SOLICITATION NOTICE
R -- Procure royalty audit services
- Notice Date
- 5/21/2008
- Notice Type
- Presolicitation
- NAICS
- 541211
— Offices of Certified Public Accountants
- Contracting Office
- Department of Health and Human Services, National Institutes of Health, Office of Administration, 6011 Executive Blvd, Rm 538, Rockville, Maryland, 20892-7663
- ZIP Code
- 20892-7663
- Solicitation Number
- NIHOD2008067
- Response Due
- 6/4/2008
- Point of Contact
- Marcia - Goldman,, Phone: 301-496-2302
- E-Mail Address
-
goldmanm@od.nih.gov
- Small Business Set-Aside
- N/A
- Description
- HIS IS A NOTICE OF INTENT, NOT A REQUEST FOR A PROPOSAL. A SOLICITATION DOCUMENT WILL NOT BE ISSUED AND PROPOSALS WILL NOT BE REQUESTED. The National Institutes of Health intends to negotiate on a sole source basis with: McGladrey & Pullen, LLP, 20 N. Martingale Road, Suite 500, Schaumberg, Illinois 60173. No solicitation exists for this requirement. The products are commercial as defined in FAR Part 2. The total contracted dollar amount will not exceed $5.5 million; therefore it will be solicited under the Commercial Test Program as authorized under FAR 13.5. This action is under the authority of The period of performance is 120 days after start date. It is believed that McGladrey & Pullen, LLP Thomson Scientific is the sole source for this requirement under the authority of section 4202 of the Clinger-Cohen Act of 1996 per FAR Part 13.5-Test Program for Certain Commercial Items and FAR Subpart 6.302-1 because of the below: The National Institute of Allergy and Infectious Diseases (NIAID) intends to procure royalty audit services from McGladrey & Pullen, LLP, 20 N. Martingale Road, Suite 500, Schaumberg, Illinois 60173. This audit is to verify that GSK Biologicals has properly reported sales of licensed products and paid the proper amount of earned royalties due under the terms of two NIH patent licenses, L-380-91 and L-074-94, which GSK Biologicals terminated effective December 31, 2007. The audit will cover sales of licensed products for the period extending from July 1, 2004 through December 31, 2007. In addition to verifying licensed product sales and the calculation of earned royalty payments for that period, the audit will also address certain discrepant or possibly non-compliant findings from a previous audit covering the period January 1, 1999 through June 30, 2004 performed by McGladrey & Pullen in 2004. Inherent duplication of cost already incurred by the Government for the January 1, 1999 through June 30, 2004 period make competition unfeasible for this final closeout audit. Because McGladrey & Pullen conducted the previous audit (Contract # 263-MF 418841), they are already familiar with the world-wide licensed product distribution and sales accounting systems used by GSK. McGladrey & Pullen are also familiar with financial terms of the two licenses and the net sales calculation and earned royalty reporting process GSK uses. Finally, McGladrey & Pullen are fully aware of the issues raised in the previous audit since they conducted the audit and identified the issues. These include: •Inspecting actual invoices & shipping tickets at two distribution centers to verify sales journal entries used as a basis for reporting net sales. •Verifying amounts of royalties paid Merck used partially as a basis for reducing the earned royalty paid NIH. •Verifying the appropriateness of inconsistent discounts and credits applied against gross sales at different distribution centers. Awarding the close-out audit contract to McGladrey & Pullen would allow the government to take advantage of the knowledge base McGladrey & Pullen acquired during their previous audit of GSK and avoid the need to pay another audit firm for the time needed to develop this expertise. For these reasons, NIAID believes that McGladrey & Pullen should be selected to conduct the close-out audit. Scope of Work Under Title 35 U.S.C. § 207(a) and 37 C.F.R. § 404.12, and further delimited under the provisions of the subject license agreements by and between the NIH and GSK (Licensee), the NIH shall have the right, at its expense, through a certified public accountant (hereinafter, Contractor) or like person reasonably acceptable to GSK (hereinafter, Licensee), to examine records of all sales of licensed products under the subject licenses granted to determine if OTT received the proper amount of royalty payments specified under their license agreements for use of NIH technologies. A Contractor shall conduct an audit of: NIH Licenses:L-380-91 (Effective Date: 1 August 1985 (Attachment Two); Amended 5 April 1994 (Attachment Three); and L-075-94 (Effective Date: 27 February 1996 (Attachment Four)) Licensee: GlaxoSmithKline (GSK) Biologicals with Corporate Headquarters or Place of Business in Rixensart, Belgium Licensed Products :Havrix®, Twinrix® and Hepatyrix® Licensed Patents: Please Refer to Tables One and Two The audit shall cover the sales reporting period from 1 January 1996 through 31 December 2007. The Contractor shall follow-up and answer questions raised on selected discrepant or possible noncompliant findings from McGladrey & Pullen’s 2004 Audit Report. The discrepant or possible noncompliant findings are listed in Table Three. The Licensee withheld royalties after domestic and foreign patents were inadvertently allowed to lapse in 2004 for non-payment of maintenance and annuity fees. Attempts were made to restore the lapsed patents but were not fully successful. Contractor shall verify the royalty payments from July 1, 2004 through December 31, 2007 were proper and correct with respect to payments for said lapsed and restored payments. The Contractor shall review the Licensee’s sales records to test the gross sales figures for all areas where Licensed Products were sold and to verify that the Licensee has accounted for all the Licensed Product sales when reporting net sales and earned royalties due for the period covered by the audit. Contractor shall perform a detailed calculation of royalties owed on net sales of Licensed Product in accordance with the subject license agreements. Specifically, using appropriate accounting and auditing procedures, the Contractor shall perform a limited audit that includes at least the following elements: 1.Compliance Review Preparation: Prior to visiting the Licensee’s place of business to audit sales and financial records, the Contractor, under a confidential nondisclosure agreement, will be provided background information by an OTT Monitoring and Enforcement Specialist (the “Project Officer”). The NIH Project Officer will prepare and send an audit confirmation letter to the Licensee and assist in coordinating the scheduling of the on-site visits by the Contractor at the Licensee’s place of business and distribution centers. The Contractor shall determine from the Licensee the type of accounting system and data availability for the period to be audited. A briefing of the Contractor will be conducted by the Project Officer. A NIAID observer(s) will be present during the briefing. A Compliance Review Plan will be formulated by the Contractor as an outcome of this briefing. Background information provided by the Project Officer to the Contractor will include a copy of the license agreement and any amendments, copies of sales and earned royalty reports submitted by the Licensee for the period to be audited, licensee’s payment history and copies of any other pertinent information about Licensed Products and their sales obtained from other sources. 2.Site Visit to the Licensee’s Place of Business: Based on the information obtained during the compliance review preparation and briefing, the Contractor shall conduct site visits at selected Licensee location(s) where Licensed Product sales records are kept to conduct the on-site audit and compliance review. The Compliance Review Plan shall be executed during the site visits. It is expected that the Contractor will visit two distribution centers in addition to the Licensee’s corporate headquarters or place of business as sales invoices or receipts are not stored at this site. A visit to each distribution center and audit of records is expected to take no more than two (2) to three (3) business days. A visit to the Licensee’s corporate headquarters or place of business and audit of records is expected to take no more than four (4) to five (5) business days. 3.Exit Interview with Licensee: Upon completion of the actual audit which is estimated to require approximately 11 business days, an exit interview and briefing shall be conducted by the Contractor with the Licensee to present findings and to provide the Licensee an opportunity to explain and/or correct any deficiencies found during the interview. 4.Audit Report and Debriefing with the Project Officer: A Preliminary Written Report shall be prepared by the Contractor and delivered to the Project Officer within thirty (30) business days of completing the exit interview with GSK. On receipt, the Project Officer will immediately forward a copy of the Preliminary Written Report to NIAID’s Director, Office of Technology Development. A debriefing or phone conference with the Contractor will be scheduled by the Project Officer within 15 business days of receiving the Preliminary Written Report. The debriefing or phone conference shall include a NIAID observer(s). The Preliminary Written Report shall contain all relevant raw data, auditing procedures, findings, analyses of reported findings, and conclusions. At a minimum, the report shall address the following highlights: a.Comparison of data submitted to NIH with the Licensee’s internal records; b.Comparison of Licensee inventory with reported production of Licensed Product; c.Comparison of Licensee shipping and receiving records; d.Comparison of Licensee shipping records to shipping invoices; e.Determination of methods used and analysis of Licensee’s calculations of royalties for each Licensed Product; f.Determination of the methods used and analysis of Licensee’s input of sales data for each Licensed Product; g.Comparison of location of Licensee’s actual sales force with location of reporting offices; h.Analysis of periodic sales fluctuation over period relative to season or period of Licensee’s fiscal year; i.Analysis of currency valuation versus Licensee’s sales reporting for sales in foreign currencies; and j.Comparison of sales volume of products which are complimentary to the Licensed Product for the same reporting period. Travel: The Contractor shall travel to Rixensart, Belgium or where the Licensee’s sales records for License Product are kept in order to conduct this audit. The NIAID requires that the Contractor travel to at least one distribution center in the United States and one in Europe. It is estimated that one domestic and one foreign trip to two European countries shall be required. If the Government shall modify the contract due to unforeseen circumstances, additional travel issues shall be considered before modification. In addition, the Contractor shall only be reimbursed for reasonable travel costs that are allowable under Government travel regulations. In addition, the travel time of employees will not be reimbursed at their hourly pay rates under this contract. Deliverables: The Contractor shall provide: 1.a Compliance Review Plan to the Project Officer within five (5) business days of completing a compliance review briefing (On receipt, the Project Officer will immediately forward an electronic copy of the Compliance Review Plan to NIAID’s Director, Office of Technology Development); 2.a Preliminary Audit Report as defined above to the Project Officer within 30 business days of completing the exit interview with GSK (On receipt, the Project Officer will immediately forward an electronic copy of the Preliminary Audit Report to NIAID’s Director, Office of Technology Development); and 3.a Final Audit Report to the Project Officer within 120 days of the award notification. Both an electronic copy and at least one signed hard copy of the Final Audit Report shall be sent to the Project Officer at the following address: NIH Office of Technology Transfer 6011 Executive Blvd, Suite 325 Rockville, MD 20852 (On receipt, the Project Officer will immediately forward an electronic copy of the Final Audit Report to NIAID’s Director, Office of Technology Development). Period of Performance: Contractor shall contact the Project Officer within ten (10) days of award notification. The date of contact shall be deemed the start date for the period of performance and the final day of the period of performance shall be 120 days after the start date. Table One: Schedule of Licensed Patents Non-Exclusive Agreement Country Application # Filing Date Patent # Issue Date Comments United States06/366,16504/07/824,532,21507/30/85Abandoned United States06/686,52412/26/844,636,46901/13/87 Continuation of 4,532,215 United States06/652/06709/19/844,620,97811/04/86 Continuation in Part of 4,532,215 United States06/905,14609/09/86Abandoned United States07/217,82407/12/88 4,894,22801/16/90Continuation in Part United States08/673,40809/06/95RE37,38109/18/01FWC – Expired United States07/822,63901/16/92 United States07/088,22008/24/82Abandoned United States07/462,91601/12/90Abandoned United States07/789,64011/12/91Abandoned United States08/120,64609/13/935,478,74612/26/95 United States08/473,30406/07/95 PCTPCT/US85/0176909/18/85 EPO85904746.609/18/85EP 0 196 316 Australia48620/8509/18/8558330608/18/89 Bahamas81709/16/8581709/16/85Check – Expired Canada491,06609/18/85CA 126039209/26/89 China8510752510/11/85CN 1180109/25/91Check – Expired Denmark22778609/18/852277-86 Finland86196609/18/85 86376 Greece85/2293/A09/20/8585010229301/21/86 Ireland2304/8509/18/85IE 82310 IsraelIL 7641709/18/85IL 76417 JapanJP1985 50424709/18/85JP625500659T New Zealand213,51309/18/85NZ213513 Norway86161909/18/85NO 169601B Portugal81,15009/18/85PT 8115003/17/87Check – Expired South Africa85/713409/17/85ZA850713405/27/87 South Korea1986-70027509/18/85Abandoned Spain547,11509/19/85547.11510/26/86 Thailand00380109/18/85TH 10337 Taiwan74104148TW NI-47520Abandoned Table Two: Schedule of Licensed Patents Exclusive Agreement Country Application # Filing Date Patent # Issue Date Comments United States 07/947,3389/18/92 Abandoned United States 08/397,2324/17/956,180,1101/30/01 CIP of PCT/US93/08610 United States08/475,8866/7/956,113,9129/5/00CIP of 08/397,232 United States09/653,4998/31/006,423,3187/13/02DIV of 08/475,886 United States10/135,9884/29/02US 2002/0176869 (Pat. Appl. Pub.)11/28/02 (Pub. Date)CON of 09/653,499 PCTPCT/US93/0861009/17/93WO 94/06446 (Pub. #) EPO93921524.09/17/93EP 0 666 7519/12/01 AustriaAT19930921524T9/17/93AT205536T9/15/01 France9/17/93FR0666751Check Italy9/17/93IT0666751Check Luxembourg9/17/93LU0666751Check Belgium9/17/93BE0666751Check Sweden9/17/93SE0666751Check Switzerland9/17/93CH0666751Check Liechtenstein9/17/93LI0666751Check DenmarkDK19930921524T9/17/93DK666751T11/12/01 SpainES19930921524T9/17/93ES2164074T2/16/02 Greece9/17/93GR0666751Check MonacoNo Record Netherlands9/17/93NL0666751Check GermanyDE19936030758T9/17/93DE69330758T7/4/02 GermanyDE199360307589/17/93DE69330758D10/18/01 United Kingdom9/17/93GB0666751Check PortugalPT19930921524T9/17/93PT666751T1/30/02 Ireland9/17/93IE 0666751Check AustraliaAU199300485859/17/93AU6870122/19/98 AustraliaAU19930048585D9/17/93AU48585934/12/94 CanadaCA199321443179/17/93CA21443173/31/94 JapanJP19940508225T9/17/93JP8504094T5/7/96 New ZealandNZ199302562789/17/93NZ25627811/26/96 Hong KongHK1998011500912/23/98HK10136675/17/02Annuity Payment Overdue Singapore9611170-39/17/93SG739993/31/94Annuity Payment Overdue Table Three:Selected Discrepant or Possible Noncompliant Findings from the GSK 2004 Audit Report Point from the 2004 Audit Report Discrepant or Possible Noncompliant Finding Resolution (6) Trend analyses of sales by licensed products were prepared but not included in the 2004 Audit Report. It is not clear from the text whether the Contractor prepared trend analyses based on gross or net sales and there is no mention of any periodic sales fluctuations over the period as requested in the SOW. Contractor to provide schedules summarizing gross sales from net sales by both product and license and by geographic region (domestic vs. foreign). Further, there must be a test of the gross and net sales figures based on sales invoices and shipping tickets. (7) The Contractor noted that the Merck & Co. royalty stacking provision is for sales in the United States, Canada and Spain. Further, the Contractor was unable to determine whether the intent of the royalty stacking provision was to limit the credit taken by Licensee on sales of NIH Licensed Product, where both NIH and Merck & Co. earn a royalty on the sale of similar products in the same country. As the license agreements are silent with respect to our ability to review third-party agreements, and given the inability of the Contractor to discern the intent of the above stacking provision, the Contractor shall review the entire Merck & Co. Agreement with the Licensee and ascertain whether Licensee applied the proper credit against royalty payments due the NIH. Contractor to verify amounts of royalties were actually paid by Licensee to Merck for a Hepatitis A (Giesa) patent license and whether these amounts correspond to what Licensee reported to NIH. (8) Unable to review Licensee’s sales amounts and correlate this information with actual invoices and shipping tickets. Licensee did not provide detailed sales reports in conjunction with the appropriate sales invoices. Instead, Licensee provided selected invoices for review. Without the detailed sales reports and associated invoices or random samples thereof, the Contractor was unable to verify the accuracy and evaluate the integrity of the financial information presented in the royalty reports submitted to NIH by the Licensee. In brief, the main purpose of the 2004 audit was not met and the audit report deemed inconclusive by NIAID’s Office of Financial Management. Inspect actual invoices and shipping tickets at a minimum of two distribution centers, one U.S. and one European and correlate this data with licensee’s sales figures. (11) Sales journals from the United Kingdom, Germany and the United States were reviewed and it was found that the total sales amounts and quantities sold were in agreement with the royalty computations without exception. However, the Contractor was not able to verify the accuracy of the journal entries as they were not given actual invoices and/or shipping tickets. Journal entries must be verified by actual invoices and/or shipping tickets. Address matter in the Follow-Up/Closeout Audit at the selected distribution centers. (12) Based on an inventory usage reasonableness test, it is noted that shipments from Belgium to the United Kingdom, Germany and the United States exceeded the reported sales figures by approximately 10% for 2002 and 2003. It is unclear whether this test was applied to any other years. However, the Contractor noted that it did not have access to ending inventory quantities or scrap rates, which may explain the discrepancy. Address matter in the Follow-Up/Closeout audit. (15) Licensee requested a $1.57 million dollar credit for royalties paid on U.S. government sales during the period 1995 through 2001 under the non-exclusive license. Licensee did not provide actual invoices but instead relied on sales figures from management or “channel” reports. Based on these reports, approximately 75% of the sales were directed to the Centers for Disease Control (“CDC”) which may be deemed a valid U.S. government sale. Whereas, 25% of the sales were directed at non-government entities such as the American Red Cross and would not qualify under the specified U.S. government sales credit. This credit should be denied until Licensee provides the proper supporting documentation. Further, if this credit is allowed at some future date, it would probably be in our best interest to apply the credit before the Merck & Co. stacking credit. Address matter in the Follow-Up/Closeout Audit. (16) Inconsistencies were noted in the application of discounts and credits (e.g., customer discounts, U.S. sales credit and corporate credits) in worksheets reflecting U.S. sales data. At one Licensee facility in the United States, “the difference between the gross sales and net sales was almost 50% of sales.” The Contractor was unable to verify these discrepancies. However, this difference is significantly out of line with historical sales data on licensed products.. Address matter in the Follow-Up/Closeout Audit. Interested parties may identify their interest and capability to respond to the requirement or submit capability statements to the Contract Specialist by June 4, 2008, at 3PM EST. A determination by the Government not to compete this proposed contract based on responses to this notice is solely within the discretion of the Government for the purpose of determining whether to conduct a competitive procurement. Address responses to the attention of Marcia Goldman at National Institutes of Health, 6011 Executive Blvd., Room 539A, MSC 7663, Rockville, MD 20852. The NAICS Code for this requirement is 541211 with a business size of 7.5 million dollars or email me at goldmanm@od.nih.gov.
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