual.
	 
	4.	 	Guide to Usage of this Manual
	 
	 	 	This manual reflects the policy of ETC. It sets forth the written procedures to be followed
within the Company by ETC employees, at all levels, in the conduct of business with the U.S.
Government and its authorized representatives. It is intended that this manual be reviewed
and, if necessary, updated on an annual basis. It is further intended that this Manual be
consistent with all applicable laws and regulations. Yet, this Manual is not intended to be
nor should it be used as a substitute for specific legal advice on the many issues that may
be faced by the Company related to government contracts or the topics discussed herein.
	 
	5.	 	Overview of the Government Contracting Process within ETC
	 
	 	 	Within the Company, the Contracts Department, particularly the Contract Administrator (CA),
is the primary enabler in the Government bidding/proposal process, as well as in contract
administration. The contracting process at ETC begins with proposal

2

 

	 	 	development; that is, when a decision is made to participate in a solicitation and ends when
the final delivery has been made and full payment has been received.
	 
	 	 	When the decision has been made to submit a bid/proposal, the Sales Department obtains the
solicitation and provides it to the Contracts Department. The CA performs a detailed review
of the solicitation and issues a bid review/summary, together with a copy of the
solicitation package to selected in-house bid/proposal team members. The summary outlines
and provides comments on the key solicitation requirements, particularly emphasizing (a)
the proposal preparation instructions, and (b) any other provisions that could impact the
Company’s decision to submit a bid/offer. The team members are instructed to review the
solicitation as a whole so they can view those requirements relevant to their particular
functional area, and formulate any questions or requests for clarification. The CA will
either provide the clarification internally, or submit the queries to the Government, if
necessary. The team members will strive to avoid the need for post award questions and
clarifications.
	 
	 	 	A proposal kickoff meeting will be conducted by the CA, during which individual task
assignments will be made (proposal preparation, technical review, costing, etc.). The CA
will conduct a final review of the Company’s bid/proposal to determine that it fully
conforms to the solicitation requirements. After confirmation, the Company’s bid/proposal
will be signed by a duly authorized representative of the Company and submitted, as
required.
	 
	 	 	The CA is the official liaison to the Government and conducts all subsequent communications
on behalf of the Company with the contracting agency’s representative(s), with the
assistance of team members, as needed.
	 
	 	 	Upon contract award, the CA shall prepare a sales order release (SOR) document and will
issue it to all departments. This document contains the actual job charging number (SOR #),
and essentially summarizes the significant contract requirements for ready reference and
guidance. The SOR is accompanied by a copy of the contract, the technical specifications,
the technical proposal and other pertinent documents.
	 
	 	 	The CA will then conduct a mandatory contract kickoff meeting that includes the designated
Project Manager and other department representatives to review the contract requirements and
to implement the contract performance plan. Responsibilities for each contract requirement
are assigned as “action items”, with suspense dates, to individual attendees. At this
meeting the CA re-emphasizes that all contractual requirements must be met, without
deviation.
	 
	 	 	If the need arises during the course of contract performance for clarification or changes to
the contract requirements, an internal written request must be submitted to the CA for
review. If deemed appropriate, the requests will be submitted to the Contracting Officer
(CO) for evaluation and response. As a general policy, all verbal or written communications
with the Government are to be conducted by the CA except in such cases where, to avoid
delay, it may be advisable to have direct technical discussions between the parties’
respective technical representatives. With only limited exceptions,

3

 

	 	 	all ETC employees should understand that the CO is the only person that can bind the
Government to a change of a contract requirement. Emphasis is made that ETC’s CA is
responsible to review, submit and negotiate all change order requests, including related
cost proposals, to the CO. Finally, when nearing contract completion, the CA performs the
contract closeout procedure.
	 
	6.	 	Authority within ETC to Sign a Contract
	 
	 	 	The following individuals are authorized to sign Government contracts, agreements and other
legal documents on behalf of the Company:

William F. Mitchell, Sr., President & CEO

William F. Mitchell, Jr., Vice President, Contracts & Purchasing

Gregory H. Daub, Director of Contract Administration

Duane D. Deaner, Chief Financial Officer

	7.	 	ETC Responsibilities
	 
	 	 	As a Government prime and subcontractor, the Company has the obligation to conduct its
business with all Government entities, either directly or indirectly, utilizing fair and
acceptable contracting practices to ensure that the Company is at all times in compliance
with federal procurement laws and regulations. The focus of this Manual, therefore, is to
present the Company’s practices and procedures in a way that will ensure full adherence to
lawful, regulatory and ethical dealings with the Government.
	 
	8.	 	ETC Code of Conduct and Ethics 
	 
	 	 	The Company maintains a written Code of Conduct, a Code of Ethics and a Whistleblower
Policy. Each of these policies may be viewed on the Company’s webpage at
http://www.etcusa.com.

4

 

CHAPTER 2 — CONTRACTING BASICS

	1.	 	Contract Types 
	 
	 	 	The Federal Acquisition Regulation (FAR), Part 16, provides a wide selection of types of
Government contracts. There are two broad categories of government contracts: Fixed-Price
contracts and Cost Reimbursement contracts. Within these categories, the Company’s
particular experience has been largely of the Fixed-Price type and, specifically,
Firm-Fixed-Price (FFP). The Company has had more limited experience with Cost-Reimbursement
contracts; specifically, Cost-Plus-Fixed Fee (CPFF).
	 
	 	 	A FFP contract provides for a price that is not subject to adjustment and places maximum
risk and full responsibility on the Company for controlling costs and any resulting profit
(or loss).
	 
	 	 	A CPFF contract, on the other hand, provides for a negotiated fee (profit) that is fixed at
the inception of the contract. The fee may change only if the scope of work changes, as
expressed by written contract modification. The CPFF contracting arrangement features
minimum risk and a guaranteed profit to the Company.
	 
	2.	 	Intellectual Property Rights and Protection
	 
	 	 	The Company utilizes privately-owned proprietary Intellectual Property (IP) related to most
of its products, since they have been designed at private expense (i.e., not with Government
funds); hence, steps are taken to protect the unauthorized disclosure of such IP to other
parties. In the case of bids/proposals to Government entities, the FAR dictates certain
procedures to achieve this end. For instance, when submitting proposals which contain
proprietary IP, ETC follows FAR 52.215-1, which requires the following specific marking on
the proposal document(s):

(1) Mark the title page with the following legend:

This proposal includes data that shall not be disclosed outside the
Government and shall not be duplicated, used, or disclosed —in
whole or in part —for any purpose other than to evaluate this
proposal. If, however, a contract is awarded to this offeror as a
result of —or in connection with —the submission of this data, the
Government shall have the right to duplicate, use, or disclose the
data to the extent provided in the resulting contract. This
restriction does not limit the Government’s right to use information
contained in this data if it is obtained from another source without
restriction. The data subject to this restriction are contained in
sheets [insert numbers or other identification of sheets]; and

(2) Mark each sheet of data it wishes to restrict with the following
legend:

Use or disclosure of data contained on this sheet is subject to the
restriction on the title page of this proposal.

5

 

	 	 	Further, Department of Defense FAR Supplements, DFARs 252-227-7013 and 252.227-7014 require
similar marking and/or restrictive assertions regarding the Government’s rights to use of
proprietary IP in the form of technical data and software, respectively.
	 
	 	 	It is the Company’s policy that the above restrictive legends be included on all
bids/proposals to the Government that contain our proprietary IP, as is consistent with the
FAR, DFAR and other applicable laws and regulations.
	 
	3.	 	Payment and Financing
	 
	 	 	ETC’s Accounting Department is responsible for all activities relating to the overall
financial activities of the Company. The payment and financing functions fall within this
area of responsibility. With respect to cost accounting, invoicing and payment, the
following is typical with respect to the Company’s Government contracts.
	 
	 	 	Progress Payments. When permitted by the contract, payment under Government
contracts may be made pursuant to FAR 52.232-16, Progress Payments. A prerequisite to the
receipt of progress payments is the obligation to have in place an accounting system to
ensure that the Company adheres to FAR Part 31, Contract Cost Principles and Procedures.
The Company currently operates under such an accounting system, and normally requests
progress payments. The Government normally makes payment within thirty (30) days of invoice
submittal date, unless the invoice is audited. All progress payment invoices are subject to
Government audit, typically by the Defense Contract Audit Agency (DCAA). Total progress
payments may not exceed 80% of the total price of the contract. Under this process, the
Accounting Department reviews contract costs at the end of each (monthly) billing period and
submits an invoice (electronically) to the Government office identified in the contract via
the Government’s WAWF (Wide Area Work Flow) system, a paperless billing procedure. Progress
payments are liquidated (recouped) by the Government from regular contract payments as they
are made.
	 
	 	 	Payments under CPFF contracts. FAR 52.216-7, Allowable Cost & Payment, provides for
payments to be made as follows:

	 	o	 	Invoicing of costs (excluding fee) not more than every two (2) weeks.
	 
	 	o	 	Payments will ordinarily be made within thirty (30) days.
	 
	 	o	 	Only costs actually paid (not incurred)
	 
	 	o	 	Indirect cost rates are to be established per FAR 42.7.

	 	 	Payment of the Fixed Fee shall be made in accordance with the schedule included in the
specific contract:
	 
	 	 	Other. Invoicing and payment under FFP contracts or orders other than progress
payments or CPFF terms normally occur on a one-time “Net 30 days” payment basis upon
contract completion. Alternate payment arrangements, such as fixed milestone payments or
fixed monthly payments (i.e., for service contracts), may also apply.

6

 

	4.	 	Standard Contract Language and Forms 
	 
	 	 	The U.S. Government, as a customer, presents unique challenges because of its highly
regulated procurement system. These regulations are voluminous and complex, and selling to
the Government requires a thorough knowledge of, strict attention to, and full compliance
with, the laws and regulations that govern Government contracting transactions.
	 
	 	 	Standard contract forms and related contract language most commonly used by ETC are largely
contained within the FAR at Parts 52 and 53, and Department of Defense FAR (DFAR)
Supplement, Subchapter H. The following is a listing of Forms that are frequently
encountered by the Company:
	 
	 	 	Forms:
	 
	 	 	Civilian and/or Military Agencies
	 
	 	 	Standard Form 26, Award/Contract
	 
	 	 	Together with its separate Sections A through M, comprises all contractual requirements
including clauses in full text or incorporated by reference, and any attachments.
	 
	 	 	Standard Form 33, Solicitation, Offer and Award
	 
	 	 	Together with its separate Sections A through M, comprises all contractual requirements,
including clauses in full text or incorporated by reference, and any attachments.
	 
	 	 	Standard Form 30, Amendment of Solicitation/Modification of Contract
	 
	 	 	The SF-30 is issued to incorporate changes to either the solicitation or the contract. If
it is issued to change the solicitation, it is considered an “amendment”; if it is issued to
change the contract, it is a “modification”.
	 
	 	 	Standard Form 1443, Contractor’s Request for Progress Payment
	 
	 	 	Progress Payments, as authorized by FAR 52.232-16, must be requested using this form.
	 
	 	 	Standard Form 1449, Solicitation/Contract/Order for Commercial Items
	 
	 	 	Used for
Multiple Award Schedule and Commercial Products.
	 
	 	 	Military Agencies
	 
	 	 	DD Form 250, Material Inspection and Receiving Report
	 
	 	 	Used, when required, to document contract shipments. It may also be used as an invoice.
	 
	 	 	DD Form 1155, Order for Supplies or Services
	 
	 	 	Typically used as the contract vehicle for small-dollar purchases, such as spare parts or
services.
	 
	 	 	DD Form 1423, Contract Data Requirements List (CDRL)

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	 	 	The DD-1423 outlines the requirements for data to be furnished under the contract (i.e.,
drawings, technical manuals, provisioning lists, etc.)
	 
	 	 	DD Form 1664, Data Item Description (DID)
	 
	 	 	The DID supplements the DD-1423 by providing a detailed description of the required CDRL
item.
	 
	 	 	Contract Language
	 
	 	 	Standard Form (SF) 26 and 33
	 
	 	 	The language contained in these two forms is stipulated by regulation and is comprised of
Sections A through M as continuation pages that contain the specific clauses and language
that encompasses the whole of the contractor’s obligations under the contract. These
Sections (see table, below) contain either the full text of provisions and clauses or
incorporate them by reference. They may also be tailored to include the specific needs of
the procuring agency.

	 	 	 
	Section	 	Description
	A	 	Solicitation/Contract Form

	B	 	Supplies or Services and Prices/Costs

	C	 	Description/Specs/Work Statement

	D	 	Packaging/Marking

	E	 	Inspection and Acceptance

	F	 	Deliveries or Performance

	G	 	Contract Administration Data

	H	 	Special Contract Requirements

	J	 	List of Attachments

	K	 	Representations and
Certifications and
other Statements of
Offerors

	L	 	Instructions,
Conditions and
Notices to Offerors

	M	 	Evaluation Factors
for Award

	 	 	Most Government contracts also include clauses that require the Company to pass through
certain contractual obligations to their subcontractors and vendors. This would include,
but is not limited to, such areas as inspection and quality control, the DoD Government
priority system (DPAS) obligations, minority business, women-owned business, Viet Nam
Veteran-owned business and small business subcontracting.
	 
	5.	 	Overview of the FAR 
	 
	 	 	The FAR is a series of regulations issued by the Government that concern the requirements of
contractors for selling to the Government. The FAR is codified in Title 48 of the United
States Code of Federal Regulations. It is issued pursuant to the Office of Federal
Procurement Policy Act of 1974 (Pub. L. 93-400 and Title 41 of the United States Code). It
is prepared, issued, and maintained jointly by the Secretary of Defense, the Administrator
of General Services, and the Administrator, National Aeronautics and Space Administration
(48 CFR 1.103). With few exceptions, all government agencies are required to use the FAR.

8

 

	 	 	The FAR is divided into 53 parts and organized into eight Subchapters that are numbered A
through H. Each part is then divided into subparts, sections, and subsections, with further
divisions below the subsection level.
	 
	 	 	The original purpose of the FAR was to consolidate the numerous individual agency
regulations into one comprehensive set of standards which would apply government-wide and,
officially, individual agencies were discouraged from issuing supplemental regulations.
However, nearly every major cabinet-level department (and many agencies below them) have
issued such regulations, which often place further restrictions or requirements on
contractors. The Defense Federal Acquisition Regulation Supplement (DFARS), is one such
supplement that is used by the Department of Defense.
	 
	 	 	Purpose of FAR
	 
	 	 	The purpose of the FAR is to provide “uniform policies and procedures for acquisition.” FAR
1.101. Among its guiding principles is to have an acquisition system that (1) satisfies the
Government customer’s needs in terms of cost, quality, and timeliness; (2) minimizes
administrative operating costs; (3) conducts business with integrity, fairness, and
openness; and (4) fulfills other public policy objectives.
	 
	 	 	The FAR also includes socio-economic requirements, such as for certain items that are
required to be purchased from United States firms only (“Buy American” clauses), and for
large business concerns to use small business concerns (especially, small disadvantaged
businesses, woman-owned and/or minority-owned, and Viet Nam Veteran-Owned) as suppliers and
subcontractors.
	 
	 	 	When a government agency issues a contract or a proposal, it will specify a list of FAR
provisions (and agency supplements) that apply to that contract, which may be numerous. In
order to be awarded a contract, a bidder must either comply with the provisions, demonstrate
that it will be able to comply with them at the time of award, and/or claim an exemption
from them. As an example, FAR Part 30, which references Cost Accounting Standards (CAS),
exempts small business concerns of that requirement. If the bidder can demonstrate that it
meets the small business criteria, Part 30 would not apply.
	 
	6.	 	ETC Contract Checklist
	 
	 	 	The following is a brief checklist followed by ETC on receipt of a new Government contract:

	 	o	 	Review the contract against the Company’s final bid/proposal for the following
key requirements and clauses:

	 	§	 	All solicitation amendments are included
	 
	 	§	 	Accuracy of product and data item description and cited specifications
	 
	 	§	 	Quantity
	 
	 	§	 	Delivery
	 
	 	§	 	Inspection requirements
	 
	 	§	 	Warranty
	 
	 	§	 	Shipping Terms

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	 	§	 	Packaging, Packing and Marking
	 
	 	§	 	Price
	 
	 	§	 	Payment Terms
	 
	 	§	 	Invoicing requirements
	 
	 	§	 	Requirement for performance and/or payment guarantee required?
	 
	 	§	 	Contract attachments/exhibits
	 
	 	§	 	Is a post-award conference scheduled?
	 
	 	§	 	Purchasing:

	 	•	 	Subcontractor/vendor pass-through clauses
	 
	 	•	 	Government Priority (DPAS) requirement
	 
	 	•	 	Buy American requirements

	 	§	 	Inform Contracting Officer in writing of any discrepancies and request
prompt correction.

10

 

CHAPTER 3 — OBTAINING GOVERNMENT CONTRACTS

	1.	 	Preliminary ETC Business Considerations and Decisions
	 
	 	 	ETC was incorporated in Pennsylvania in 1969 and has been in active operation since that
time. The Company is principally engaged in the design, manufacture and sale of
software-driven products used to create and monitor the physiological effects of motion on
humans and equipment and to control, modify, simulate and measure environmental conditions.
These products include aircrew and commercial space flight training systems, entertainment
products, sterilizers, environmental and hyperbaric (pressure) chambers and other products
that involve similar manufacturing know-how and techniques and engineering technologies.
	 
	 	 	All of these products and services currently offered have been designed by ETC and are
time-tested, and the Company enjoys a well-earned reputation in those fields, both in the
U.S. and abroad. Since inception, the level of ETC’s Government business has varied from
being a significant share, to a minor share. As to business considerations regarding
Government work, ETC’s current policy is to pursue only those projects that fit squarely
within its existing product lines.
	 
	2.	 	The Solicitation: Sealed Bidding (IFBs) and Competitive Negotiation (RFPs)
	 
	 	 	The Invitation For Bid (IFB), or Sealed Bid, entails publicly opened, competitive,
bids for the award of a contract on the basis of price and other price-related factors as
stated in the IFB. Applicable specifications are firm and not subject to variation. Bids
are evaluated without discussion with bidders. No exceptions to the solicitation terms and
conditions may be taken, and any bidder who does not conform to these criteria risks summary
rejection, regardless of standing, price-wise or otherwise. The contract award is made to
the lowest responsive and responsible bidder.
	 
	 	 	Competitive Negotiation/Request for Proposal (RFP). A solicitation other than
sealed bidding is a negotiated solicitation, also referred to as a Request for Proposal
(RFP). The RFP involves two types of acquisition, (a) Sole Source and (b) Competitive. The
negotiated approach allows more flexibility to both the Government and the contractor; that
is, lowest price is not always the primary Government consideration. The CO may either make
an award without discussions with offerors, or may conduct discussions; i.e., to clarify
ambiguous proposal terms, negotiate the price and, finally, to select the offeror whose
overall proposal is the most advantageous to the Government. Under FAR 15.403-4, the CO
may, in the case of a sole source competitive purchase exceeding $550,000 in total value,
require the submittal of cost or pricing data accompanied by a Certificate of Current Cost
or Pricing Data.
	 
	3.	 	Standard Contract Language in Competitive Procurement
	 
	 	 	As outlined in Chapter 2, the contract language contained in either a competitive or a sole
source RFP is essentially the same. The table (below) usually appears in Section A of the

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	 	 	solicitation, and each of the named Sections include the FAR-mandated clauses and other
specific language added by the procuring agency tailored to fit their purpose.

	 	 	 	 	 	 	 
	Section	 	Description	 	Pg(s).	 
	A	 	Solicitation/Contract Form
	 	 	 	 
	B	 	Supplies or Services and
Prices/Costs
	 	 	 	 
	C	 	Description/Specs/Work
Statement
	 	 	 	 
	D	 	Packaging/Marking
	 	 	 	 
	E	 	Inspection and Acceptance
	 	 	 	 
	F	 	Deliveries or Performance
	 	 	 	 
	G	 	Contract Administration Data
	 	 	 	 
	H	 	Special Contract Requirements
	 	 	 	 
	J	 	List of Attachments
	 	 	 	 
	K	 	Representations and
Certifications and
other Statements of
Offerors
	 	 	 	 
	L	 	Instructions,
Conditions and
Notices to Offerors
	 	 	 	 
	M	 	Evaluation Factors
for Award
	 	 	 	 

	 	 	Section A is the face page. It contains the RFP number, due date/time, issuing office,
and additional blocks to be completed by the offeror. This document may also become the
contract award document, when executed by the CO.
	 
	 	 	Section B provides the listing and short description of the Line Item(s) being purchased,
together with columns for unit/total price to be completed by the offeror.
	 
	 	 	Section C either describes the Government’s detailed specifications/work statement for the
Section B line item(s), or refers to an attached detailed specification, including the
offeror’s technical proposal.
	 
	 	 	Section D describes the type of packaging, packing, preservation and marking for the item(s)
to be delivered. This may either be best commercial practice or military level, and either
domestic or export packing.
	 
	 	 	Section E states the type and location (at source or at destination) of Government
inspection and acceptance criteria for each Line Item. It may also invoke FAR clause
52.246-2, Inspection of Supplies — Fixed Price, which stipulates that the contractor must
have a quality control system that is acceptable to the Government. If a DD-250 is
required, it will be stated here, also.
	 
	 	 	Section F outlines the contract delivery date(s) or completion schedule, as well as the full
shipping address for each Line Item(s).
	 
	 	 	Section G includes contract administration procedures that are peculiar to the purchasing
agency, such as invoicing instructions and address, and the type of invoice required (i.e.,
a DD-250 or contractor’s commercial invoice form); point of contact for technical issues,
patent rights clauses, etc.
	 
	 	 	Section H invokes specific contract clauses that are required by the agency for the item(s)
being purchased. This may include the incorporation of solicitation Section K

12

 

	 	 	(Representations and Certifications — see below), and any special insurance, or bonding
requirements.
	 
	 	 	Section I provides a listing of FAR/DFAR or individual agency clauses that may be too
voluminous to be included in full, but are incorporated by reference with the same effect as
if they are stated fully.
	 
	 	 	Section J provides a list of all contract attachments; typically, detailed Government
specifications, a copy of the contractor’s technical proposal, and DD-1423 CDRL and DD-1664
DID items, which include the specific data requirements for deliverable Line Items.
	 
	 	 	Section K of the RFP (usually incorporated in any resulting contract) contains the
FAR/DFAR-specified Representations and Certifications (Reps & Certs). These are various
check-the-block and fill-in entries to be completed by the offeror that provide the
Government with important information concerning the offeror such as: business size and type
(Large or Small Business Concern); minority/ women/veteran-owned/disadvantaged; Affirmative
Action compliance; CAS Certification; company ownership information; place of performance;
point of contact information, etc. NOTE: The accuracy of information entered and/or
certified in this section is of great importance to the bidder/contractor, since
misrepresentation and or untruthful replies may expose the Company to loss of the contract,
fines, penalties, etc.
	 
	 	 	Section L. This Section includes very important and detailed format and instructions on how
to structure the offeror’s proposal. They vary for each Government agency, and must be
followed carefully. Failure to adhere to these instructions may cause rejection of the
proposal.
	 
	 	 	Section M outlines the Government’s evaluation scheme for determining the manner in which
they will select the winning offer. Typically, this will list the factors and the priority
of these factors, such as:

1) Price

2) Non-price

3) Technical content and/or qualifications

4) Past performance of the offeror.

	4.	 	Forms and Certifications for Competitive Procurement (RFP’s)
	 
	 	 	The prescribed forms and certifications for competitive procurements include:

Standard Form 26, Award/Contract

Standard Form 33, Solicitation, Offer and Award

Standard Form 30, Amendment of Solicitation/Modification of Contract

	 	 	These forms also include the Representations and Certifications (Section K).

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	 	 	Another significant certification that may be required is a Certificate of Current Cost or
Pricing Data. The section of this manual entitled Truth In Negotiations Act contains a more
specific discussion on this topic.
	 
	5.	 	ETC’s Process and Procedure Checklist for Solicitation Reviews and Submission of
Proposals
	 
	 	 	The CA’s function within the Company’s overall proposal effort is an essential one that
cannot be overemphasized. It is at once educational, advisory and preventive in nature;
that is, to identify and resolve problems and questions early in the proposal stage, and
avoid having to backtrack after the contract is received and attempting to get it
resolved. The CA should assume that most personnel are not always keen to the finer (or,
even some of the more obvious) points of Government contract laws and regulations, and it is
his/her task to instruct and advise them in such matters. This is initially achieved by (a)
performing a detailed review of the RFP package, and (b) recording comments in the bid
review/summary document that is distributed to all proposal team members. Below is a basic
checklist to follow.
	 
	 	 	General Checklist

	 	•	 	Ensure that the entire bid package is on hand, including referenced attachments and
amendments. Immediately obtain any missing documents from the CO.
	 
	 	•	 	Resolve any unclear, ambiguous or patently obvious solicitation errors immediately,
in writing to the CO.
	 
	 	•	 	Ensure that all referenced government specifications and/or standards are
available. If not, obtain them immediately.
	 
	 	•	 	Read every bid provision carefully, noting any portions that will need specific
comment or instruction.
	 
	 	•	 	Type all review comments on the ETC RFQ/RFP Summary/Comment form.
	 
	 	•	 	Circulate bid package, etc. to proposal team for collective evaluation.

Specific Checklist

	 	•	 	Delivery requirements
	 
	 	•	 	Shipping terms
	 
	 	•	 	Is there a liquidated damages provision?
	 
	 	•	 	Is there a Warranty period and does it exceed ETC’s standard warranty?
	 
	 	•	 	Is a bid guarantee required? (if so, refer to the CFO for premium cost and
availability).
	 
	 	•	 	Is a Performance guarantee required? (if so, refer to the CFO for premium cost and
availability).
	 
	 	•	 	Special QC/Inspection/Acceptance requirements (i.e., industrial or military
standards or specs).
	 
	 	•	 	Shipping terms (Risk: FOB/CIF/C&F, etc.), and who pays transportation cost.
	 
	 	•	 	Payment terms: (i.e., net 30 days, progress payments, milestone payments, etc.)

14

 

	 	•	 	Export licensing requirements, if any. This may apply to Foreign Military Sales
(FMS) contracts. The Export Administrator should be queried on this.
	 
	 	•	 	Intellectual Property relative to proprietary data and software/source code. Review
the RFP Data Rights provisions.
	 
	 	•	 	Is a pre-proposal conference and/or site visit required? If so, make special note in
comments. Failure to attend waives any protection against later contractual problems
related to issues discussed or on-site conditions.

	 	 	All questions raised during the internal review process concerning ambiguous or otherwise
unclear RFP provisions or specifications should be submitted to the CO in writing for
immediate clarification.
	 
	6.	 	Procurement Integrity
	 
	 	 	The Office of Federal Procurement Policy Act (41 U.S.C. 423), and otherwise known as the
Procurement Integrity Act (Act), is implemented by FAR Part 3.104. It prohibits certain
activities by personnel involved in the Government procurement process, including commercial
entities. While primarily directed at Government procurement officials, the Act also covers
bidders and offerors. Inasmuch as ETC participates as a bidder/offeror on Government
contracts, the following activities by Company employees or representatives are strictly
prohibited in connection with Government procurements in which the Company participates:

	 	•	 	Offering or accepting gratuities; i.e., any gift, favor, entertainment, hospitality,
transportation, loan or any other tangible item, and any intangible benefits, including
discounts, passes, and promotional vendor training given or extended to federal
employees.
	 
	 	•	 	Offering or accepting bribes.
	 
	 	•	 	Offering, or accepting, employment at the Company.
	 
	 	•	 	Arriving at bid prices through consultation or collusion with other bidders.
	 
	 	•	 	Paying commission to an agent that is contingent on obtaining a Government contract,
otherwise known as a “contingent fee”.
	 
	 	•	 	Restricting, or attempting to restrict, ETC subcontractors from bidding directly on
a Government contract.
	 
	 	•	 	Submitting falsified cost or pricing data to the Government
	 
	 	•	 	Falsification or destruction of contract records in an effort to hide
non-compliance, or demonstrate compliance, with the requirements of a Government
contract.
	 
	 	•	 	Delivering inferior or nonconforming goods under a Government contract.

	 	 	In connection with the Act, the Company is required to maintain its records relating to
Government contracts for a minimum of three years.
	 
	7.	 	Protecting Procurement Information
	 
	 	 	Procurement Information is generally defined in the Procurement Integrity Act as bid or

15

 

	 	 	proposal information (i.e., of any bidder or offeror) and source selection information
(generated by the Government in connection with a particular solicitation). It may, as
well, include the proprietary information of competing offerors. The Act contains a strict
prohibition against the disclosure of procurement information by Government procurement
officials before the award of a Federal Agency procurement contract. This includes such
officials that are either present or former Government employees who have, or had, access to
contractor bid or proposal information. By the same token, any other person (i.e., another
bidder/offeror) is prohibited from obtaining contractor bid or proposal information, or
source selection information, before the award of the contract. Should such information be
inadvertently received by an ETC employee, it should immediately be referred to the
Company’s Ethics Officer who, in turn, will contact the CO for further instructions.
	 
	8.	 	Organizational Conflicts of Interest
	 
	 	 	Organizational Conflicts of Interest also fall within The Procurement Integrity Act.
Contractors are prohibited from discussing employment with certain federal officers and
employees. In addition, former federal employees are restricted from performing certain
services once they depart the Government. These latter restrictions vary in length and
scope, depending upon the status of the former federal employee and the work he/she
performed while in Government service. Consequently, contractors must implement procedures
designed to (a) prevent improper employment discussions with current Government employees,
and (b) ensure that former federal personnel employed by the Company do not illegally work
on matters that may create a conflict of interest — or, it should be added — even the
appearance of such a conflict. Failure to do so may result in harsh sanctions being imposed
by the Government on all concerned.
	 
	 	 	Any situation involving the discussion of employment of an active, or former, federal
official should be referred to the Company’s Ethics Officer for further action.
	 
	9.	 	Truth In Negotiations Act Compliance (TINA) and Defective Pricing 
	 
	 	 	The CO is tasked with ensuring that the offered price(s) under any solicitation is fair and
reasonable, and toward that end, he/she has certain avenues available to achieve this,
including obtaining either a proposal analysis or cost or pricing data. The proposal
analysis is used when cost or pricing data are not required, and may entail, among other
things, having a Government technical and/or financial representative review/compare a) all
proposed prices under the solicitation, b) prior sales history of the item being purchased,
c) competitive public price lists or other market information, d) the Government’s internal
estimate, and e) pricing information provided by the offeror.
	 
	 	 	The Truth In Negotiations Act (TINA) was enacted for the purpose of providing full and fair
disclosure by offerors and/or contractors in the conduct of negotiations with the
Government. A significant provision included in TINA is that the contractor may be required
to submit certified cost and pricing data in connection with negotiated procurements
expected to exceed $550,000 in value.

16

 

	 	 	Cost or pricing data is generally comprised of all facts that prudent buyers and sellers
would reasonably expect to significantly affect price negotiations. This may include
subcontractor/supplier quotations, nonrecurring costs, make-or-buy decisions, labor and
overhead rates, etc. The submission of such data allows the CO to determine the
reasonableness of the offered price(s). In addition, FAR 15.406-2 requires the contractor
to certify that the submitted data is accurate, current and complete (see Certificate,
below). If it is later found that the contractor submitted cost data that did not meet
these criteria (as certified), the price may be reduced accordingly. TINA exempts from its
coverage (a) a price based on adequate competition, (b) a price set by law or regulation,
(c) a price for a “commercial item” as defined in FAR 2.101, or (d) if the agency grants a
waiver (FAR 15.403-1(b)/(c). In certain circumstances, the Government has the right to
audit the contractor’s price proposal utilized in price negotiations for up to three years
after final contract payment.
	 
	 	 	The Certificate of current cost or pricing data reads as follows:

CERTIFICATE OF CURRENT COST OR PRICING DATA

This is to certify that, to the best of my knowledge and belief, the
cost or pricing data (as defined in section 2.101of the Federal
Acquisition Regulation (FAR) and required under FAR subsection
15.403-4 submitted, either actually or by specific identification in
writing, to the Contracting Officer or to the Contracting Officer’s
representative in support of ___* are accurate, complete, and
current as of ___**. This certification includes the cost or pricing
data supporting any advance agreements and forward pricing rate
agreements between the offeror and the Government that are part of
the proposal.

Firm ...

Signature ...

Name ...

Title ...

Date of Execution ...

	 	 	Contractors, therefore, must ensure that no false, fictitious, or fraudulent statements are
made to a federal agency. 18.U.S.C § 1001. A false representation with respect to a
company’s cost submittals under negotiated contracts or contract modifications may subject
the company and its management and employees to civil and/or criminal liability.
	 
	 	 	All in all, in view of the stringent rules placed on Government contractors, It is incumbent
on ETC to train all of its employees who deal with the federal government in any capacity.
It is essential that they be made aware of, and understand these myriad restrictions and
potential serious penalties imposed for non-compliance.

17

 

	10.	 	Buy American Act
	 
	 	 	The Buy American Act restricts the purchase of supplies that are not domestic end products,
for use in the United States. A foreign end product may be purchased if the Contracting
Officer determines that the price of the lowest domestic offer is unreasonable or if another
exception applies. Also, the buy American Act requires, with some exception, the use of
only domestic construction materials in contracts for construction in the United States.

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CHAPTER 4 — CONTRACT PERFORMANCE AND ADMINISTRATION

	1.	 	Purchasing and Subcontracting
	 
	 	 	Purchasing and subcontracting functions that are related to Government contracts are
processed according to the requirements of the particular contract; however, the following
steps apply generally to procurements in which ETC is involved.
	 
	 	 	The CA provides instructions to the Purchasing Department regarding prime contract clauses
and other requirements that generally flow down to suppliers and subcontractors.

	 	•	 	Defense Priorities and Accounting System (DPAS) and Government assigned priority, if
any.
	 
	 	•	 	Socio-economic clauses, such as: Walsh-Healy Act, Equal Opportunity, Small Business,
Small Disadvantaged Business, Minority Business, Veteran-owned, Women-Owned and Equal
Opportunity.
	 
	 	•	 	Buy American, Anti-Boycott and Specialty Metals.
	 
	 	•	 	Cost and/or Pricing Data and (Government) Audit and Records.
	 
	 	•	 	Quality Control and Government-Source Inspection (GSI).
	 
	 	•	 	Termination for Convenience and/or Default.

	2.	 	Change Management
	 
	 	 	FAR part 43 addresses changes to a Government contract. Changes can either be formal or
constructive. In either respect, the existence of a change does not in and of itself result
in entitlement by the Contractor for increased payments or length of performance.
	 
	 	 	A formal contract change can take many different forms. An administrative change pursuant
to FAR 43.101 does not impact a party’s rights and does not entitle the Contractor to any
additional compensation, because it is inherently administrative and not substantive. A
unilateral written change order pursuant to FAR 43.103(b) is signed by the CO and directs
the contractor to take certain action. This directive is exclusively within the control of
the Government and, generally, will not entitle the Contractor to any additional
compensation. A negotiated bi-lateral modification pursuant to FAR 43.103(a) is a back and
forth process whereby the Government and the Contractor each agree that an in-scope change
is in the best interest of the Government and that the change was not included within the
original contract requirements. In accordance with the Changes clause, the parties
negotiate a modification to the contract that includes an equitable adjustment to the
contract price and/or period of performance.
	 
	 	 	Constructive changes are those that arise during contract performance that the Government
and the contractor do not agree. Often times, the parties disagree whether or not the work
being requested was within the reasonable contemplation of the parties at the time of
contracting. Essentially, for a constructive change to have occurred it must be shown that
a) a change occurred either as a result of government action or inaction, b) the

19

 

	 	 	contractor did not perform voluntarily, and c) the change resulted in an increase or
decrease in the cost and/or period of performance.
	 
	 	 	The desire of ETC should be to avoid changes, especially constructive changes. Good
contract management, of course, is the tool to avoid such changes in the first place. The
Government customer, who is tasked with writing a clear and unambiguous contract, and
contract specifications, enhances the likelihood of avoiding changes.
	 
	 	 	By the same token, the best tool the Company has to avoid or minimize changes is to ask
questions during the solicitation phase — in writing — to obtain the Government’s written
clarification or revision of an unclear, or ambiguous, provision or specification. This can
head off many a misunderstanding that might otherwise arise during contract performance.
ETC’s Project Manager and CA are tasked with this important pre-contract function. The next
best approach, after receipt of a contract, is ETC’s early detection and submittal of
changes to the CO with an associated request for an equitable adjustment (REA) to the
contract price and/or delivery schedule.
	 
	 	 	At the outset of each contract, ETC will appoint a changes team that will be responsible to
identify and manage potential changes. Typically, the team will consist of a senior
manager, the Project Manager, the CA, the Project Engineer, and the Company Controller. The
goal of this team will be to monitor contract performance from a time and cost perspective.
During this monitoring, the team will evaluate whether or not the requirements being asked
of ETC have expanded beyond those originally required by the solicitation. Increased
contract costs or period of performance may be an indicator of a change, but is not
determinative of whether or not a change has occurred.
	 
	 	 	The changes process will only be used by ETC to fairly manage and compensate ETC for
additional work required of ETC that was not reasonably contemplated by the parties at the
time of contracting. Once a potential change is identified by ETC, notice will be provided
to the government at the very earliest opportunity. ETC understands that in order for the
CO to have a reasonable basis to evaluate a potential change, ETC must provide to the CO
sufficient documentation to justify entitlement and damages. The more complete and
documented the claim, the easier it is for the CO to review, present to his/her advisors,
and render a decision.
	 
	 	 	Importantly, a claim exceeding $100,000.00 in value must be accompanied by the
following Contractor’s certification, executed by a person duly authorized to bind ETC with
respect to the claim:

I certify that the claim is made in good faith; that the supporting
data are accurate and complete to the best of my knowledge and
belief; that the amount requested accurately reflects the contract
adjustment for which the Contractor believes the Government is
liable; and that I am duly authorized to certify the claim on behalf
of the Contractor

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	 	 	As may be evident, education is the key to changes management, and ETC will conduct in-house
training for its key project and administrative personnel for the purpose of teaching the
finer points of recognizing, preparing, costing, presenting and negotiating successful
changes and requests for equitable adjustment.
	 
	3.	 	The Disputes Process
	 
	 	 	The Disputes clause (FAR 52.233-1) invokes the Contract Disputes Act of 1978 (CDA), which
governs the processing of claims under DOD contracts. Should the CO reject a claim in
whole, or in part, he/she is required to issue a written “final decision” to that effect.
The contractor’s choice at that point is to either accept the CO’s decision, or to challenge
it by way of a formal appeal. In either case, the contractor must generally continue with
contract performance. The appeal may be made to the Board of Contract Appeals (BCA) or to
the U.S. Court of Federal Claims (COFC). Timing is critical, as a Notice of Appeal to a BCA
must be filed within 90 days of receipt of the CO’s final decision. An appeal may also be
filed with the U.S. Court of Federal Claims (COFC) within one year of filing a Complaint.
	 
	 	 	The Company does not take lightly the decision to file an appeal. In fact, the Company’s
current policy is to strongly avoid appeals by resolving disputes informally at their
earliest convenience. Moreover, when confronted with irreconcilable dispute, the Company
will always pursue alternative dispute resolution as an alternative to formal appeals. It
is the Company’s policy to weigh its decision very carefully at this juncture, and at the
highest management level, before pursuing an appeal under the Disputes clause. Legal advice
will be sought and the express approval of the President & CEO will be required.
	 
	4.	 	Cost Accounting Accuracy and Consistency
	 
	 	 	ETC is currently exempt from CAS requirements pursuant to 9903.201-1(a)(3) of the Cost
Accounting Standards Board (CASB) regulations.
	 
	 	 	Historically, in most of its Government contracts the Company has been governed by the FAR’s
“cost principles” as set forth in FAR Part 31, which define when and to what extent costs
can be recovered, as well as by the Truth in Negotiations Act (see above). The Company has
in place an accounting and data collection system that conforms with the requirements of FAR
Part 31.
	 
	 	 	In addition, as a public company (AMEX: ETC), ETC is subject to the following regulatory
requirements:

	 	•	 	The Company’s accounting policies conform to the rules of the U.S. Securities
Exchange Act, and it retains the services of an independent accounting firm, Grant
Thornton LLP, Philadelphia, PA, to audit and certify its accounting policies and annual
financial statements. These audits are conducted according to the standards of the
Public Company Accounting Oversight Board (United States).

21

 

	 	•	 	The Sarbanes-Oxley Act of 2002. As a “smaller public company” under the internal
control reporting requirements mandated by Section 404.

	 	 	The Company’s conformance to these regulations, of necessity, dictates accuracy and
consistency in all of its accounting practices.
	 
	5.	 	Indirect Rates
	 
	 	 	The Company’s indirect rates for Government contracts (i.e., manufacturing overhead, and
general and administrative (G&A) expense) are calculated in conformance with FAR Part
31.203.
	 
	6.	 	Time Charging
	 
	 	 	Time charging process at ETC is summarized as follows: The Company utilizes a job cost
accounting system. As stated earlier, all contracts and orders, commercial and government,
are assigned an SOR number (a Sales Order Release number). This number is disseminated
company-wide. All direct labor (as well as all materials) expended on a given contract is
charged to its SOR number and is entered on the employee’s time sheet. Time sheets are
reviewed for accurate time charging and signed by a supervisor, then forwarded to the
Accounting Department, where the labor cost is collected and entered under the SOR number
in the Aftec PRO-III accounting system.
	 
	 	 	ETC supervisors are tasked with educating employees under their supervision in this process,
and in the importance of the proper and accurate completion of their time sheets. ETC
understands the importance of maintaining strict compliance with this process, especially
when it comes to tracking and recording labor and materials to government contracts.
Moreover, ETC further understands the significance of specifically tracking labor and
materials as it relates to potential changes. With that in mind, ETC will, at the earliest
opportunity and in no case later then at the time of notifying the CO of a potential change,
issue a SOR for each potential change that it identifies on a government contract.
Moreover, when recording time to a change SOR, employees will be instructed to keep the most
detailed time records so that they may be used accurately to support any charges included in
the change.
	 
	7.	 	Product Substitution
	 
	 	 	If the contract incorporates a Government design and/or drawings and specifies parts or
components, ETC will purchase and incorporate the specified items in the end item. If the
contract contains a product substitution clause, allowing the substitution of products that
are no longer available (obsolete), they must be replaced with products of equal or greater
functionality at no increase in price. Additionally, if the contract includes an
engineering change clause that encourages development of more efficient methodology (i.e.,
value engineering change) and also reduce costs, such changes will be submitted to the CO
for approval and sharing of any cost savings.

22

 

	8.	 	Forms and Certifications for Contract Administration

Forms utilized by ETC, when applicable:

DD-250 — Material Inspection and Receiving Report

DD-1443- Contractor’s Request for Progress Payment

Certifications utilized by ETC, when applicable:

FAR 15.406-2 — Certificate of Current Cost or Pricing Data (as explained above)

FAR 33.207 — Certification of Claim

	9.	 	The Role of the Contract Administrator/Manager
	 
	 	 	The CA’s basic duties include solicitation review, order processing and other general
administrative duties. In performing these functions the CA is pro-active in the
pre-contract or proposal stage. This entails reviewing, in detail, Government solicitation
documents, summarizing their requirements, and disseminating the information to the ETC
proposal team members; thereafter, coordinating the proposal kickoff meeting, then
preparing, signing and submitting the RFP document, together with the Company’s technical
proposal, to the Government. During this phase, he acts as the primary liaison between the
CO and the Company in matters concerning the RFP and the proposal, and conducts or actively
participates in negotiations toward finalizing the contract.
	 
	 	 	The CA serves a similar role following receipt of the contract, including generating
correspondence, attending post-contract meetings, submitting deliverable data items,
negotiating contract changes, disseminating contract modifications, preparing shipping
documentation, and conducting the contract closeout process.
	 
	 	 	When necessary, the CA performs an active role in the “changes” process. If it is a
Government-requested change (additive or deductive), he coordinates with the Project Manager
(PM) to price out, submit and negotiate the final price and revised delivery schedule, and
resulting contract modification, with the CO. Similarly, he works closely with the PM and
his team in reviewing potential contract changes discovered by ETC that entail a cost and
delivery impact. He prepares and submits change requests to the CO, executes the CDA
certification, where necessary, and negotiates it to conclusion.
	 
	 	 	In the event a contract dispute arises, the CA will participate in the management decision
of whether or not to file an appeal and, if so, coordinate the Company’s activities with
legal counsel during the appeal process.
	 
	10.	 	The Role of the Project Manager
	 
	 	 	The Project Manager (PM) heads up the proposal team and works closely with the CA to ensure
conformance to the RFP requirements, with particular emphasis on cost, schedule and
technical compliance/feasibility. The PM also oversees and coordinates with 1) the
engineering team member(s) to ensure the correct technical approach is being followed, 2)
the purchasing and manufacturing members to accurately compile direct material and

23

 

	 	 	labor costs, 3) the Accounting Department to determine the proper indirect costs (overhead
and G&A) and 4) senior management to decide the going-in profit.
	 
	 	 	When a contract is received, the PM’s primary task is to manage the contract operational
aspects to completion — within specification, on time and within budget. The PM is the
Government’s primary point of contact in regards to the engineering, design, manufacturing,
final testing and shipment. If the contract includes on-site installation and testing, the
PM oversees the field service personnel until completion and Government acceptance.
	 
	 	 	The PM is also a primary assistant to the CA should any performance issues arise during
contract performance; for instance, whether a Government-directed change must be processed
(as noted above) or a change in the scope of work discovered by ETC that may require
preparing and submitting a claim.
	 
	11.	 	The Overall Role of Management
	 
	 	 	Management’s role in the Company is to lead the organization to success in its chosen
marketplace, whether commercial or government, in a fair, honest and straightforward
fashion. ETC has in place a Code of Ethics, a Company Code of Conduct and a Whistleblower
Policy, all of which can be viewed on the company’s web page. With these principles as a
foundation, ETC’s management strives to implement these codes on a day-to-day basis in our
dealings with employees, our customers, our suppliers, and other business associates.
	 
	12.	 	Record-Keeping 
	 
	 	 	FAR Part 4.7, Contractor Records Retention, prescribes the period of retention for records
generated under Government contracts. This means that the described records must be
available for Government inspection and audit within that time. Part 4.7 also incorporates
FAR Parts 52.214-26 and 52.215-2, both of which require retention of cost or pricing data
for 3 years. Subsections of Part 4.7 require different retention periods, depending on the
type of record. These periods range from 2 to 4 years. ETC’s policy is to comply with the
specific records retention policy applicable to the specific records generated on any
government contract to which ETC is a party. Moreover, ETC’s Accounting and Contracts
Departments retains it records for in excess of 6 years.
	 
	13.	 	Termination of the Contract
	 
	 	 	Generally, the Government may terminate its contracts, in whole or in part, either because
of default by the contractor, or for the Government’s convenience. FAR 52.249-8 permits
default termination where the contractor fails to meet contract requirements; i.e., failure
to deliver, failure to make satisfactory progress, or failure to meet any other material
provision of the contract. In that event, the contractor may not recover its costs, and may
also be liable for the Government’s cost to re-procure the contract elsewhere.
	 
	 	 	On the other hand, the Government may, at any time and for any reason (absent bad faith)
unilaterally terminate a contract for its convenience pursuant to FAR 52.249-2. The

24

 

	 	 	usual reason for convenience termination is that the Government has no further need for the
supplies or services. In this case, the contractor may recover certain incurred costs
according to the terms of the Termination for Convenience clause.
	 
	 	 	Even if the default termination of an ETC contract is to be challenged, it is the Company’s
policy is to cooperate in good faith in fulfilling its obligations to transfer materials and
data, together with title thereto, to the Government, and to protect such items, until the
Government takes physical possession. In the case of a convenience termination, ETC will be
prepared to provide a well-documented settlement proposal, including all supporting
information needed by the Termination Contracting Officer (inventory lists, cost records,
etc.), to negotiate a fair and reasonable settlement and dispose of the materials as
directed.
	 
	14.	 	Contract Closeout and Checklist
	 
	 	 	ETC’s contract closeout procedure entails the following steps:

	 	•	 	Verification of final, documented completion and Government acceptance of
all contract line items, including:

	 	o	 	Equipment
	 
	 	o	 	Data Items

	 	•	 	Final progress report to Government (if required)
	 
	 	•	 	Return of Government-furnished equipment or property, if any
	 
	 	•	 	Patent Report submitted/accepted
	 
	 	•	 	Final invoice submitted
	 
	 	•	 	Final payment received
	 
	 	•	 	Close out Sales Order Release (SOR) to preclude further cost charging
	 
	 	•	 	Contract records stored to active or dead storage area

25

 

CHAPTER 5 — CONTRACT CLAIMS

	1.	 	Understanding Contract Requirements
	 
	 	 	As noted, it is the Company’s strong policy to avoid the filing of claims/disputes.
Moreover, as one mechanism to avoid such a situation, the Company is committed to exploring
in all instances where claims/disputes arise, the use of alternative dispute resolution
mechanisms. Yet, even given the strong desire of the Company to avoid claims/disputes,
there remains the likelihood that the Company may be faced with a claim/dispute, whereby the
Company believes in good faith that it is entitled to payments or performance period
extensions, beyond those originally contemplated by the Contract. When such an instance
arises, the Company will generally consider the following step-by-step analysis.
	 
	 	 	The fundamental basis for considering whether or not the Company may have a basis for a
claim is a thorough analysis of the contract’s requirements. As mentioned above, steps are
taken by the CA to inform the Project Manager and his team of the contract requirements, and
to ensure they understand them; these include:

	 	•	 	Issuing the SOR, together with its attachments, such as customer specifications,
technical proposal and related documents. The SOR will be amended as necessary to
incorporate any contract changes.
	 
	 	•	 	Conducting a contract kickoff meeting to review and discuss the contract documents.
This will include a complete review of all requirements, including those that are (a)
contractual/legal in nature and (b) technical (specifications). The kick off meeting
will primarily seek to ensure that the team members are fully aware of the contract
requirements and that they comprehend the relationship between the various aspects of
the Contract. The CA will address any questions or need for clarification of these
requirements either internally or through communication with the CO.
	 
	 	•	 	The CA will also stress the need for the team members to bring up any questions
concerning contract requirements to his attention at any point during contract
performance. The CA will provide a response, and, if necessary, submit the matter to
the CO for resolution.

	2.	 	Importance of Bid Documents
	 
	 	 	The bid documents do not “disappear” or become irrelevant once the contract is received;
indeed, they form an important basis for the contract, as they are incorporated into the
contract document itself. If any contractual issues arise, or even disputes or appeals, the
bid documents will play a decisive role in their resolution. It is necessary, therefore,
that all team members maintain a complete file that includes them, together with the SOR and
other documents. The CA’s contract file will also include a full copy of the bid

26

 

	 	 	documents, including the solicitation, any amendments, the bid specifications, the Company’s
proposal, cost and price information, correspondence with the Government purchasing office,
telephone memoranda and any other related records, that were generated during the
solicitation phase.
	 
	3.	 	Early Claim Discovery During Performance
	 
	 	 	As noted above, despite all the best efforts of the Government’s CO and technical team to
issue a clear and unambiguous solicitation document, errors will occur; and, likewise,
despite ETC’s attempts to unearth any such errors and request the Government’s correction of
the same, before award, something will invariably “fall through the cracks”. In such a
circumstance, the next best approach, then, is to find any such problems as early as
possible during contract performance. Early discovery is important, as it will minimize
cost, disruption and delay to contract performance.
	 
	4.	 	Managing Claims
	 
	 	 	The proper management of claims requires a well structured, documented and organized
approach. ETC’s method to achieve this is to appoint a “changes team”, consisting of a
senior manager, the CA, Project Manager, Project Engineer, and the Controller, whose task is
to identify any such issues and to assist the CA in preparing and presenting them to the CO
for resolution. As soon as an issue arises and no later then the time it is presented to
the CO, the Company will promptly issue a SOR with the instruction to the project team to
charge all applicable costs to the new SOR in order to form a clear, precise and proper
basis for the eventual cost proposal to the CO. Moreover, in respect to all claim SORs,
employees will be instructed to record with specificity the labor tasks performed and the
costs incurred.
	 
	 	 	The claims team will assist the CA during the course of negotiations with the CO to arrive
at an equitable settlement and contract modification or, on the other hand, to serve as a
resource should an appeal ensue. Also, it is important for the changes team to remember
that: (i) A claim must be asserted (not necessarily submitted) before final payment
is made (FAR 52.243-4(f), and (ii) A claim exceeding $100,000.00 in value must be certified
(FAR 33.207)
	 
	5.	 	Preparation of Claims Narrative
	 
	 	 	The presentation of a claim should consist of a narrative that contains, at a minimum, the
following information:

	 	•	 	A statement of the contract requirement
	 
	 	•	 	A summary statement of the change
	 
	 	•	 	A statement of the Government direction or action that caused the Company to exceed
the contract requirement(s), including copies of all supporting documents as proof.
	 
	 	•	 	A detailed statement of the work that exceeds, or differs from, the contract
requirements

27

 

	 	•	 	A computation of the costs of the added work
	 
	 	•	 	An explanation of the related delay, with illustrative chart or graph, if necessary.
	 
	 	•	 	Appendices with pertinent documents, data, cost computations, manning curves, etc.

	 	 	It is the policy of the Company to present any claims in the above format. Absent the
necessary information to present the claim as indicated above, the claim will not be
asserted.
	 
	6.	 	Pricing the Claim
	 
	 	 	The costs included in claims must conform to the cost principles contained in FAR Part 31.
These are comprised of both direct costs and indirect costs.
	 
	 	 	The claim as submitted to the CO should include a breakdown of the costs being claimed,
usually arranged as follows:

	 	 	 	 	 
	Direct Labor:
	 	$	 	 
	Overhead (%):
	 	 	 	 
	 
	 	 	 
	Subtotal:
	 	 	 	 
	Materials:
	 	 	 	 
	Other Direct Cost:
	 	 	 	 
	G&A (%):
	 	 	 	 
	 
	 	 	 
	Subtotal:
	 	 	 	 
	Profit (%):
	 	 	 	 
	 
	 	 	 
	Total Amount:
	 	$	 	 
	 
	 	 	 

	 	 	Direct Labor should be broken out on an attached schedule to show the various categories of
labor. Materials and ODC should also, to the extent possible, be broken out into major
elements.
	 
	 	 	Indirect Costs (OH and G&A) are comprised of “pools” of cost, which are not normally broken
out into their individual elements in a claim, but are to be available for verification by
Government audit.
	 
	 	 	The Department of Defense (DOD) CO will normally apply the Weighted Guidelines Method in
developing a profit or fee objective (DFARS 215.404-71-1). Contractors utilize varied
approaches, tailored to their individual business. These methods may arrive at different
results.
	 
	7.	 	Supporting Documentation and Sign-Offs
	 
	 	 	The cost elements included in a claim, as outlined above, shall be fully documented and all
such documentation made physically available for Government audit — normally by the Defense
Contracts Audit Agency (DCAA). Direct labor hours for completed work are to be supported by
the time sheets of each individual employee involved. This is to

28

 

	 	 	be assured by assiduous time-keeping practices and verification by direct supervisors that
the labor hours are charged to the correct SOR number. Material costs, likewise, are to be
supported by a combination of supplier quotations, purchase orders, and/or invoices, as
appropriate. The same holds true for other direct cost (ODC) charges. All proposed costs
are to be reviewed and approved, in writing, by a direct supervisor. Indirect costs (OH, G&A
& ODC) being applied to the claim costs are obtained from the Company Controller, who is
responsible for calculating them on a periodic basis.
	 
	8.	 	Claim Certification
	 
	 	 	Claims exceeding $100,000.00 in value must be certified (FAR 33.207).
	 
	9.	 	Sanctions for Non-Compliance
	 
	 	 	Sanctions imposed for non-compliance are significant. The False Claims Act (FCA) (31 USC
3729-3733) provides the Government with remedies against parties that process false claims.
“Parties” is defined as either the Company or individual employees. This may include the
recovery of treble damages (against companies), and civil penalties of not less than $5,000
 — $10,000 for each false or fraudulent claim. Criminal statutes provide for fines up to
$10,000, and individuals may be imprisoned for up to five years.

29

 

GLOSSARY OF TERMS

BCA — Board of Contract Appeals.

Buy American Act — A federal policy stating that manufactured materials, supplies or
articles acquired for public use shall be substantially constituted from domestically mined or
manufactured materials.

CA — Contact Administrator. The individual(s) primarily tasked with the oversight of the
Company’s performance pursuant to the fulfillment of the terms, conditions, and specifications of a
contract.

CAS — Cost Accounting Standards. Federal standards designed to provide a consistency and
coherency in defense and other government contract accounting.

CFO — Chief Financial Officer.

Change — A change to approved program requirements or specifications after negotiation of
a basic contract. It may result in an increase or decrease.

COFC — U.S. Court of Federal Claims.

Commercial Item — An item, including both supplies and services, of a class or kind that
is regularly used for other than government purposes and is sold or traded in the course of
conducting normal business operations.

Contracting Officer — A person with the authority to enter into, administer or terminate
contracts and to make related determinations and findings.

Cost Reimbursement — A form of pricing arrangement that provides for payment of allowable,
allocable and reasonable costs incurred in performance of a contract.

COTR — Contracting Officer’s Technical Representative. A person provided to assist the CO
in matters related to inspection, acceptance and other duties.

CPFF — Cost Plus Fixed Fee. A cost-reimbursement contract that provides for the payment
of a fixed fee for the contractor.

DCAA — Defense Contract Audit Agency.

DFAR — Defense FAR Supplements.

DPAS — Defense Priorities and Allocations System. Priority ratings for contracts and
subcontracts.

ETC or Company — Environmental Tectonics Corporation.

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FAR — Federal Acquisition Regulations.

FFP — Firm Fixed Price Contract. A contract that is not subject to any adjustment by
reason of costs experienced by the contractor in the performance of the contract.

Fixed Price — A form of pricing that includes a ceiling beyond which the government bears
no responsibility for payment.

FMS — Foreign Military Sales. Actions on the part of the Department of Defense on behalf
of another government to make procurements using that government’s funds.

FOB — Free on Board.

IFB — Invitation for Bids. Solicitation document used for sealed-bid procurements.

IP — Intellectual Property. Includes inventions, trademarks, patents, industrial designs,
copyrights, and technical information.

Manual — ETC Government Contracting Procedures Manual.

Offer — A promise by the Company to enter into a contract if the offer is accepted. In
sealed bidding, offers made in response to Invitations for Bids (IFBs) are called “bids.” In
negotiated acquisitions, offers made in response to Requests for Proposals (RFPs) are called
“proposals.”

Procurement Integrity Act — Federal Procurement Policy Act, 41 U.S.C. 423. Rules
implemented to uphold the integrity of the government procurement process.

Progress Payment — A payment made as work progresses under a contract on the basis of
percentage of completion accomplished or for work performed.

Project Manager — An individual designated by the Company to be responsible for the
accomplishment of the program objectives, including development, production and sustainment.

Proposal — A written offer by the Company describing its offering terms.

RFP — Request for Proposal. Solicitation document used in negotiated procurements when
the buyer reserves the right to award without further oral or written negotiations. Only
acceptance by the buyer is needed to create a binding contract.

RFQ — Request for Quotation. The solicitation form used in negotiated procurement when
award will be made after negotiation with the offeror.

Solicitation — A document requesting or inviting offerors to submit offers.

SOR — Sales Order Release. The document which summarizes the essential contract
requirements and the job charging number for the services to be performed.

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TINA — Truth in Negotiations Act. Federal law enacted at P.L. 87-653 to provide the
government with sufficient information before the contract award to ensure that it does not pay
excessive prices for its procurements.

WAWF — Wide Area Work Flow system.

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ANNEX 7

AUDIT & COMPLIANCE REVIEW PROCEDURE

PURPOSE

	 	•	 	To establish a procedure for the staffing, planning, scope, and reporting of regular
audits of the Compliance Program established pursuant to the Agreement between
Environmental Tectonics Corporation and The United States Department of the Navy
(“Agreement”).

AUDIT TEAM

	 	•	 	Will include ETC Ethics Advisor and appropriate ETC management personnel.

SCOPE AND FREQUENCY OF AUDITS

Within 30 days of execution of the Agreement, and on a yearly basis thereafter, the Audit Team will
perform appropriate procedures to review compliance with the following substantive requirements of
the Agreement:

	 	•	 	Adherence to the Schedule set forth in Annex 2 for implementation of the Compliance
Program.
	 
	 	•	 	Establishment and annual review / updating of Company Code of Ethics.
	 
	 	•	 	Maintenance of complete file of annual officer, director, employee, consultant
acknowledgement of the Code.
	 
	 	•	 	Timely investigation and reporting of all instances of suspected misconduct.
	 
	 	•	 	Establishment and ongoing efficacy of a Hot Line.
	 
	 	•	 	Establishment of Contracting Procedures Manual.
	 
	 	•	 	Establishment and regular updating of a library of federal contracting materials.
	 
	 	•	 	Establishment of a Training Program to familiarize all officers, directors, and
relevant employees with each component of the Compliance Program.
	 
	 	•	 	Complete participation at training sessions; maintenance of participant certifications.
	 
	 	•	 	Determination of eligibility of all current employees and consultants who provide
services in connection with any federally contracted work. Removal from responsibility or
dismissal of ineligible persons as required by the Agreement.
	 
	 	•	 	Establishment of screening procedures to assure that ineligible persons are not hired
as employees or engaged as contractors in connection with federally contracted work,
without prior approval of Navy Debarring Authority.
	 
	 	•	 	Segregation of costs of implementing Compliance Program; treatment of such costs as
unallowable during the term of this Agreement.

AUDIT PROCEDURES

The Audit Team will establish an audit plan for each yearly audit, including:

	 	•	 	Identification of overall scope and any particular area(s) of focus.
	 
	 	•	 	Audit checklist of Company documentation to be reviewed.

 

 

	 	•	 	Identification of and assignment of all major tasks to be performed.
	 
	 	•	 	Identification of any personnel to be interviewed; any particular transactions to be
sampled.

Performance of the Audit

	 	•	 	Creation and retention of contemporaneous workpapers to document the audit.
	 
	 	•	 	Sign off by Ethics Advisor on completion of all required audit activities.
	 
	 	•	 	Adherence to audit plan.
	 
	 	•	 	Identification of any deficiencies/weaknesses in internal controls (e.g., maintenance
of appropriate documents) relating to scope of Compliance Program

REPORTING

	 	•	 	The Ethics Advisor shall prepare an initial and, thereafter, a yearly report
(“Report”), discussing the audit findings.
	 
	 	•	 	Each Report shall identify (1) All instances of disciplinary action for violations of
the Codes; (2) all known, ongoing criminal investigations; (3) all known quitam suits; (4)
all known or suspected defective pricing cases; (5) instances in which there are
reasonable grounds to suspect that ETC, its directors, officers, employees, consultants,
suppliers and/or Governmental personnel have violated Federal laws or regulations relating
to U.S. Government procurements; (6) all hotline calls received by the Ethics Advisor
including a description of the complaint and any remedial action taken or planned; and (7)
any other matter which might affect ETC’s present responsibility status, including but not
limited to actual or potential suspension and/or debarment actions by other Government
entities.
	 
	 	•	 	Audit reports shall include identification of any Compliance Program implementation
failures; recommend appropriate corrective action; and provide for prompt follow-up to
assure corrective actions have been implemented.
	 
	 	•	 	All reports will be submitted directly to the Audit Committee of ETC’s Board of
Directors and to the Navy’s Debarring Authority.

EFFECTIVE DATE & TERM

	 	•	 	Coextensive with the effective date and term of the Agreement.

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