Jenner & Block

The Government Contracts Legal Round-Up

Government Contracts Legal Round-Up is a podcast focusing on important developments facing government contractors and grant recipients.  Hosts David Robbins and Marc Van Allen discuss key developments in this ever-changing field in an easy-to-absorb style.  Often joined by colleagues and guests, programs focus on the most relevant executive orders, regulations, proposed and final rules that affect the FAR and relevant agency FAR supplements, decisions from GAO, the boards and courts.

June 15, 2021 Government Contracts Legal Round-Up | 2021 Issue 11

Welcome to Jenner & Block’s Government Contracts Legal Round‑Up, a biweekly update on important government contracts developments. This update offers brief summaries of key developments for government contracts legal, compliance, contracting, and business executives. Please contact any of the professionals at the bottom of the update for further information on any of these topics.

Regulatory Update

1. FAR Case 2019-007: Update of Historically Underutilized Business Zone Program, Proposed Rule (June 14, 2021)

  • This proposed FAR rule removes obsolete text and updates terminology and processes to correspond with SBA changes made back in November 2019 to reflect current policies on HUBZone program regulations found in 13 CFR 126.200 and in the Dynamic Small Business Search (DSBS).
  • HUBZone status protests procedures at FAR 19.306 are revised as follows:
    • To specify who may protest the prospective contractor’s HUBZone status for HUBZone sole-source awards;
    • To ensure that the Director of SBA’s HUBZone program will determine whether a protested concern has certified HUBZone status; 
    • To remove the concern’s HUBZone status in DSBS if SBA upholds the protest; and
    • To add references and procedures for filing protests against a HUBZone joint venture.

2. OMB Memorandum M-21-26: Increasing Opportunities for Domestic Sourcing and Reducing the Need for Waivers from Made in America Laws (June 14, 2021)

  • This memorandum provides initial guidance to covered agencies regarding how a new “Made in America Office” (MIAO), will provide greater oversight of waivers from “Made in America Laws,” to increase consistency and public transparency of such waivers.
  • President Biden mandated the creation of the MIAO in Executive Order 14005, Ensuring the Future is Made in All of America by All of America’s Workers, issued January 25, 2021. 
  • In a phased implementation approach, the MIAO aims to increase reliance on domestic supply chains and reduce the need for waivers through a strategic process aimed at: 
    • Achieving consistency across agencies; 
    • Gathering data to support decision-making to make US supply chains more resilient;
    • Bringing increased transparency to waivers in order to send clear demand signals to domestic producers; and
    • Concentrating efforts on changes that will have the greatest impact.

3. OMB Memorandum M-21-25: Integrating Planning for a Safe Increased Return of Federal Employees and Contractors to Physical Workplaces with Post-Reentry Personnel Policies and Work Environment (June 10, 2021)

  • This memorandum provides agencies with guidance (and a July 19, 2021 deadline) for planning for an effective, orderly, and safe increased return of Federal employees and contractors to the physical workplace.
  • Agency leaders have been instructed to use “values-informed” planning, and to leverage telework, remote work, and flexible work schedules as tools for recruitment and retention, and for advancing diversity, equity, inclusion, and accessibility in the Federal workforce.

Protest Cases

1. Yang Enterprises, Inc., B-418922.4, B-418922.6, May 20, 2021 (published June 4, 2021)

  • GAO sustained a protest challenging the Air Force’s evaluation of the joint venture (JV) awardee’s past performance for the award of a contract for mission and base operations services.
  • The solicitation expressly provided that the Air Force would evaluate the past performance of the offeror, major subcontractors, teaming partners, and joint venture partners by “focusing on performance that is relevant to the [t]echnical subfactors and [c]ost/[p]rice factor for those requirements that they are proposed to perform.”
  • GAO concluded that the Air Force unreasonably evaluated the awardee’s past performance because the agency failed to take into account the work each JV member was proposed to perform on the contract. For instance, the agency credited the awardee’s large business JV member with past performance in areas that it was not proposed to perform on the contract, in violation of the solicitation’s evaluation criteria.
  • In sustaining the protest, GAO rejected the Air Force’s argument that SBA regulations required the agency to consider the JV’s past performance in the aggregate, highlighting that the updated regulation cited by the Air Force was not effective until after the solicitation was issued and that it was not retroactive.

For solicitations issued after November 20, 2020, SBA regulations require a procuring activity to consider the work done by each partner to a joint venture, and that an agency cannot “require the protégé firm to individually meet the same evaluation or responsibility criteria as that required of other offerors generally.” 13 C.F.R. § 125.8(e). But for solicitations issued prior to that date, the previous version of the regulations permitted a contracting agency to limit the types of past performance that would be attributed to the joint venture, for instance by requiring the experience to involve the same functional areas that the joint venture partner is proposed to perform on a contract, which was the case here.

2. Qwest Government Services, Inc. d/b/a CenturyLink QGS, B-419597, B-419597.2, May 24, 2021 (published June 3, 2021)

  • GAO denied a protest alleging that the Department of Homeland Security waived a material requirement for the awardee.
  • CenturyLink argued that the agency unreasonably found the awardee’s proposal eligible for award even though the company did not propose to meet the solicitation requirement for full operational capability (FOC) within 18 months of task order issuance.
  • DHS’s interpretation of the solicitation was that FOC was met by hitting a certain user capacity, while CenturyLink claimed that FOC was only reached when an offeror will have met all of the RFP’s objective capabilities.
  • GAO concluded the record supported that at the time of proposal submission, CenturyLink interpreted the RFP’s requirement for FOC to mean providing the requisite user capacity—the interpretation offered by DHS. Because the solicitation interpretation advanced in CenturyLink’s protest was inconsistent with the interpretation that informed the protester’s proposal, GAO determined that this interpretation was unreasonable.

When challenging a solicitation provision as containing a latent ambiguity, it is critical that the company’s proposal supports the solicitation interpretation being advanced. If not, GAO will use this as evidence that the provision is unambiguous.

Claims Cases

1. Pernix Serka Joint Venture v. Sec’y of State, Fed. Cir., No. 2020-2153 (June 9, 2021)

  • The US Court of Appeals for the Federal Circuit denied Pernix Serka’s effort to revive its claim for more than $1 million in costs stemming from an Ebola outbreak that caused the company to stop work in Sierra Leone.
  • According to the Civilian Board of Contract Appeals’ decision, upon the Ebola outbreak, Pernix Serka became concerned about continued performance and sought agency guidance. The State Department refused to direct Pernix Serka to shut down (or otherwise protect employees). Ultimately, the company unilaterally stopped work, evacuated employees, and later filed a claim for safety and health costs arising from differing site conditions and disruption of work.
  • The Federal Circuit affirmed the Board’s grant of summary judgment to the State Department in April 2020, finding that Pernix Serka bore the risk under the fixed price contract for any costs arising from an unforeseen epidemic.

Contractors operating under a fixed price contract will find it difficult to seek pandemic-related costs that were not ordered or authorized by the government. The excusable delays clause, which grants time but not money for epidemic-related delays, among others, controls in the absence of agency direction that would change the scope of the underlying contract. Although the Federal Circuit expressed some empathy during oral argument for Pernix Serka’s position and the lack of State Department direction, the court found insufficient evidence for Pernix Serka’s constructive suspension of work argument.

2. Appeal of Ology Bioservices, Inc., ASBCA No. 62633 (May 20, 2021)

  • Ology held four cost reimbursement contracts with the government. As part of these contracts it included $2,730,686 attributable to executive compensation in its final indirect cost rate proposal submitted for 2013.
  • Because this amount exceeded the 2013 cap on allowable executive compensation costs, the government denied the unallowable costs and asserted a penalty equal to the amount of unallowable costs, asserting that these were expressly unallowable.
  • Before the Armed Services Board of Contract Appeals, the government changed its argument slightly—asserting that the costs were expressly unallowable because they exceeded the 2012 executive compensation cap, which it asserted was still applicable to Ology’s 2013 indirect cost rate proposal.
  • The ASBCA held that the government could not assess a penalty for expressly unallowable costs by applying the 2012 cap to Ology’s 2013 proposal. Congress intended for the government to adjust the cap on an annual basis and the government had unreasonably delayed doing so until after the deadline for contractors to submit their indirect cost rate proposals: “[W]e do not believe that Congress intended OFPP to have unlimited time to update the cap or for the government to apply an outdated cap for years on end.”
  • The Board concluded that Ology 2013 executive compensation costs “were not expressly unallowable at the time it certified its final indirect cost rate proposal because the FY 2012 cap was no longer applicable.”

The government often fails to meets its statutory deadlines for rulemaking, and this decision holds it accountable for that failure. While contractors must carefully analyze cost allowability rules and limitations, they should also assert their rights in areas of greyness.

Anti-corruption National Security Memorandum

Source: Memorandum on Establishing the Fight Against Corruption as a Core United States National Security Interest | The White House

Making anti-corruption a priority, President Biden has ordered more than a dozen federal agencies to collaborate and issue recommendations to elevate federal anti-corruption efforts within 200 days.

CATEGORIES: Bid protests, Claims, Compliance

June 2, 2021 Biden Administration Expands Cybersecurity Requirements for Government Contractors that Are Likely to Have a Broad Impact on the Private Sector

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By: David Bitkower, David B. Robbins, Shoba Pillay, Aaron R. Cooper, and Tali R. Leinwand

An Executive Order released by the Biden administration last month (the Cybersecurity EO) seeks to bolster the federal government’s cybersecurity defenses and resilience by imposing a variety of requirements on federal agencies and government contractors that are likely to have spillover effects in the private sector.[1] While many federal agencies and contractors already abide by existing agency-specific cybersecurity measures, the Cybersecurity EO establishes additional criteria to ensure that all information systems used or operated by federal agencies “meet or exceed” the cybersecurity requirements set forth in the Cybersecurity EO.[2] In particular, the Cybersecurity EO will directly affect companies that provide information technology (IT) and operational technology (OT) services, cloud computing software, and other technology to the federal government. In turn, the private sector, even when not servicing the federal government, is expected to see a renewed emphasis on security requirements and assessment standards.  

President Biden signed the highly anticipated Cybersecurity EO just a few months after the discovery of major cybersecurity incidents that targeted the United States, including Solar Winds (the reported Russian cyber espionage operation that affected nine federal agencies and about 100 American companies), a reported Chinese cyber hacking campaign that compromised tens of thousands of small and midsize firms that used Exchange email servers, and, most recently, the largest known cyberattack on the US energy sector, which led to the shutdown of the Colonial Pipeline.[3] Referencing these events, the Cybersecurity EO and corresponding White House fact sheet (1) make clear that the directives are aimed at improving the government’s “insufficient cybersecurity defenses,” (2) cast remediation of these incidents as a “top priority and essential to national and economic security,” and (3) order several dozen actions be taken beginning as soon as this summer.[4]

We highlight here the key initiatives and imminent deadlines that the EO sets out:

  • Remove barriers to threat information-sharing between the government and private sector.[5] Contractual barriers that prevent IT and OT service providers from sharing threat information will be removed, and such providers will be required to share certain breach information with the government.[6] This structure is intended to facilitate a more robust information-sharing regime. Traditionally, only defense contractors have been subject to federal requirements regarding breach reporting,[7] and while the Federal Acquisition Regulation (FAR) imposes basic safeguarding requirements, it stops short of requiring breach notification.[8] The Cybersecurity EO now extends the reporting requirement to all providers of IT and OT services to the federal government. Contractors will also be required to collect and share information related to cyber threats, incidents, and risks with the Cybersecurity and Information Security Agency (CISA), the Federal Bureau of Investigation, and other agencies.[9] While changes to government contracts will take time to implement, deadlines have been imposed on federal agencies to hasten these initiatives, beginning as soon as this month:
    • June 2021: The Secretary of Homeland Security, in consultation with other agency heads, is directed to recommend to the FAR Council the nature and type of information pertaining to cyber incidents that require reporting.[10]
    • July 2021: The Director of the Office of Management and Budget (OMB), in consultation with other agency heads, is directed to review and recommend updates to contractual requirements and language for IT and OT service providers to report cyber incidents.[11]
    • September 2021: The Secretary of Homeland Security and the Director of OMB are directed to take “appropriate steps” to ensure service providers are sharing data with certain agencies.[12] This requirement is broad; it implicates information that “may be necessary for the Federal government to respond to cyber threats, incidents, and risks,” and that information must be shared “to the greatest extent possible.”[13] It remains to be seen whether these open-ended directives are ultimately cabined by their implementing regulations.
  • Modernize and implement stronger cybersecurity standards in federal government.[14]Over the next several months, the government must develop “security best practices,” such as the use of zero-trust architecture, cloud service solutions, and multi-factor authentication and encryption.[15] The government must also modernize the FedRAMP program—the federal government’s main security authorization program for cloud security—to include training for agencies and improved communication with cloud service providers.[16]
  • Improve software supply chain security.[17]Over the next year, the Department of Commerce’s National Institute of Standards and Technology (NIST) is directed to develop guidance to “enhance[e] software supply chain security criteria,” with an emphasis on “critical software,” that will include standards, procedures, or criteria regarding data encryption, multi-factor authentication, and other measures.[18] Eventually, and critically, only software that abides by these new rules will be eligible for federal procurement; non-compliant software will be removed from federal contracts and purchase agreements, and legacy software will need to be redesigned as necessary to comply with these new requirements.[19] Further, the Secretary of Commerce, acting through the Director of NIST, is also directed to develop criteria for product labels to explain for consumers the cybersecurity capacities of commercial (including Internet-of-Things) devices and software, including the “levels of testing and assessment” that a product may have undergone.[20] From the perspective of companies concerned about potential Federal Trade Commission enforcement, the labelling regime will be especially important to bear in mind so as to ensure that device or software development processes meet or exceed the stated criteria, and accurately reflect existing practice.
  • Establish a cyber safety review board.[21]An incident review board will convene when there are “significant” cybersecurity incidents.[22] The board reflects a public-private partnership centered on digital defense and identifying lessons learned. It will be co-led by the Secretary of Homeland Security and others, including representatives from private sector entities, who will be selected based on the particular incident being investigated.[23]
  • Create a standard playbook for responding to cyber incidents.[24]By September 2021, the Department of Homeland Security (DHS), OMB, and other federal agencies will be required to develop a “playbook”—e., a standard set of operating procedures—to be used in planning and conducting cybersecurity vulnerability and incident response activity with respect to Federal Civilian Executive Branch (FCEB) Information Systems.[25] The playbook must (1) incorporate all appropriate NIST standards, (2) be used by FCEB agencies, and (3) articulate progress and completion through all phases of incident response.[26]
  • Improve detection of cybersecurity incidents on federal government networks.[27]In order to detect incidents early, agencies must deploy Endpoint Detection and Response initiatives to support proactive detection of cybersecurity incidents within federal government infrastructure, active cyber hunting, containment and remediation, and incident response.[28] These requirements will be based on requirements issued by OMB in consultation with DHS.[29]
  • Improve investigative and remediation capabilities.[30]Over the next three months, the Secretary of Homeland Security, in consultation with other federal agencies, is directed to develop standardized requirements for maintaining information event logs for federal agencies.[31] The requirements will include the types of logs to be maintained, the time periods to retain the logs, and guidance for protecting those logs.[32]

As written, the Cybersecurity EO is designed to have a meaningful impact not only on the federal government but also on its contractors and, ultimately, the private sector. Yet for all of the Cybersecurity EO’s ambitious directives and timelines, execution of these directives will take time, and the Cybersecurity EO’s ultimate effect will be heavily informed by implementing regulations that have not yet been announced. It remains to be seen how soon the new initiatives envisioned by the Cybersecurity EO will actually take effect, but IT and OT providers most likely to be directly impacted are on notice that change is on the horizon, and that the security community as a whole is contemplating new benchmarks for what cybersecurity looks like.

Of course, the Cybersecurity EO only offers one vector of the federal government’s cybersecurity response, and therefore is equally notable for what it does not, and cannot, address. For example, in the wake of the hack of Solar Winds and the ransomware attack on Colonial Pipeline, it is natural to ask what the Biden Administration’s response will be to continued Russian and Chinese state-sponsored cyber intrusions and, relatedly, foreign safe-harbors provided to criminal groups.[33] The Cybersecurity EO does not say. Separately, will Congress go beyond the Cybersecurity EO to impose broad-sweeping and mandatory breach disclosure requirements, as some have alluded to?[34] From that perspective, the Cybersecurity EO may signal just the beginning of a broader effort within the federal government that is likely to continue in the coming months.    

 

[1] White House, Executive Order on Improving the Nation’s Cybersecurity (May 12, 2021), https://www.whitehouse.gov/briefing-room/presidential-actions/2021/05/12/executive-order-on-improving-the-nations-cybersecurity/.

[2] Cybersecurity EO § 1.

[3] Ellen Nakashima, Biden Signs Executive Order Designed to Strengthen Federal Digital Defenses, Washington Post (May 12, 2021), https://www.washingtonpost.com/national-security/biden-executive-order-cybersecurity/2021/05/12/9269e932-acd5-11eb-acd3-24b44a57093a_story.html.

[4] Cybersecurity EO § 1; White House, Fact Sheet: President Signs Executive Order Charting New Course to Improve the Nation’s Cybersecurity and Protect Federal Government Networks (May 12, 2021), https://www.whitehouse.gov/briefing-room/statements-releases/2021/05/12/fact-sheet-president-signs-executive-order-charting-new-course-to-improve-the-nations-cybersecurity-and-protect-federal-government-networks/.

[5] Cybersecurity EO § 2.

[6] Cybersecurity EO § 2.

[7] DFARS 252.204.7012.

[8] FAR 52.204-21.

[9] Cybersecurity EO §§ 2(a), 2(e).

[10] Cybersecurity EO § 2(g)(i).

[11] Cybersecurity EO § 2(b).

[12] Cybersecurity EO § 2(e).

[13] Cybersecurity EO § 2(e) (emphasis added).

[14] Cybersecurity EO § 3.

[15] Cybersecurity EO § 3(d).

[16] Cybersecurity EO § 3(f).

[17] Cybersecurity EO § 4.

[18] Cybersecurity EO §§ 4(c)-(e). Under the EO, “critical software” is “software that performs functions critical to trust (such as affording or requiring elevated system privileges or direct access to networking and computing resources),” and which will be subject to additional security guidance. Id. §§ 4(a), (g)-(j).

[19] Cybersecurity EO §§ 4(p)-(q).

[20] Cybersecurity EO §§ 4(s)-(t).

[21] Cybersecurity EO § 5.

[22] Cybersecurity EO § 5(c).

[23] Cybersecurity EO § 5(e).

[24] Cybersecurity EO § 6.

[25] Cybersecurity EO § 6(b).

[26] Cybersecurity EO § 6(b).

[27] Cybersecurity EO § 7.

[28] Cybersecurity EO § 7(b).

[29] Cybersecurity EO §§ 7(c)-(d).

[30] Cybersecurity EO § 8.

[31] Cybersecurity EO §§ 8(b)-(c).

[32] Cybersecurity EO § 8(b).

[33] See Mae Anderson & Frank Bajak, Cyberattack on U.S. Pipeline is Linked to Criminal Gang, Associated Press (May 9, 2021), https://apnews.com/article/europe-hacking-government-and-politics-technology-business-333e47df702f755f8922274389b7e920.

[34] See Eric Geller & Martin Matishak, A Federal Government Left ‘Completely Blind’ on Cyberattacks Looks to Force Reporting, Politico (May 15, 2021), https://www.politico.com/news/2021/05/15/congress-colonial-pipeline-disclosure-488406.

CATEGORIES: Compliance, Cyber

June 2, 2021 Government Contracts Legal Round-Up | 2021 Issue 10

Welcome to Jenner & Block’s Government Contracts Legal Round‑Up, a biweekly update on important government contracts developments. This update offers brief summaries of key developments for government contracts legal, compliance, contracting, and business executives. Please contact any of the professionals at the bottom of the update for further information on any of these topics.

Regulatory Update

1. Class Deviation 2021-O0005: Revision to Requirement to Use Firm-Fixed-Price Contracts for Foreign Military Sales (May 26, 2021)

  • Effective May 26, contracting officers are not required to use firm-fixed-price contracts for foreign military sales as directed at Defense Federal Acquisition Regulation Supplement (DFARS) 225.7301-1(a). The waiver at DFARS 225.7301-1(b) is no longer required.

2. DFARS Case 2018-D055: Past Performance of Subcontractors and Joint Venture Partners, Proposed Rule (May 20, 2021)

  • This proposed rule adds one new solicitation provision and two new contract clauses, DFAR 252.242-70YY, past Performance of Joint Venture Partners – Construction and Architect Engineer Services; and 252.242-70ZZ, Past Performance of Subcontractors – Construction and Architect-Engineer Services to implement section 823 of the FY 2019 National Defense Authorization Act (NDAA). 
  • Section 823 requires performance evaluations in accordance with specified conditions for individual partners of joint ventures awarded construction or architect-engineer (A&E) services contracts exceeding the threshold set forth in FAR 42.1502(e)(currently $750,000), and for first-tier subcontractors performing a portion of a construction or A&E services contract with an estimated value as set forth in FAR 42.1502(e) or 20 percent of the value of the prime contract, whichever is higher.
  • An exception may be granted when submission of annual past performance evaluations would not provide the best representation of the contractor’s performance, including subcontractors and joint venture partners.

3. DFARS Case 2018-D009: Postaward Debriefings, Proposed Rule (May 20, 2021)

  • DoD is proposing to amend the DFARS to implement a section of the FY 2018 NDAA that provides enhanced postaward debriefing rights under negotiated contracts, task orders, and delivery orders that exceed $10 million.
  • The new procedures will provide offerors the opportunity, upon receiving a postaward debrief, to submit follow-up questions related to the debriefing and to receive agency responses, and sets out new timeframes for the suspension of performance or termination of a contract, task order, or delivery order awarded, upon notification from the GAO of a protest filed.
  • For a more detailed description of the proposed rule, see our client alert.

Protest Cases

1. DigiFlight, Inc., B-419590, B-419590.2 (May 24, 2021)

  • GAO sustained a protest where the Department of the Army disparately evaluated quotations for programmatic support of the agency’s Program Executive Office Aviation Headquarters.
  • The Army assigned the awardee’s quotation a strength based on the company’s approach to employee retention, but a similar strength was not assigned to the protester’s quotation.
  • GAO found no merit to the Army’s position that the two offerors proposed materially different approaches to employee retention. Indeed, GAO’s review of the record confirmed the two approaches were substantially the same.
  • For example, GAO rejected the Army’s argument that the approaches were different because the protester did not use the phrase “tuition reimbursement”—which was used by the awardee—but instead referred to reimbursement for “academic degrees.” The record also was devoid of any explanation of why the evaluators considered noteworthy the awardee’s retention rate of 95 percent, but did not similarly consider significant the protester’s higher retention rate of 96 percent.

It is a fundamental principle of federal procurement law that a contracting agency must treat all vendors equally and evaluate their quotations evenhandedly against the solicitation’s requirements and evaluation criteria. GAO will sustain a protest where a protester shows that the agency unreasonably failed to assess strengths for aspects of its quotation that were substantively indistinguishable from, or nearly identical to, those contained in other quotations.

2. PAE National Security Solutions, LLC, B-419207.2, B-419207.3, B-419207.4 (May 19, 2021)

  • GAO sustained a protest where the Federal Bureau of Investigation improperly applied unstated evaluation considerations in evaluating quotations for administrative and analysis support services for the agency’s National Name Check Program.
  • First, GAO found that the agency improperly gave evaluation credit to the awardee for having previously performed a contract implementing a “continuous vetting” (CV) program, as opposed to the discrete work item investigations contemplated under the RFQ. The relevant evaluation subfactor made no mention of experience performing CV-related services, nor was this term mentioned anywhere in the RFQ. As such, GAO found it unreasonable to use CV-related attributes of the awardee’s quotation as a discriminator in the competition.
  • Next, GAO found it unreasonable that the agency gave the awardee evaluation credit for having key personnel who previously transitioned FBI contracts where the key personnel subfactor made no explicit mention of such experience. GAO concluded that applying strengths on this basis was the application of an unstated evaluation criterion.

Agencies are required to evaluate proposals based solely on the factors identified in the solicitation unless there is a clear nexus between the stated criteria and unstated considerations. If a debriefing identifies that the awardee’s strengths, or your weaknesses, were based upon considerations not expressly identified in the solicitation without such a clear nexus, this is a fruitful area for protest.

Claims Cases

1. Appeal of Sauer Incorporated, ASBCA No. 62395 (Apr. 16, 2021)

  • Sauer received a contract to design and build the headquarters for the 82nd Airborne at Fort Bragg. The contract broke the project into three phases. Sauer completed phases 1 and 2 on time, but was a month late delivering phase 3. The government assessed $144,000 in liquidated damages. Sauer appealed the liquidated damages, arguing the project was substantially complete.
  • The Armed Services Board of Contract Appeals (ASBCA) focused on the fact that the single liquidated damage amount had not been adjusted when the RFP was revised to break the project into phases. Because the LDs were not assigned to specific phases, it distinguished prior cases holding that each phase must be complete for a project to be substantially complete.
  • The Board held that phases 1 and 2 were substantially complete and that the LDs must be apportioned for phase 3. The proper measure for such an apportionment was actual loss by the government.

Liquidated damage assessments often fail to account for the complexities of contract performance. It is important to carefully consider your factual and legal defenses in the face of delay and liquidated damages.

2. Appeal of Force 3, LLC, CBCA No. 6654 (Apr. 14, 2021)

  • Force 3 received a contract to provide support for FireEye cybersecurity appliances that were purchased by HHS. In order to provide the support services, Force 3 purchased and delivered to HHS a three-year support contract with FireEye. The Force3/HHS contract stated that, after non-renewal, HHS would certify that it had deleted or disabled the software and was no longer using it.
  • After the base year of performance, HHS declined to exercise the option years. HHS failed to provide the certification of deletion and non-use. And because the license delivered by Force3 had a three year term, HHS continued to download updates and contact FireEye for support.
  • The Civilian Board of Contract Appeals concluded that, even though HHS did not exercise the option, its continued use of the software (with the contracting officer’s knowledge) ratified its commitment to use Force3’s support services and made it liable for the license costs.

The government often fails to properly track and manage software use in accordance with its license agreement. While costs incurred in expectation of option exercise are typically not recoverable, this case demonstrates an exception where the government knowingly fails to uninstall and continues to use software contrary to the license terms.

New COVID-19 Fraud Task Force Launched by DoJ

Attorney General Garland announced the formation of a COVID-19 Fraud Enforcement Task Force led by the Deputy Attorney General, and drawing upon resources from across the government. The organizations participating in the Task Force include DoJ, the FBI, Department of Labor, Treasury, DHS, SBA, and the oversight organizations created by the CARES Act (SIGPR and PRAC).

Source press release: Attorney General Announces Task Force to Combat COVID-19 Fraud | OPA | Department of Justice

CATEGORIES: Bid protests, Claims, Compliance

May 4, 2021 Government Contracts Legal Round-Up | 2021 Issue 8

Welcome to Jenner & Block’s Government Contracts Legal Round‑Up, a biweekly update on important government contracts developments. This update offers brief summaries of key developments for government contracts legal, compliance, contracting, and business executives. Please contact any of the professionals at the bottom of the update for further information on any of these topics.

Executive Orders

1. Executive Order on Increasing the Minimum Wage for Federal Contractors (Apr. 27, 2021)

  • President Biden is raising the minimum wage for workers under federal government contracts to $15.
  • Contractors should expect to see a $15 minimum wage in new contract solicitations and option modifications beginning on January 30, 2022.
  • The minimum wage will be adjusted automatically to reflect changes in the cost of living every year after 2022.
  • The order phases out the lower “tipped minimum wage” for federal contractors by 2024, meaning tipped employees working on federal contracts must be paid the same minimum wage as other government contract employees.
  • The order includes federal contract workers with disabilities and outfitters/guides operating on federal lands.
  • The executive order directs the Department of Labor to issue regulations by November 24, 2021 to implement the requirements of the order. Within 60 days of the Labor Secretary issuing such regulations, the FAR Council shall amend the FAR to provide for inclusion in Federal procurement solicitations, contracts, and contract-like instruments entered into on or after January 30, 2022, consistent with the effective date of such agency action. 
  • Agencies are “strongly encouraged” to implement the $15 minimum wage in contracts issued before the effective dates in the executive order.

As always, contractors should pay careful attention to the specific wage and hour requirements in their solicitations and contracts.

Protest Cases

1. AECOM Management Services, Inc., B-418828.4; B-418828.5; B-418828.6, Mar. 17, 2021 (published Apr. 30)

  • GAO sustained a protest where the awardee was provided with a significantly greater opportunity to enhance its proposal during FAR part 16 interchanges.
  • Specifically, the awardee was provided the opportunity to make significant revisions to its proposal, including to its small business utilization and program execution volumes and to its price volume by adding in missing pricing information, resulting in a price increase of approximately $20 million. In contrast, the protester was never advised of a “confidence decreaser” in its program execution approach or provided any opportunity to revise its proposal—and this “confidence decreaser” was a key factor in the award decision.
  • Even though the solicitation stated that discussions would not be conducted pursuant to FAR part 15, it also stated that offerors would be treated fairly. GAO disagreed with the agency’s conclusion that engaging in interchanges with at least two offerors, but permitting only one offeror to meaningfully revise its proposal, provided a fair exchange.

While FAR part 16 permits more streamlined procurement processes than part 15, agencies cannot disregard fundamental fairness when conducting interchanges/exchanges/discussions with offerors. When an agency conducts interchanges but a debriefing identifies a weakness that was never raised, this is a ripe area for protest.

2. Deloitte Consulting, LLP, B-419508; B-419508.2, Apr. 15, 2021 (published Apr. 27)

  • GAO sustained a protest challenging the award of a federal supply schedule (FSS) task order where the awardee’s quotation represented that the company would provide services exceeding the scope of the underlying FSS contract.
  • The RFQ sought specific knowledge and expertise to address cybersecurity and privacy-related threats to the agency’s IT systems, and required that specific services be performed to address such threats. The awardee’s quotation represented that particular labor categories would provide these skills, yet the identified FSS labor categories gave no indication of any such expertise.
  • The agency argued that the FSS labor categories at issue “are intended to cover a large variety of potential requirements” and “broad functional responsibilities,” and therefore the specific services should be considered within the scope of the awardee’s FSS labor categories.
  • GAO disagreed, finding such a broad reading of the labor categories neither reasonable nor permissible.

When preparing quotations in an FSS competition, make sure that your proposed services are within the scope of your existing FSS contract labor category descriptions. And, if you lose out in such a procurement, evaluate whether there is an angle to challenge the awardee on this basis.

Claims Cases

1. Appeal of Northrop Grumman Corporation, ASBCA No. 62189 (Apr. 14, 2021)

  • Northrop settled a shareholder’s class action lawsuit related to its acquisition of Orbital ATK. Northrop then sent a letter to its DCMA corporate administrative contracting officer stating that it believed the costs were allowable costs related to legal proceedings and that it planned to include them in its forward pricing rates and incurred costs submissions.
  • The CACO responded stating that the costs were unallowable corporate organization costs and should be excluded. The CACO letter did not advise that it was a contracting officer’s final decision, nor did it include the FAR’s statement of appeal rights.
  • Northrop appealed the CACO letter to the Armed Services Board of Contract Appeals, asserting it was a government claim related to these costs. The government moved to dismiss for failure to state a claim.
  • The ASBCA dismissed the appeal, finding that the CACO letter was not a COFD, which is required for a government claim. “The government’s June 20, 2019 letter was not a “demand” or “assertion” seeking either the payment of money the government alleged it was due, the interpretation of contract terms, or other relief arising under the contract as required by FAR 2.101.”

While certainly possible, it can be tricky to get resolution of cost issues or contract interpretation questions in advance of a monetary dispute. This case highlights the need for clear strategy and communications when attempting to do so.

2. Appeal of Sungjee Construction Co., ASBCA Nos. 62002, 62170 (Mar. 24, 2021)

  • Sungjee appealed a termination of its contract for default, asserting that the Army failed to issue base passes necessary to perform building repair work. In discovery, Sungjee sought documents from the Army regarding the base passes, but the Army had destroyed them under its standard record retention policy.
  • Sungjee sought sanctions for spoliation of evidence, including an adverse inference related to base access it was provided.
  • The ASBCA denied Sungjee’s motion, finding that the Army had neither violated a requirement to retain these records, nor destroyed them after being made aware litigation was reasonably foreseeable.
  • The ASBCA also noted that the adverse inference sought by Sungjee would be dispositive and, thus, requires a showing of bad faith and prejudice, which was not demonstrated. “In short, we cannot find that the government’s routine document destruction, as opposed to Sungjee’s apparent failure to create and keep contemporaneous records, is the cause of any difficulty Sungjee may be experiencing in meeting its burden of proof.”

This case demonstrates the importance of engaging early and comprehensively when projects are delayed: documenting the causes of delay, communicating with the government regarding any excusable delay, rebutting any default termination, and notifying the government when litigation is reasonably foreseeable. Doing so will allow a contractor to meet its burden of proof based on its own evidence and ensure government evidence is properly preserved.

Investigations and Enforcement

In U.S. ex rel. Rickey Howard v. Caddell Constr. Co., et al., the District Court for the Eastern District of California granted summary judgement in favor of the construction company defendants. The relator had argued that the construction company defendants knew their subcontractors were pass-through, or sham entities, and therefore violated the False Claims Act. Among other things, the court held that semi-annual small business subcontracting plan and bi-annual reports were not material to payment, and that defendants had disclosed enough detail about the subcontract relationships to put the government on notice about them. Small business subcontracting is a persistent source of False Claims Act risk. This case is helpful to demonstrate when small business subcontracting is not material and therefore less of a risk.

CATEGORIES: Bid protests, Claims, Compliance, FCA

April 29, 2021 Biden Raises Minimum Wage for Federal Government Contract Workers to $15

Haws_Matthew_COLORBy: Matthew L. Haws

President Biden is raising the minimum wage for workers under federal government contracts to $15. In an executive order on April 27, 2021, Biden ordered that the Department of Labor develop rules to ensure that federal contract (and subcontract) employees are paid a minimum of $15 starting in 2022. Contractors should expect to see a $15 minimum wage in new contract solicitations and option modifications beginning on January 30, 2022.

This executive order provides that the minimum wage be adjusted automatically to reflect changes in the cost of living every year after 2022. It also eliminates some exceptions to the federal contract minimum wage. Specifically, it phases out the lower “tipped minimum wage” for federal contractors by 2024, meaning tipped employees working on federal contracts must be paid the same minimum wage as other government contract employees. And it includes federal contract workers with disabilities and outfitters/guides operating on federal lands.

The administration believes this executive order will affect hundreds of thousands of workers under federal contracts, including cleaning and maintenance workers, nursing assistants, and food service workers. It also notes that it will help many women and people of color.

For some government contractors, the new $15 minimum wage may alter the competitive landscape in positive ways—creating a common floor for wages underlying a proposal and allowing government contractors to attract and maintain talent due to higher wages than similar employers in the commercial space. (The White House fact sheet on the executive order is clear that one goal is to increase upward pressure on wages in the commercial space.) Of course, the federal contractor minimum wage is only one of the policies affecting wages paid under government contracts. Some government contractors may see little impact because their government contract employees already receive more than $15 per hour under existing requirements, such as the Service Contract Act, Davis Bacon Act, and related laws, which prescribe wage and benefit amounts for specific categories of workers in specific geographic areas. As always, contractors should pay careful attention to the specific wage and hour requirements in their solicitations and contracts.

Some additional details related to the executive order:

  • Biden’s $15 minimum wage executive order follows a 2014 Obama executive order that had raised the government contact minimum wage to $10.10. Biden had included a $15 federal minimum wage in his coronavirus relief bill, but it was removed based on parliamentary rules in the Senate.

  • The executive order recognizes and follows the typical regulatory process: it technically serves to direct the Department of Labor to engage in a rulemaking process by November 24, 2021, that will provide specific definitions and exclusions and, “to the extent practicable,” incorporate definitions, principles, and processes from existing wage laws. After that process, it directs the FAR Council and agencies themselves to undertake necessary steps to implement the DOL regulations. Contractors will want to keep an eye out for these regulations.

  • Agencies are “strongly encouraged” to implement the $15 minimum wage in contracts issued before the effective dates in the executive order.

  • The executive order includes within its scope “contract-like instruments” and specifically notes application to concession agreements, a common mechanism for providing services in federal facilities and properties, including national parks. Concession holders are among those most likely to be affected by this executive order. Grants are not included in the scope of the order.

CATEGORIES: Compliance

April 20, 2021 Government Contracts Legal Round-Up | 2021 Issue 7

Welcome to Jenner & Block’s Government Contracts Legal Round‑Up, a biweekly update on important government contracts developments. This update will offer brief summaries of key developments for government contracts legal, compliance, contracting, and business executives.

Regulatory Update

1. Notice of Request for Comments on Executive Order “America's Supply Chains,” (April 13, 2021)

  • On February 24, 2021, President Biden issued Executive Order 14017, “America’s Supply Chains,” which directs several federal agency actions to secure and strengthen America’s supply chains.
  • Under that Order, within 100 days, the Secretary of Defense must identify risks in the supply chain for strategic and critical materials and develop policy recommendations to address these risks.
  • DoD is seeking input by April 28, 2021 from both consumers and producers of strategic and critical materials on fifteen separate topics, including transparency, diversification, reclamation, global fair trade, environmental sustainability, workforce issues, and the full spectrum of risk to supply disruption.

Protest Cases

1. APR Staffing, B-419667 (March 30, 2021) (publicly released April 6)

  • GAO dismissed as a matter of contract administration a protest alleging errors in the agency’s evaluation of the protester’s prior performance under a blanket purchase agreement (BPA), on which the agency relied in deciding not to exercise options under the BPA.
  • GAO rejected the protester’s view that the agency’s evaluation of vendors’ performance constituted a “procurement process” that rendered those actions subject to GAO’s bid protest jurisdiction.

As a general rule, option provisions in a contract are exercisable at the discretion of the government. GAO will not question an agency’s exercise of an option under an existing contract unless the protester shows that the agency failed to follow applicable regulations or that the determination to exercise the option, rather than conduct a new procurement, was unreasonable.

2. SAGAM Securite Senegal, B-418583.2 (March 22, 2021) (publicly released April 7)

  • GAO dismissed as untimely a protest objecting to the agency’s cancellation of a solicitation where the protest was filed more than 10 calendar days after receipt of the agency’s email notice of cancellation.
  • The protester maintained that its director first received the contracting officer’s email within 10 days of filing its protest, because the individual was on leave when the email notifying the company of the cancellation was sent, and the director was unable to access emails without physically going into the company’s office.
  • GAO disagree that the company did not have constructive or actual knowledge of the notice of cancellation until the director accessed his email account 10 days prior to filing its protest. The fact that the director did not access his email because he was on leave did not toll the filing deadline imposed by GAO’s regulations.

For the purposes of GAO’s timeliness rules, the mechanical receipt of the email during a firm’s regular business hours constitutes notice to a party. The filing deadline imposed by GAO’s regulations is not tolled where the recipient’s email system generated an automatic response indicating that the recipient was on leave, and the agency was not required to respond or otherwise take action in response to receiving the out-of-office email notice.

3. Zolon Tech, Inc., B-419280.4 (March 18, 2021) (publicly released April 7)

  • GAO denied a protest alleging that a Library of Congress (LOC) procurement for agile development and system integration services was tainted by an unmitigated unequal access to information organizational conflict of interest (OCI).
  • The protester asserted that the awardee had an OCI by virtue of the company’s access to sensitive procurement-related information, including non-public information, based on the awardee’s level of access to two LOC systems and its president’s placement in the Office of the Chief Information Officer.
  • LOC explained that it conducted a thorough investigation of the allegations and found that no OCI existed. The agency pointed out that information in these two project management systems was available to both the protester and the awardee as incumbent contractors, and that the allegations did not show how information in these two systems gave the awardee any specific or unfair advantage regarding this procurement. LOC also confirmed that the two project management systems referenced by the protester do not contain proprietary or source-selection information, and the awardee’s president did not have access to sensitive procurement-related information either.

An unequal access to information OCI exists where a firm has access to non-public information as part of its performance of a government contract, and where that information may provide the firm with an unfair competitive advantage in a later competition for a government contract. GAO reviews the reasonableness of a contracting officer’s OCI investigation and, where an agency has given meaningful consideration to whether an OCI exists, GAO will not substitute its judgment for the agency’s, absent clear evidence that the agency’s conclusion was unreasonable.

Claims Cases

1. Appeal of Carothers Construction, ASBCA No. 62204 (February 11, 2021)

  • Carothers won a contract to build an elementary school at Maxwell Air Force Base in Alabama.
  • Carothers identified that the 2 ½ inch roofing system in the contract was available from only one manufacturer. Carothers identified an alternative 2-inch system that it believed was equivalent.
  • Carothers made five different submissions regarding the equivalence of the 2-inch system, but the government failed to engage in a substantive consideration and repeatedly denied Carother’s requests to use the alternative.
  • Carothers ultimately installed the 2 ½ inch system and submitted a claim for the difference in cost. Carothers asserted that FAR 52.236-5, Material and Workmanship entitled it to use the 2 inch system because it was equal in all important performance requirements.
  • The board sustained the appeal, finding that an item with only one source is, by definition, proprietary and that Carothers had proven the elements for a clam under FAR 52.236-5. The court held that the “general rule of strict compliance with the contract specifications does not apply simultaneously with the Material and Workmanship clause—it is one or the other.” 

The government is required to meaningfully engage with contractors on contract interpretation issues like those found in FAR 52.236-5. Contractors can take heart in this decision: understanding and diligently pursing your rights under the contract pays off. 

2. Appeal of SRM Group, CBCA Nos. 5194, 5938 (March 11, 2021)

  • SRM held a Department of Homeland Security contract for housing maintenance services at the Federal Law Enforcement Training Center in Georgia.
  • The government deleted two buildings from the contract scope and later sought to add them back. The parties couldn’t agree on the price for that addition, and SRM brought a claim for its asserted amount.
  • In support of its claim, SRM engaged multiple lawyers and cost consultants, ultimately submitting five different expert reports from two different experts, each finding a different amount of claimed costs. At trial, SRM did not provide any explanation regarding the different amounts.
  • The board denied SRM’s appeal, finding that it had failed to adequately support its quantum.

This case demonstrates the benefit of engaging experienced, detailed-oriented outside counsel to assist in developing and litigating claims. While damages need not be proven exactly, self-contradiction, imprecision, and errors can sink a claim.

Investigations and Enforcement 

In U.S. ex rel. Felten v. William Beaumont Hospital, the Sixth Circuit construed Section 3730(h) anti-retaliation provisions of the False Claims Act to apply after a purported whistleblower’s employment ends. While not all circuits have the same standard, False Claims Act defendants should be aware of this ruling and consider providing instruction not only to avoid retaliating against a whistleblower employee, but to avoid retaliating (including, but not limited to, impacting reputation so as to preclude future employment) against a whistleblower former employee as well.

CATEGORIES: Bid protests, Claims, Compliance, FCA

April 6, 2021 Government Contracts Legal Round-Up | 2021 Issue 6

Welcome to Jenner & Block’s Government Contracts Legal Round‑Up, a biweekly update on important government contracts developments. This update will offer brief summaries of key developments for government contracts legal, compliance, contracting, and business executives.

Regulatory Update

1. Class Deviation 2021-O0003: DFARS 252.239-7098 Prohibition on Contracting to Maintain or Establish a Computer Network Unless Such Network is Designed to Block Access to Certain Websites – Representation (Apr. 2, 2021)

  • This Class Deviation sets out a new representation for contracts to maintain or establish a computer network that are funded under the Consolidated Appropriations Act, 2021 (Pub. L. 116-260) (the Act), or extensions to the Act.
  • For covered solicitations, by submission of an offer, the offeror represents “that it is not providing as part of its offer a proposal to maintain or establish a computer network unless such network is designed to block access to pornography websites.” 
  • Contracting officers will include the provision at 252.239-7098, in all solicitations, including solicitations for the acquisition of commercial items under FAR part 12.
  • Funding under the Act may be still used by law enforcement to carry out activities related to criminal investigations, national defense, and intelligence. 

Contractors anticipating submitting proposals that include maintaining or establishing a computer network will want to ensure compliance with this new “porn blocking” representation and evaluate any needed changes to supply chain representations.

2. Implementation of the Government Furnished Property Module (Mar. 24, 2021)

  • As of January 2021, and in accordance with DFARS subpart 245.102(5), contractors are required to report the loss of Government property in the GFP Module in lieu of the Defense Contract Management Agency (DCMA) Property Loss eTool. 
  • Training resources on how to use the GFP Module are available at the DoD Procurement Toolbox and live webinars are posted here.

Contractors should note increased oversight of Government property. DoD describes its GFP Module as “an important step” in addressing “DoD’s material weakness in better accounting for Government Property” in contractors’ possession. The tool supports DoD’s strategic plan for defense-wide procurement financial and audit improvements. Documentation and data for completed loss cases in the GFP Module will be saved, allowing greater insight into loss patterns.

3. Securing the Information and Communications Technology and Services Supply Chain: Licensing Procedures (Mar. 29, 2021)

  • On January 19, 2021, the Department of Commerce (the Department) published an interim final rulemaking, ‘‘Securing the Information and Communications Technology and Services Supply Chain,’’ which became effective on March 22, 2021. 
  • This rule allows the Secretary of Commerce, in accordance with Executive Order 13873, to prohibit certain information and communications technology and services transactions (ICTS Transactions) to address national security threats.
  • ICTS Transactions include provision of services. The term includes all transactions that occurred on or after January 19, 2021, by any person owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary. Providing services, such as software updates, to US persons may provide a foreign adversary an opportunity to engage in activities that may threaten US national security.
  • In its January 19 notice, the Department stated it would implement a licensing process by May 19th for entities seeking pre-approval before engaging in or continuing to engage in ICTS Transactions.
  • Because additional public input is needed and the Department no longer expects to meet its May 19 deadline, the Department seeks public input through April 28, 2021, on such a licensing or other preclearance process.

In this Advanced Notice of Proposed Rulemaking, the Department of Commerce seeks public input by April 28, 2021 on all aspects of a future ICTS licensing process, including potential models for creating a process that would provide entities seeking to engage in an ICTS Transaction greater certainty that the transaction will not be prohibited.

Protest Cases

1. TekSynap Corp., B-419464; B-419464.2 (Mar. 19, 2021)

  • GAO sustained a protest challenging the National Geospatial-Intelligence Agency’s (NGA) evaluation of proposals and decision not to hold discussions.
  • Specifically, GAO found the agency unreasonably assigned only a “slight weakness” to the awardee despite one of its key personnel failing to meet a mandatory qualification. In a cascading effect, this meant the management plan subfactor rating of “outstanding” was unreasonable, and the overall “outstanding” rating for the technical/management factor was unreasonable.
  • GAO also held that the assignment of a “moderate strength” rather than a “significant strength” to the protester’s proposal was unreasonable when the evaluators positively described numerous merits of the proposal in detail and used language associated with a significant strength.
  • Based upon these errors, GAO concluded that NGA’s decision not to enter into discussions with TekSynap—because the agency had determined the awardee’s proposal was technically superior—was necessarily unreasonable.

2. IAP World Services, Inc., B-418566.2 et al., Aug. 20, 2020 (published Mar. 24, 2021)

  • GAO denied a protest alleging that awardee Vectrus-J&J Facilities Support, LLC (VJFS) materially misrepresented its management structure by failing to disclose an imminent sale. One of VJFS’s joint venture members (J&J Maintenance) was subject to a stock purchase several weeks after it was awarded the contract.
  • As a general matter, an offeror’s material misrepresentation in its proposal can invalidate an agency’s evaluation, and serve as a basis to cancel any contract award.
  • Here, GAO agreed with the contracting agency (the Navy) that even if there had been a misrepresentation, it did not invalidate the agency’s evaluation. While the Navy cited VJFS’s experience and past performance in its best value determination, the stock purchase did not impact VJFS’s stated experience or past performance as J&J’s operations, management team, and resources remained the same.
  • Notably, GAO also explained that even assuming that VJFS had a duty to notify the agency about the potential future stock transaction and failed to do so, the protester was not prejudiced by any failure to notify.

Where an offeror’s proposal represents that it will perform a contract in a manner materially different from the offeror’s actual intent, an award based on such proposal cannot stand, since both the offeror’s representations, and the agency’s reliance on such, have an adverse impact on the integrity of the procurement process. But GAO will not sustain a protest alleging a misrepresentation unless the protester can demonstrate competitive prejudice from the awardee’s failure to notify the contracting agency of any changes to its proposal.

Claims Cases

1. Appeal of L3 Technologies, Inc., ASBCA Nos. 61811, 61813, 61814 (Mar. 1, 2021)

  • L3 appealed multiple contracting officer’s final decisions (COFDs) disallowing costs, including for “other direct costs” and overhead expenses.
  • The COFDs were based on DCAA incurred cost audits for 2011-2014, which employed cost sampling and then extrapolated the questioned cost amounts across the entirety of the sample pool.
  • During discovery, the contracting officer withdrew the COFDs, stating that the government would no longer challenge the costs. The government moved to dismiss the appeals.
  • L3 sought to continue the appeals over the government motion to dismiss, desiring a decision on the merits. L3 argued that the government had engaged in a pattern of asserting and then withdrawing such incurred cost disallowance claims.
  • The board dismissed the claims, holding that they were moot and not subject to any exception to the mootness doctrine.
  • Judge Clarke dissented, noting that “The majority decision subjects L3 (and other contractors) to the unfortunate chain of events discussed below until DCAA and DCMA resolve whatever their differences are.”

The painful pattern seen here is familiar to many government contractors: delayed DCAA audits result in rushed COFDs to avoid the statute of limitations. Contractors must then defend against a government claim, often seeking millions of dollars in previously paid amounts. Unfortunately, this decision gives contractor’s little hope of relief and highlights the need to pay close attention to all DCAA audits and disallowances.

2. Appeal of SRA International, Inc., CBCA Nos. 6563, 6564 (Mar. 19, 2021)

  • SRA appealed COFDs disallowing $29 million in costs on two State Department contracts following DCAA incurred costs audits.
  • After a structured negotiation process, SRA secured a complete withdrawal of the COFDs and dismissal of the government claims with prejudice.

Continuing the theme of government cost disallowance claims, this case demonstrates the benefit of engaging experienced outside counsel to assist in dealing with DCAA audits, disallowances, and any resulting COFDs or government claims.

CATEGORIES: Bid protests, Claims, Compliance, Cyber

March 23, 2021 Government Contracts Legal Round-Up | 2021 Issue 5

Welcome to Jenner & Block’s Government Contracts Legal Round‑Up, a biweekly update on important government contracts developments. This update summarizes key developments for government contracts legal, compliance, contracting, and business executives.

Regulatory Activity

1. Withdrawal of Several FAR Cases on March 19, 2021

The change in administration has resulted in the review and withdrawal of several rules pending for years. Because of the passage of time, the FAR Council favors further consideration under new FAR cases, if at all. One FAR case (2018-002) was withdrawn as it was tied to a now-revoked executive action. The rules withdrawn include:

  • FAR Case 2011-001: Withdrawal of Organizational Conflicts of Interest 
  • FAR Case 2012-015: Withdrawal of Small Business Set Asides for Research and Development Contracts
  • FAR Case 2013-022: Withdrawal of Extension of Limitations on Contractor Employee Personal Conflicts of Interest 
  • FAR Case 2018-002: Withdrawal of Protecting Life in Global Health Assistance

2. Request for Comments on Semiconductor Manufacturing by US Department of Commerce

  • In response to President Biden’s Executive order on “America’s Supply Chains,” the Secretary of Commerce must submit a report within 100 days that: (1) identifies risks in the semiconductor manufacturing and advanced packaging supply chains; and (2) proposes policy recommendations to address these risks.
  • The FY 21 NDAA also includes a provision to incentivize the production of semiconductors for the US, and mandates several actions to secure the semiconductor-related supply chain.
  • This notice requests comments by April 5, 2021 to assist the Commerce Department in preparing its report to the White House.Publish

3. Department of Labor Plans to Rescind Two Rules Related to Independent Contractors and Joint Employers Finding They “Weaken” Protections to Workers Under the Fair Labor Standards Act

  • The first Notice of Proposed Rulemaking proposes the withdrawal of the Independent Contractor Final Rule issued on Jan. 7, 2021. This rule adopted a new “economic reality” test that narrowed or minimized other factors considered by courts traditionally, making it less likely a worker will be found an employee subject to FLSA protections. Independent contractors have no FLSA protections, but employees are eligible for the federal minimum wage and overtime.
  • The second Notice of Proposed Rulemaking seeks to rescind a current regulation on joint employer relationships under the Fair Labor Standards Act, effective March 16, 2020. On September 8, 2020, the US District Court for the Southern District of New York vacated portions of the Joint Employer Rule, stating that the rule was contrary to the FLSA and was “arbitrary and capricious” due to its failure to explain a shift from prior guidance or to consider the effect of the rule on workers.
  • The Department of Labor invites comments on both proposed rules by April 12, 2021.

Protest Cases

1. People, Technology and Processes, LLC, B-419385, B-419835.2 (Feb. 2, 2021) (published Mar. 15)

  • GAO found unobjectionable the General Services Administration’s (GSA) rejection of a late-submitted proposal.
  • The request for proposals (RFP) required that offers be submitted by October 13, 2020, via the agency’s online proposal submission portal, “GSA ASSIST.” The RFP warned that proposals received after the closing data and time would not be considered.
  • The protester had trouble with the online portal—it uploaded materials but was unable to click submit—so it emailed the proposal to the contracting officer instead.
  • Even though the protester had uploaded proposal materials prior to the deadline, GAO noted that the protester maintained the ability to revise its proposal by uploading new, modified attachments until the moment it pressed the “submit” button. Thus, GAO found that the uploaded materials were never under the government’s control.
  • GAO also found that the use of email to submit the proposal was not authorized by the RFP.

Late is late. It is an offeror’s responsibility to deliver its proposal to the government office designated in the solicitation by the time specified, and an agency is not required to consider a proposal where there is no evidence that the proposal was actually received.

2. HVF West, LLC v. United States, CAFC No. 2020-1414, 2020-1583 (Feb. 19, 2021)

  • The Court of Appeals for the Federal Circuit reversed a Court of Federal Claims decision, finding that the successful protester actually lacked standing to bring its COFC protest.
  • HVF protested the Defense Logistics Agency’s (DLA) award of a “sales contract” for the purchase and destruction of surplus Government military equipment. Given that DLA technically was selling the property to the contractor, DLA awarded the contract to the highest bidder, Lamb Depollution, Inc. HVF was fourth in line for the contract.
  • First at the agency-level, then at GAO, and eventually at COFC, HVF raised numerous “detailed allegations” to challenge the award to Lamb, and HVF also questioned the experience of the two intervening bidders. COFC sustained the protest, finding that HVF showed that DLA erred in finding Lamb satisfied all non-price criteria in the solicitation.
  • On appeal, the Federal Circuit found that HVF’s challenges to the intervening offerors were “based upon conjecture,” which was insufficient for HVF to establish that it had a substantial chance of winning the award such that it qualified as an interested party. More specifically, HVF alleged only that the intervening bidders “failed to meet the standards for a successful pre-award survey,” a conclusory statement deemed insufficient to question the eligibility of the intervening bidders.

To have standing to bring a bid protest, a losing bidder must be an interested party; that is, an actual or prospective bidder whose direct economic interest would be affected by the award of the contract or by failure to award the contract. The Federal Circuit clarified that “even when an agency assesses price-ranked bidders together for technical compliance to select the bid most advantageous to the Government, . . . the least favored price-ranked bidder has standing only upon mounting a credible challenge to the technical acceptability of the better price-ranked bidders in line and in front of the protesting party.”

3. Peraton, Inc., B-416916.11 (Feb. 8, 2021) (published Mar. 16)

  • Following a series of protests and corrective action over two years, GAO dismissed as untimely the protester’s new allegation that the RFP no longer reflected the agency’s requirements.
  • Under GAO’s timeliness rules, protests challenging the terms of a solicitation must be filed prior to the proposal due date unless no due date has been established, in which case the protester is required to raise any issues within ten days of when it knew or should have known about the defects in the solicitation. An agency’s alleged failure to amend a solicitation based on changed requirements is a challenge to the terms of the solicitation.
  • Here, on October 30, the agency set a deadline for proposal submission. While Peraton protested prior to the due date, the company knew about the issues it raised between April 27 and October 30, when no closing time had been established for this procurement. GAO thus concluded Peraton’s protest was untimely.
  • In a rare admonishment, GAO also noted that this procurement had been subject to six protests by Peraton, the incumbent contractor that had continued performance throughout, and “permitting a protester to, in effect, hold solicitation challenges in reserve until it becomes clear that they are unlikely to prevail in a competition is antithetical to the idea that allegations of solicitation improprieties should be resolved as early as possible in the procurement process.”

When challenging the terms of a solicitation—including an agency’s failure to amend a solicitation based on changed requirements—the key question for timeliness is whether the date for proposal submissions (or resubmissions) has been set. In situations where no due date has been established, the protest must be filed within ten days of when the basis for protest was known. Failure to protest on time will result in a dismissal.

4. Mission 1st Group, Inc., B-419522 (Mar. 15, 2021)

  • GAO denied a protest challenging the company’s elimination from the competition based on a “go/no-go” evaluation factor for ISO 9001:2015 certification.
  • Offerors were required to show that they possessed a current/valid certificate, and also that they had possessed one during the period two years prior to the deadline for submitting proposals (October 5, 2020). The protester provided a current certificate, issued on December 27, 2019, but did not submit its prior certification. Based on missing the RFP requirement, the agency said “no-go.”
  • GAO found this result unobjectionable, because there was nothing ambiguous about the terms of the RFP, and had the agency requested the company submit additional documentation, that would have amounted to discussions.

A good reminder that contractors must pay close attention to RFP documentation requirements, particularly on “go/no-go” factors, as failure to provide the necessary information will likely result in elimination from the competition.

Claims Cases

1. Creative Mgmt. Servs., LLC v. United States, US Court of Appeals for the Federal Circuit, Case No. 2020-1449 (Feb. 26, 2021)

  • Creative held a GSA contract to host the annual GovEnergy conference. Under the contract, it was to maintain a separate bank account with all proceeds from the conference and from which it could receive payment. When GSA cancelled the conference in 2012, GSA requested by letter that Creative return the entire amount in this account. Creative responded that it was entitled to keep any remaining funds and submitted a termination for convenience settlement. Eventually the government issued a final decision with a settlement amount and sought return of any difference remaining in the account.
  • Creative failed to appeal this Contracting Officer’s Final Decision (COFD) within 12 months, and the Court of Federal Claims found its appeal time barred by the Contract Disputes Act.
  • On appeal, Creative argued that the COFD was not proper as it did not state a sum certain.
  • The Federal Circuit upheld COFC’s dismissal, holding that a COFD need only be based on a claim stating a sum certain. Even then, the “sum certain” only needs to be “readily ascertainable to the party against whom the claim was made.” The court held that the government’s prior demand letters for the balance of the account constituted a sum certain despite containing different amounts and the word “approximately.” The court held the amount was readily ascertainable to Creative by simply checking the balance in the account.

This case is a reminder to pay close attention when dealing with any government demand for payment or any letter that identifies itself as a Contracting Officer’s Final Decision. Time limits under the Contract Disputes Act are a trap for the unwary. Creative gets credit for making creative technical arguments to attempt to avoid them, but it couldn’t get around its failure to timely appeal the COFD.

Investigations and Enforcement

O'Fallon Building Co. Settles Fraud Claims, USAO-SDIL, Department of Justice

R&W Builders, Inc., agreed to pay $400,000 to resolve allegations that it fraudulently obtained construction contracts reserved for 8(a) businesses. R&W had graduated from the 8(a) program, then stood up a new joint venture and, upon award of a new contract, stepped forward and managed the contracts using its own employees to perform nearly all the work in violation of 8(a) rules.

The International Rescue Committee (IRC) Agrees to Pay $6.9 Million To Settle Allegations That It Performed Procurement Fraud by Engaging in Collusive Behavior and Misconduct on Programs Funded by the United States Agency for International Development, USAO-DC, Department of Justice

International Rescue Committee agreed to pay $6.9 million to settle False Claims Act allegations related to USAID funds for humanitarian assistance for displaced persons in Syria. The allegations involved collusion and kickbacks for goods purchased by USAID funds.

CATEGORIES: Bid protests, Claims, Compliance, Cyber

March 16, 2021 5 Ways Gov't Contractors Can Manage Schedule Change Risk

Partner Matt Haws wrote “5 Ways Gov't Contractors Can Manage Schedule Change Risk” with Jonathan Rice and Sashi Mahtani of Breakwater Forensics LLC. It’s an important read for government contractors facing project delays or the threat of liquidated damages.

Matt also spoke with Tom Temin of Federal News Network about how these schedule management tips can help contractors deal with COVID-19 delays. To listen to or read about the interview, click here.

CATEGORIES: Compliance

March 9, 2021 Government Contracts Legal Round-Up | 2021 Issue 4

Welcome to Jenner & Block’s Government Contracts Legal Round‑Up, a biweekly update on important government contracts developments. This update summarizes key developments for government contracts legal, compliance, contracting, and business executives.

Executive Actions

Executive Order on America’s Supply Chains (Feb. 24, 2021)

  • This order sets out a policy to ensure resilience in US supply chains through robust US manufacturing capacity and the availability and integrity of critical products and services.
  • Within 100 days, members of the National Security Council (NSC) and heads of agencies will identify supply chain risks in key areas, including:
    • Semiconductor manufacturing and advanced packaging supply chains;
    • Critical minerals and other identified strategic materials, including rare earth elements; and
    • Pharmaceuticals and active pharmaceutical ingredients.
  • Within one year, DoD, among other agencies, must report on respective industrial bases, including identifying:
    • Critical materials and gaps in any US manufacturing capabilities; and
    • Any contingencies that may disrupt, strain, compromise, or eliminate the supply chain.

This order addresses concerns regarding exclusive or dominant supply of needed goods and materials through nations that are, or are likely to become, unfriendly or unstable. Within one year, agencies must supply recommendations regarding sustainably reshoring and building redundancy into US supply chains, enlarging stockpiles, developing workforce capabilities, and expanding research and development. Contractors should expect future regulatory changes that may be “necessary to attract and retain investments in critical goods and materials and other essential goods and materials.”

Audits

Weapon Systems Cybersecurity: Guidance Would Help DoD Programs Better Communicate Requirements to Contractors (Mar. 4, 2021)

  • GAO concluded that DoD has struggled to ensure its weapons systems can withstand cyberattacks, although some improvements have been made since 2018. 
  • DoD programs are not always incorporating cybersecurity requirements into contract language. Some contracts had no cybersecurity requirements when they were awarded, with vague requirements added later.

As a result of GAO’s recommendation that DoD components do better at incorporating cybersecurity requirements into contracts, contractors should expect to see new guidance from the Army, Navy, and Marine Corps on “tailored weapons systems cybersecurity requirements, acceptance criteria, and verification processes.” 

Protest Cases

1. Spartan Medical, Inc., B-419503 (Feb. 26, 2021)

  • GAO dismissed a protester’s challenge to an Air Force other transaction agreement (OTA) procurement for COVID-19 testing supplies.
  • The protester waited until after its response was rejected to challenge both the agency’s use of its OTA authority and the agency’s basis for eliminating the firm from further consideration.

OTAs are not procurement contracts covered by the Competition in Contracting Act, and GAO generally does not review protests of the award or solicitations for the award of an OTA. The only exception is where an agency is exercising its OTA authority and the protester files a timely, pre-closing date protest alleging that the agency is improperly exercising that authority. Here, GAO dismissed Spartan’s protest because its objection to the use of OTA authority was filed too late and because its challenge to the rejection of its submission was outside of GAO’s jurisdiction.

2. Anduril Industries, Inc., B-419420 (Feb. 22, 2021)

  • GAO denied a protest arguing that an Air Force task order competition for “tactical edge node support” was outside the scope of the underlying indefinite-delivery, indefinite-quantity (IDIQ) contract, or otherwise unduly restrictive of competition.
  • The Air Force’s advanced battle management systems (ABMS) IDIQ contract covered several categories and pools of contractors, and while the protester held an ABMS IDIQ contract for certain categories, its ABMS contract did not cover the category in which the “tactical edge node support” was being procured—“secure processing.” Anduril argued the competition should be conducted in the “transmission of data” category or that it should be permitted to compete.
  • GAO concluded that the tactical edge node support requirement was logically connected with the broad scope of work described in the ABMS program’s “secure processing” category.
  • Jurisdictional note: Even though the task order was valued below GAO’s $25 million jurisdictional threshold for DoD task order competitions, GAO had jurisdiction over the assertion that it was outside the scope of the IDIQ category. GAO did not have jurisdiction to consider the protester’s second argument that the solicitation was unduly restrictive of competition.

In determining whether a proposed task order is outside the scope of the underlying contract, GAO examines whether it is materially different from the original contract, as reasonably interpreted. Where there is a logical connection between a broad scope of work in an IDIQ contract and the services to be procured under a subsequent task order, the task order is within the scope of the IDIQ contract.

3. Microgenics Corp., B-419470 (Feb. 2, 2021)

  • GAO dismissed a protest challenging an award made by the Administrative Office of the United States Courts (AOUSC) that was filed more than 10 days after the protester learned of its basis of protest.
  • AOUSC is a judicial branch agency not bound by the statutory requirement for a post-award debriefing that applies to executive branch agencies, and a debriefing mandated by internal agency policy guidance was not a “required debriefing” for purposes of GAO’s timeliness rules.
  • Thus, the debriefing exception did not apply, and the debriefing did not toll the protest filing deadline.

GAO’s strict rules for the timely submission of protests can be a trap for the unwary. In preparation for award notifications, offerors should ensure they understand the relevant deadlines in the event they are disappointed by the outcome and elect to protest.

Claims Cases

1. Appeal of BAE Systems Ordnance Systems, Inc., ASBCA Nos. 62416 (Feb. 10, 2021)

  • BAE Systems submitted three letters to the US Army related to environmental fines assessed on ammunition production facilities in Virginia. Each letter identified itself as a request for equitable adjustment (REA), referenced the DFARS REA clause, and contained the DFARS REA certification. None of the letters requested a Contracting Officer’s Final Decision (COFD) or contained the FAR claim certification language.
  • After failed negotiations, BAE Systems converted the REAs to certified claims through a document requesting a COFD and containing the FAR claim certification. The Army failed to issue a COFD by the date it identified, and BAE Systems appealed the deemed denial to the Armed Services Board of Contract Appeals (ASBCA).
  • The Army moved to dismiss the appeal for lack of jurisdiction, arguing that BAE Systems’ earlier letters were “claims” under the Federal Circuit’s 2019 decision in Hejran Hejrat and, thus, the contractor’s appeal was untimely.
  • The ASBCA acknowledged that the holding in Hejran Hejrat made this case a “closer call” than it would have been, but concluded the REAs did not cross the “Rubicon” into CDA claims. The Board focused on BAE’s lack of explicit or implicit request for a COFD and the lack of substantive change in the “posture between the parties” during the REA information exchanges.  

The government frequently attempts to argue jurisdictional and procedural bars to claims. In BAE Systems, the Army attempted to use case law that traditionally helped contractors as a weapon against them: arguing that a document intended by the contractor to be a REA should be treated as a claim and trigger the 90 day clock for appeal to the ASBCA. The Board rejected the argument, but the warning is clear: the government may insert ambiguous language in its contractual correspondence (e.g., "Contracting Officer’s Final Determination") and then attempt to use it in a jurisdictional argument. Remember to develop a clear strategy for pursuing REAs and converting them to claims, be careful in drafting each, and pay close attention to government correspondence in response.

2. Appeal of Central Diversified Contracting, LLC, ASBCA No. 62585 (Jan. 6, 2021)

  • Central Diversified Contracting, LLC received an Army Corps of Engineers contract to remove a floating fish collector from a reservoir in Oregon. The government had informed bidders the fish collector weighed 15,000 pounds, but it actually weighed 81,000 pounds. As a result, Central Diversified had to use a different crane and method of performance. 
  • The Army Corps and Central Diversified entered into a bilateral modification increasing the contract amount by $29,530, but Central Diversified later sought additional damages through contract claims.
  • The Army Corps argued that the modification’s release covered all additional effort resulting from the larger fish collector.
  • The ASBCA held that the modification’s description of its purpose as “mobilize a 400-ton crane to the site” was not all-inclusive, and Central Diversified was entitled to additional cost related to the larger fish collector.

This case is a reminder to pay close attention to the release language in any contract modification. Much like any good fish story, the government will often attempt to claim the release was bigger later on.

FCA Priorities

The annual Federal Bar Association's Qui Tam Conference, held last month (and featuring Jenner & Block Partner David Robbins in the "Defense Strategies" panel), saw an important keynote session from Sen. Chuck Grassley (a career-long champion of the False Claims Act) and Brian Boynton, acting Assistant Attorney General for the Civil Division. They outlined FCA enforcement priorities for 2021 and signaled future amendments to the FCA to counter efforts to, in Sen. Grassley's words, "undermine the law as written." Enforcement priorities include combatting COVID-19/stimulus-related fraud, cybersecurity-related fraud, and fraud related to opioids.

CATEGORIES: Bid protests, Claims, Compliance, FCA

February 24, 2021 Government Contracts Legal Round-Up | 2021 Issue 3

Welcome to Jenner & Block’s Government Contracts Legal Round‑Up, a biweekly update on important government contracts developments. This update will offer brief summaries of key developments for government contracts legal, compliance, contracting, and business executives.

Defense Federal Acquisition Regulation Supplement (DFARS) Rules

1. Class Deviation 2021-O0004 - DFARS 252.225-7987 Requirements for Contractor Personnel Performing in the US Southern Command Area of Responsibility (Feb. 22, 2021)

  • The new deviation is to be used in lieu of the clause DFARS 252.225-7040, Contractor Personnel Supporting US Armed Forces Deployed Outside the United States, in solicitations and contracts that require performance in US Southern Command (USSOUTHCOM). 
  • Designed to implement the President’s March 13, 2020, “Proclamation on Declaring a National Emergency Concerning the Novel Coronavirus Disease (COVID-19) Outbreak,” this new class deviation adds the following requirements for contracts supporting USSOUTHCOM, as follows:
    • Recertification of medical fitness for medical suitability screening;
    • Requirements for Synchronized Predeployment and Operational Tracker data for contractor personnel support and tracking; and 
    • Personnel recovery requirements.

 Contractors operating in the USSOUTHCOM area of responsibility should note this new class deviation, which rescinds and supersedes class deviation 2014-O0016. It includes new medical and tracking requirements in response to COVID-19 outbreak, in addition to continued operational requirements.

DoD Implements New Contracting Certification Program for DoD Acquisition Professionals

1. Restructuring of the Certification Program for the Contracting Functional Area (Feb. 18, 2021)

  • The Under Secretary of Defense for Acquisition and Sustainment (USD(A&S)), has released a plan for a new certification program for its workforce as part of its phased implementation of a Back-to-Basics (BtB) talent management framework.
  • A Contracting Certification Taskforce has designed a new Contracting Professional Certification Program for DoD’s Contracting Functional Area.
  • Effective October 1, 2021, DoD will be adopting a single level of certification with foundational training and an examination designed to verify competency.
  • The certification is based on the American National Standards Institute / National Contract Management Association (ANSI / NCMA ASD 1-2019) accredited Contract Management Standard.
  • A “significant undertaking,” the deployment of the new certification program and credentials is designed to enable “an improved talent development approach for a professional, capable, and mission-focused contracting workforce.”

Training DoD’s acquisition workforce has long been a key issue. This new Contracting Competency model is designed to comply with section 861 of the Fiscal Year 2020 National Defense Authorization Act (Public Law 116-92). That provision requires DoD contracting professionals to earn a professional certification based on standards developed by a third-party accredited program.

DoD Audits 

1. Audit of Contracts for DoD Information Technology Products and Services Procured by DoD Components in Response to the Coronavirus Disease–2019 Pandemic (DODIG-2021-050) (Feb. 12, 2021)

  • DoD’s Office of Inspector General concluded that DoD has complied with the CARES Act and other Federal and DoD requirements in procuring approximately $81.5 million in information technology products and services in response to the COVID-19 pandemic at reasonable prices and at a reduced risk of cybersecurity vulnerabilities.
  • Contractors should note that DoD will continue to focus on compliance with the CARES Act and cybersecurity to reduce waste, fraud, and abuse, and mitigate cyber vulnerabilities, each of which could potentially jeopardize the DoD’s missions, information, and assets.

2. Audit of Cybersecurity Requirements for Weapon Systems in the Operations and Support Phase of the Department of Defense Acquisition Life Cycle (DODIG-2021-051) (Feb. 10, 2021)

  • The objective of this audit was to determine whether DoD Components took action to update cybersecurity requirements for weapon systems in the Operations and Support (O&S) phase of the acquisition life cycle, based on publicly acknowledged or known cybersecurity threats and intelligence-based cybersecurity threats.
  • For the five DoD weapon systems assessed, DoD IG concluded that program officials followed the Risk Management Framework requirements and updated cybersecurity requirements to account for additional countermeasures implemented or needed to protect the weapon systems from the identified threats.
  • Contractors should be prepared for cybersecurity requirements to evolve during an O&S phase of a program if threats are identified.

Protest Cases

1. Coventry Healthcare Workers’ Compensation, Inc., B-417237.5 (Jan. 29, 2021)

  • GAO denied a protest asserting that a price-technical tradeoff was flawed because the agency failed to assign a monetary value to savings that purportedly would be realized from the protester’s technical solution.
  • GAO rejected the argument because nothing in the solicitation’s evaluation scheme contemplated that the agency would “monetize” any aspect of an offeror’s technical approach.

An agency is not required to take into account monetary savings that could be realized during performance unless the solicitation contemplates an analysis or consideration of the potential cost savings associated with an offeror’s technical approach.

2. FreeAlliance.com, LLC; Radus Software LLC/Radus CTA; Mobomo, LLC, B-419201.3 et al. (Jan. 19, 2021)

  • GAO sustained a protest where the evaluation record did not explain why the strengths and weaknesses assigned to each quotation merited a particular adjectival rating. Apart from a recitation of the definition for the adjectival ratings, the record did not explain the agency’s basis for assigning the ratings.
  • GAO was unable to conclude that the agency’s evaluation was administered on an even-handed basis because quotations with the same strengths were assigned different ratings without any explanation.

GAO will sustain a protest where the evaluation record is insufficient to conclude that differences in evaluation ratings assigned to quotations stemmed from differences between the quotations.

3. DynCorp International, LLC v. United States, No. 20-cv-1293 C (Feb. 16, 2021)

  • COFC dismissed a protest on the basis that it was “connected to the issuance of the task order” and did not fit into the jurisdictional exception for task orders that exceed the scope of the IDIQ contract.
  • The protest alleged that an Army task order was improperly awarded to CACI, Inc. because, following CACI’s conversion from Inc. to LLC, CACI, Inc. no longer held a GISS IDIQ contract.
  • Because DynCorp could not show that the statement of work described in the task order Performance Work Statement (PWS) was beyond the PWS for CACI’s GISS IDIQ contract, the scope exception did not apply.
  • In addition, the Court explained that the protest would have been denied on the merits, because the conversion from CACI, Inc. to CACI, LLC was completed in accordance with the FAR, with full government awareness, and did not affect the Army’s award to CACI in any way.

This decision highlights two important issues for contractors. First, protesting a task order at COFC is only available in the narrowest of circumstances, and GAO is generally a contractor’s only recourse. Second, when a contractor takes any action that affects the company’s corporate identity, it is vital to engage the federal customer and follow appropriate practices to ensure that any awards made are to the correct entity.

Claims Cases

1. Appeals of Harry Pepper and Associates, ASBCA Nos. 62038-42 

  • Harry Pepper and Associates encountered numerous changes while performing a $36.5 million contract to restore and reinforce a rocket booster support tower at NASA’s Stennis Space Center.
  • Pepper submitted 12 claims asserting a variety of changes, including to the contract performance method and welding procedures, and alleging defective design by the government.
  • In addition, Pepper argued in the alternative that the contract had been constructively changed by pervasive out-of-scope work, increased performance time, different equipment requirements, and increased labor demands.
  • The Armed Services Board of Contract Appeals (ASBCA) held there was no cardinal change because, despite a great number of alterations made in the work, the changes were not out of character with the work contemplated in the contract and were foreseeable by the contractor.

As contract changes begin to balloon on a contract, it is tempting to assume the cumulative effect will equal a cardinal change. But this case is a reminder that cardinal change is very difficult to demonstrate through voluminous changes to the work or significant increase in performance time. Courts and Boards are loath to find the government in breach and will seek to redress changes—no matter how voluminous—under the contact’s changes clause. Thus, as changes mount and performance time increases, it is especially important to engage in developing comprehensive requests for equitable adjustment to ensure you can fully capture cost and schedule impact.

2. Appeal of SkyQuest Aviation, LLC, ASBCA No. 62586 

  • SkyQuest received an Air Force contract to provide test pilots and flight engineers. During performance, the Air Force asserted that the pilots must have specific Air Force certification paperwork. SkyQuest responded to a cure notice disputing that the certification paperwork was required by the contract. The Air Force terminated SkyQuest for default.
  • SkyQuest filed a pro se complaint at the ASBCA seeking $429,000 in payment, revocation of the default termination, and adjustment of its CPAR rating.
  • SkyQuest did not obtain a contracting officer’s final decision on any of these items prior to its appeal, and the Air Force asserted the Board lacked jurisdiction to hear SkyQuest’s appeal.
  • The ASBCA held that, although it did not have CDA jurisdiction over the monetary claim or the CPAR adjustment, the termination for default was a government claim for which a contracting officer’s final decision was not necessary. In addition, because SkyQuest disputed the termination only based on compliance with the contract terms, it was not required to obtain a COFD to proceed.

Challenging government claims, including termination for default or claims for liquidated damages, implicates nuanced procedural questions. The Maropakis case required that affirmative defenses must be the subject of a COFD. SkyQuest Aviation reflects evolution of the Maropakis line of cases in recent years to clarify that submission to the contracting officer is not required where the defense is merely that the government has not met its burden of proof for an element of its claim.

3. Appeals of San Point Services, LLC, ASBCA Nos. 61819, 61820 

In another example of government contracting and surety industries colliding, the ASBCA quashed a government subpoena seeking information relating to a payment bond claim filed by a subcontractor. In a rather odd case, NASA sought to defend against an ASBCA claim by arguing that a separate payment bond case, filed by a subcontractor, contained admissions concerning fraud. NASA served a subpoena duces tecum on the surety, which successfully moved to quash based on undue burden. The Navy’s arguments that the contractor had been less than forthcoming were not compelling—in the eyes of the ASBCA—to justify placing the burden of a subpoena on the surety.

There are a number of ongoing lawsuits and/or investigations alleging that sureties owe the government certain duties to prevent fraud (see, e.g., U.S. ex rel. Scollick v. Narula), but here the ASBCA limited the government’s reach into the surety business while upholding the ASBCA’s periodically announced practice of not letting the government’s blanket assertion of fraud divest the Board of jurisdiction over an appeal.

Investigations and Enforcement

There have been a number of cases dealing with recovery of attorney’s fees in False Claims Act cases lately:

  • Beware the parallel proceeding. Where civil settlement funds were seized by the government investigating a separate criminal matter, the court denied motions by the plaintiff’s lawyers to release a third of those funds to satisfy the contingent fee earned by those attorneys on the civil case. U.S. ex rel. Glasser v. Boykin Contracting, Inc. (Civil Action No.: 3:14-cv-00224-JMC, D.S.C. Columbia Division)
  • And a court refused to permit double dipping by qui tam plaintiffs, shaming a relator for not removing from its fee requests amounts for unsuccessful claims and failing to account for prior recoveries. U.S. and State of New York ex re. Nichols v. Computer Sciences Corp. and City of New York (S.D.N.Y)

And the District Court for the Northern District of Illinois reminding qui tam plaintiffs that fraud must be pled with particularity, dismissing the complaint in U.S. ex rel. Noreen Lanahan v. County of Cook for failure to plead relevant details about alleged false statements and certifications, such as who made them, when they were made, and how much money was involved.

The Eleventh Circuit affirmed a district court’s rejection of a False Claims Act retaliation claim in Hickman v. Spirit of Athens, holding to the standard that an objectively reasonable belief that the individual was attempting to prevent a violation of the False Claims Act was necessary to support a retaliation claim. A sincere belief is not enough—that belief must be objectively reasonable.

Suspension / Debarment Summary

The World Bank released its debarment/sanctions results. The Bank debarred 267 companies and individuals, which was a substantial increase over prior years. The Bank also announced, that beginning in 2021, it would state the reason for debarments / sanctions in the future. By comparison, the US suspension / debarment system is less transparent, and does not release the causes for suspensions and debarments in the annual Interagency Suspension and Debarment Committee Report to Congress (which is a trailing publication, the most current edition published in early 2021 only covered Fiscal Year 2019 activities).

CATEGORIES: Bid protests, Claims, Compliance, Cyber, SuspensionDebarment

February 10, 2021 Government Contracts Legal Round-Up | 2021 Issue 2

Welcome to Jenner & Block’s Government Contracts Legal Round‑Up, a biweekly update on important government contracts developments. This update will offer brief summaries of key developments for government contracts legal, compliance, contracting, and business executives.

Executive Actions

1. Executive Order on Ensuring the Future Is Made in All of America by All of America’s Workers (Jan. 25, 2021)

  • Establishes a policy to maximize the use of goods, products, and materials produced in, and services offered in, the United States under federal financial assistance awards and federal procurements.
  • Encourages replacement of the FAR’s “component test” to identify domestic products with a test under which domestic content is measured by the value added through US-based production or US job-supporting economic activity.
  • Encourages the FAR Council to increase the domestic content requirements and price preferences for domestic end products and domestic construction materials.
  • Requires the FAR Council to hold off on any final determination of domestically nonavailable articles until it has reviewed an Office of Federal Procurement Policy (OFPP) recommendation on whether goods and materials mined, produced, or manufactured in the United States are sufficiently and reasonably available.
  • Limits, centralizes, and publicizes waivers of domestic preference laws, by clearing them through a “Made in America Director” appointed by the Director of OMB, who would require agency’s assessments of whether the cost advantage of the foreign-sourced product arises from dumped or injuriously subsidized steel, iron, or manufactured goods. 
  • Encourages supplier scouting to increase federal procurement from small- and medium-sized American businesses.

As we reported in our last update, President Biden has used his executive authority to seek swift and effective federal action to address the pandemic, the economy, systemic racial inequality, and climate change. President Biden also furthered one of his key “Build Back Better” campaign pledges by signing an executive order (EO) directing federal agencies to redouble efforts to proactively prefer the purchase of goods made in the United States.

Defense Federal Acquisition Regulation Supplement (DFARS) Rules

1. Rescission of Class Deviation 2021-O0001, Combating Race and Sex Stereotyping (Jan. 28, 2021)

  • This memorandum rescinds Class Deviation 2021-O0001, Combating Race and Sex Stereotyping, and its Revision 1.
  • Effective January 28, 2021, contracting officers shall:
    • Remove the clause 252.222-7999 (DEVIATION 2021-O0001) (JAN 2021), and the clause 252.222-7999 (DEVIATION 2021-O0001) (NOV 2020), from existing contracts, so that neither clause remains in contracts.
    • Ensure that existing and/or new solicitations do not contain either clause mentioned above.

President Biden revoked Executive Order 13950, Combating Race and Sex Stereotyping, on January 20, 2021. As a result of this rescission, the Class Deviation put in place by Executive Order 13950 has likewise been rescinded.

Protest Cases

1. GOV National Healthcare Drive, LLC, B-419258 et al. (Jan. 13, 2021)

  • GAO sustained a protest where the Department of Veterans Affairs (VA) failed to engage in meaningful discussions.
  • The VA argued that it merely engaged in “due diligence clarifications” with some offerors, but GAO highlighted that each offeror was asked to provide essential information necessary for the agency to determine the acceptability of their respective proposals, which constituted discussions and triggered an obligation for the VA to raise proposal deficiencies or significant weaknesses.

Where an agency engages in communications with an offeror for the purpose of obtaining information essential to determining the acceptability of a proposal, or otherwise provides the offeror with an opportunity to revise or modify its proposal in some material respect, discussions have occurred. Where discussions have occurred, they must be meaningful; that is, they must lead the offeror into those areas of its proposal that require modification, amplification, or explanation.

2. Accenture Federal Services, LLC, B-418321.4 (Jan. 29, 2021)

  • GAO denied a protest challenging a solicitation’s definition of similar prior experience under a corporate experience evaluation factor.
  • Accenture—the incumbent contractor providing the health insurance exchange support services being procured—argued it was unreasonable for the Department of Health and Human Services to consider experience with a state-based health exchange to be similar in size to the services being solicited (and performed by Accenture).  
  • GAO rejected the protest because its role in reviewing bid protests is to ensure that the statutory requirements for full and open competition are met—not to protect a protester’s interest in restricting competition.

A procuring agency is responsible for defining its needs and determining the best methods for meeting its requirements; this extends to matters involving the relevance of offerors’ performance history. An agency may reasonably provide for an evaluation that fosters competition by increasing the feasibility of proposals submitted by non-incumbent offerors.

3. NIKA Technologies, Inc. v. United States, CAFC No. 20-1924 (Feb. 4, 2021)

  • The Court of Appeals for the Federal Circuit clarified that a disappointed offeror must ask follow-up questions in response to an enhanced debriefing to extend the GAO bid protest filing deadline necessary to invoke an automatic stay of performance under the Competition in Contracting Act (CICA).
  • The Department of Defense had provided NIKA an enhanced debriefing, but NIKA did not ask any follow-up questions to extend the debriefing. Because NIKA filed a subsequent bid protest six days after the debriefing, GAO concluded that that a CICA stay was not required; COFC then reached the opposite conclusion, holding that the two-day period to ask follow-up questions automatically extended the debriefing and the five-day clock for a stay, regardlPublishess of whether a question was asked. The appellate court reversed COFC. 

The Department of Defense’s enhanced debriefing provisions permit an offeror to ask follow-up questions in response to a post-award debriefing within two business days of the debriefing. But the five-day GAO protest clock to invoke an automatic stay of performance is only extended if the offeror actually asks follow-up questions.

CATEGORIES: Bid protests, Compliance

January 26, 2021 Government Contracts Legal Round-Up - January 26, 2021

Welcome to Jenner & Block’s Government Contracts Legal Round‑Up, a biweekly update on important government contracts developments. This update will offer brief summaries of key developments for government contracts legal, compliance, contracting, and business executives. Please contact any of the professionals at the bottom of the update for further information on any of these topics.

Executive Actions

1. Thirty Executive Actions in President Biden’s First Three Days in Office

  • In his first three days of office, President Biden signed 30 executive actions on a variety of subjects, including COVID-19 relief, immigration, environment protections, and defunding the border wall. 
  • Among other orders, President Biden has mandated masks on federal property, directed a report on a federal minimum wage of $15 per hour, and sought to reinforce and strengthen domestic preferences for products manufactured in the US.
  • President Biden has also revoked numerous Trump-era executive orders, including the recent Executive Order 13950 of September 22, 2020, Combating Race and Sex Stereotyping, which had been halted by a preliminary injunction and deemed inoperable pursuant to this revised Class Deviation
  • President Biden issued a “Regulatory Freeze Pending Review” to allow review of any new or pending rules, and asked the Office of Management and Budget to “identify ways to modernize and improve the regulatory review process” in his “Modernizing Regulatory Review” Order. Biden also revoked President Trump’s “one in, two out” rule, among others designed to limit Federal regulation

Contractors should anticipate a number of immediate and long-term regulatory changes under the new Biden administration. Whereas President Trump issued several orders on deregulation, the Biden administration seeks to modernize the regulatory process to enable “swift and effective Federal action” to address the pandemic, the economy, systemic racial inequality, and climate change. For a more detailed look at the executive orders, see this advisory.

Federal Acquisition Regulation (FAR) Rules

1. FAR Case 2019-106: Maximizing Use of American-Made Goods, Products, and Materials, Final Rule, Issued Jan. 19, 2021, Effective Jan. 21, 2021

  • This rule implements Executive Order 13881, which creates a new higher standard for iron and steel products. 
  • To meet the definition of “domestic construction material” or “domestic end product,” the cost of foreign iron and steel for iron and steel products must be less than 5 percent of the cost of all components in the products. 
  • For all else, the domestic content requirement increases from 50 percent to more than 55 percent of the cost of all components. 
    • The domestic content test has been waived for acquisition of commercially available off-the-shelf (COTS) items, except a product that consists wholly or predominantly of iron, steel, or a combination of both (excluding COTS fasteners).
  • The Buy American statute imposes a price preference for domestic end products and construction material. This rule increases the price preference from 6 to 20 percent for large businesses and from 12 to 30 percent for small businesses. Price preference for domestic end products for Department of Defense (DoD) procurements remain unchanged, at 50 percent for both large and small businesses.

Contractors should re-evaluate their materials and end products to determine if they meet the new higher standards of 95 percent domestic cost content for iron/steel materials, and more than 55 percent for non-iron/steel materials to qualify for domestic price preferences, which vary for civilian and defense procurements.

2. FAR Case: 2018-016, Lowest Price Technically Acceptable Source Selection Process, Final Rule, Issued Jan. 14, 2021, Effective Feb. 16, 2021

  • This rule finalizes similar but not identical restrictions on the use of lowest price technically acceptable (LPTA) source selection for civilian agencies. These rules are already in place for DoD contracts at DFARS 215.101-2.
  • The rule amends FAR 15.101-2 to outline when LPTA may be used; e.g., where minimum requirements can be clearly described in terms of performance objectives, measures, and standards and where the agency would realize no or minimal value from exceeding the minimum requirements.

This rule supplies contractors with a potential protest ground for civilian agency solicitations that improperly use LPTA in situations where the agency would realize value from exceeding minimum requirements.

Defense Federal Acquisition Regulation Supplement (DFARS) Rules

1. DFARS Case 2018-D022: Covered Defense Telecommunications Equipment or Services, Final Rule, Effective Jan. 15, 2021

  • Increases the security of systems and critical technology used to carry out the nuclear deterrence and homeland defense missions of DoD by prohibiting the use of telecommunications equipment or services from certain Chinese entities, and from any other entities owned or controlled by China or Russia.
  • Converts DFARS 252.204-7018, Prohibition on the Acquisition of Covered Defense Telecommunications Equipment or Services into a final rule, with two minor changes.
  • The changes extend (1) the reporting timeframe for the discovery of covered defense telecommunications equipment or services from one day to three days, and (2) the reporting timeframe to submit information about mitigation actions undertaken from 10 days to 30 days.

In the finalization of this existing interim rule, contractors should note the extension of separate reporting timeframes of discovery and mitigation actions of covered defense telecommunications equipment.

Protest Cases

1. Raytheon Company, B-419393.5, B-419393.6, Dec. 22, 2020

  • The US Government Accountability Office (GAO) dismissed as premature a protest challenging the scope of the Space Development Agency’s corrective action because the agency had not yet taken any concrete actions that supported the protester’s allegations. 
  • Raytheon had asserted in its prior protest that the agency’s technical requirements had changed during the competition and that the agency’s public statements suggested that budget constraints were an unstated evaluation criterion. Raytheon protested when the agency failed to amend the solicitation and solicit revised proposals as part of its corrective action. 
  • GAO explained that the agency’s public statements were not probative evidence that the solicitation failed to accurately reflect the agency’s requirements such that a solicitation requirement was required.

Until an agency takes some official, concrete action during its reevaluation effort—such as actually evaluating proposals using unstated evaluation factors—a protester’s challenge to the agency’s proposed corrective action is at risk of being deemed premature.

2. World Wide Technology, Inc., B-417909.2, B-417909.3, Dec. 14, 2020 (publicly released Jan. 4)

  • GAO found unobjectionable an agency’s decision not to raise pricing issues during discussions where the protester’s price was not evaluated as unreasonably high.
  • The protester’s proposed price was 180 percent higher than the awardee’s, but the Defense Information Systems Agency deemed the protester’s price to be reasonable (based on a comparison of all proposed prices and the government estimate), and so the agency did not raise the protester’s pricing during discussions.

An agency is not required to inform an offeror during discussions that its proposed price is high in comparison to a competitor’s proposed price, even where price is the determinative factor for award, unless an offeror’s proposed price is so high as to be unreasonable or unacceptable.

3. Innovative Management & Technology Approaches, Inc., B-418823.3, B-418823.4, Jan. 8, 2021

  • GAO sustained a protest because the Patent and Trademark Office permitted an awardee to remove a proposal assumption that took exception to the solicitation terms, but it did not provide the protester an opportunity to revise or improve its proposal.
  • The awardee’s proposal included an assumption that it would be entitled to a price adjustment if the volume of service desk requests supported under the contract exceeded the solicitation’s historical estimates by 10% or greater. The awardee removed the assumption at the selection authority’s request.

A proposal that takes exception to a solicitation’s material terms and conditions should be considered unacceptable and may not form the basis for an award. If an agency permits the offeror to remedy its deficient proposal, it must provide all offerors an opportunity to revise their proposals as well.

4. Perspecta Enterprise Solutions LLC v. United States, COFC No. 20-814, Dec. 17, 2020 (publicly released Jan. 15, 2021)

  • The US Court of Federal Claims (COFC) held that a protester had waived its conflict of interest allegations by not raising the claims prior to submitting a proposal. 
  • Perspecta argued awardee Leidos received an unfair competitive advantage in the Navy’s Next Generation Enterprise Network (NGEN) competition through the hiring of a former Navy official, but the COFC rejected this argument as untimely since the former official’s involvement as a member of the Leidos capture team was “clearly a matter of public record.”
  • The decision follows the Federal Circuit’s 2020 decision in Inserso Corp. in which the Circuit Court confirmed that the Blue and Gold waiver doctrine applies to conflicts of interest. Note that Judge Reyna penned a strong dissent in Inserso objecting to the validity of the Blue and Gold doctrine altogether.

The decision reflects the Court’s extension of the Blue and Gold waiver rule to conflict of interest allegations that are based on public information. The Blue and Gold waiver rule requires contractors to protest patent solicitation errors prior to submitting a proposal.

Claims Cases

1. Appeal of Granite Construction Company, ASBCA No. 62281 (Dec. 8, 2020)

  • When Hurricane Harvey hit Texas, the US Army Corps of Engineers (USACE) suspended work for 49 days on Granite Construction Company’s dam repair contract.
  • After the suspension expired, Granite sought costs for the 49 days of delay. The USACE agreed to pay costs for only 30 days of delay, arguing that 19 days of adverse weather delay were specified in the contract’s adverse weather clause and included in Granite’s schedule.
  • The Armed Services Board of Contract Appeals (ASBCA) held that the contract’s adverse weather clause was unrelated to its suspension of work clause and USACE was not permitted to exclude anticipated weather delays from the suspension period.

The government often fails to properly acknowledge delay events, including those caused by severe weather. The government may also argue that schedule float is for the benefit of the government instead of the contractor. This case is a reminder to pay close attention to contract and schedule treatment of weather-related delays, and to engage promptly and fully whenever severe weather impacts contract performance. 

2. Boeing Co. v. Secretary of the Air Force, No. 2019-2147 (Fed. Cir. Dec. 21, 2020)

  • Boeing marked unlimited rights technical data with a “Non-U.S. Government Notice” proprietary legend, which stated that “non-U.S. Government entities may use and disclose only as permitted in writing by Boeing or by the U.S. Government.” 
  • The contracting officer rejected technical data marked with that legend, finding it nonconforming because it is not one of the legends specifically authorized by DFARS 252.227-7013. 
  • Boeing argued its legend was not nonconforming because it did not restrict the Government’s rights, but rather the rights of third parties.
  • The Federal Circuit overturned the ASBCA, holding that such a legend is consistent with the standard DFARS data rights clause so long as the legend does not restrict the rights of the government.

The government has traditionally objected to inclusion of any legend outside of those specified in the DFARS. In this case, the Federal Circuit rejected that approach. Thus, when delivering unlimited rights data, consider including a proprietary legend asserting rights against third parties not acting under the government’s authority.

Investigations and Enforcement

Procurement fraud investigations, False Claims Act (FCA) cases, prosecutions, and government recoveries are all on the rise. The government’s procurement fraud remedies organization is also coordinating heavily to respond to economic stimulus fraud. This will further increase risks for contractors. These developments are designed to make contractors aware of ongoing and emerging risks so ethics and compliance programs may be updated, and to better manage any investigations that may be necessary.

1. Procurement Fraud Recoveries on the Rise for the US Department of Justice (DoJ)

On January 14, DoJ announced its FCA recoveries for FY2020. While the lion’s share of recoveries continued to flow from healthcare contracts, the recoveries reflect continuation of a multi-year emphasis on procurement fraud cases. 

2. First Civil Settlement for CARES Act Fraud Announced

On January 12, DoJ announced the nation’s first civil settlement for the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) fraud. SlideBelts, Inc., and its CEO agreed to pay a combined $100,000 in damages and penalties to resolve fraud allegations. The settlement resolved multiple allegations, including civil FCA allegations. 

3. United States v. Strock, No. 19-4331, US Court of Appeals for the Second Circuit (Dec. 3, 2020)

Materiality is a required element under the FCA to show that, among other things, had the government known the facts, the government would not have paid. Here, the Second Circuit discussed materiality in a fraudulent inducement case in depth, and emphasized the impact of continued government payment after knowledge of contract violations on a materiality defense. 

4. Materially False Cost and Pricing Data Drives FCA Liability

On January 12, DoJ announced a $25 million FCA settlement ending an inquiry into alleged knowing overcharges on Unmanned Aerial Vehicle contracts. The qui tam case alleged that drone prices were based on inflated cost or pricing data for new parts, when the defendant intended to use recycled or refurbished parts available at substantially lower prices. 

5. Bribery and Kickbacks Still Draw Criminal Enforcement

On January 15, DoJ announced a 70-month sentence to an individual for paying bribes to Army contracting officials in order to steer contracts worth at least $19 million to his employer. The individual also accepted more than $700,000 in kickbacks from a company in exchange for subcontract work.

Legislative Developments

1. Summary of Fiscal Year 2021 National Defense Authorization Act (NDAA)

  • The William M. (Mac) Thornberry NDAA for Fiscal Year 2021—filled with thousands of provisions—provides a roadmap of acquisition policies that will drive future regulatory changes for government contractors of all types, sizes, and customer bases. 
  • Perennial topics, including cybersecurity, foreign influence, domestic sourcing, data rights, Other Transaction Authority, commercial item contracting, ethics, and small business participation continue to dominate. Joining these subjects are newer topics, including expediting US Space Force acquisition.

We highlight some of the key developments and offer guidance on what contractors should anticipate in the coming months and years in this client advisory. We will be closely tracking the reports to Congress and anticipated regulatory changes.

CATEGORIES: Bid protests, Claims, Compliance

January 22, 2021 Key Developments in the FY 2021 National Defense Authorization Act

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By: Cynthia J. RobertsonDavid B. Robbins, and Noah B. Bleicher

Jenner & Block’s Government Contracts Practice is pleased to highlight key components of the William M. (Mac) Thornberry National Defense Authorization Act (NDAA) for Fiscal Year 2021 (FY 21). This annual legislation—filled with thousands of provisions—provides a roadmap of acquisition policies that will drive future regulatory changes for government contractors of all types, sizes, and customer bases. 

Perennial topics, including cybersecurity, foreign influence, domestic sourcing, data rights, Other Transaction Authority (OTA), commercial item contracting, ethics, and small business participation continue to dominate. Joining these subjects are newer topics, including expediting US Space Force acquisition.

We highlight some of the key developments and offer guidance on what contractors should anticipate in the coming months and years. We will be closely tracking the reports to Congress and anticipated regulatory changes. Should you have questions on these or any other NDAA developments, we welcome your outreach.

Cybersecurity / IT Development

Perhaps more than any other subject area, the NDAA contains a vast number of cybersecurity provisions. The legislation adopts numerous recommendations from the reauthorized Cyberspace Solarium Commission, which described the FY 21 NDAA as “the most comprehensive and forward-looking piece of national cybersecurity legislation in the nation’s history.” Key recommendations include developing cyber leadership roles reporting to the White House and better coordination of cybersecurity between federal, state, the private sector, and international stakeholders. Below we highlight other cyber provisions of interest.

Sec. 835: Balancing Security and Innovation in Software Development and Acquisition

  • Addresses concern regarding software developed or produced by adversary nations.
  • Directs DoD to create a “software pathway” to allow software to be delivered in a timely and secure manner.

Sec. 837: Safeguarding Defense-Sensitive United States Intellectual Property, Technology, and Other Data and Information

  • Requires DoD to establish, enforce, and track actions to protect defense-sensitive US intellectual property, including hardware and software, from acquisition by China.
  • Requires DoD to generate a list of critical national security technology and provide for mechanisms to restrict employees or former employees of the defense industrial base from working directly for companies owned or directed by China.

Section 1712: Modification of Requirements Relating to the Strategic Cybersecurity Program and the Evaluation of Cyber Vulnerability of Major Weapons Systems of the Department of Defense (DoD)

  • Requires DoD to develop a plan for each major weapon system to undergo an annual cyber-vulnerabilities assessment and to share lessons learned and best practices from the annual assessment of cyber resiliency of nuclear command and control system.

Section 1716: Subpoena Authority

  • Authorizes DHS’s Cybersecurity and Infrastructure Security Agency (CISA) to issue administrative subpoenas upon detection of security vulnerabilities and to notify public and private system owners.

Section 1722: Assessing Risk to National Security of Quantum Computing

  • Requires DoD to complete an assessment of the current and potential threats and risks posed by quantum computing technologies to critical national security systems, including an assessment of NIST standards.

Section 9005: Government Accountability Office (GAO) Study of Cybersecurity Insurance 

  • Requires GAO to study methods to improve the market for cybersecurity insurance.

Foreign Influence

Sec. 819: Modifications to Mitigating Risks Related to Foreign Ownership, Control, or Influence (FOCI) of Department of Defense Contractors and Subcontractors

  • Adjusts the analytical framework to mitigate FOCI by adding an additional proactive, government-driven assessment.
  • Requires reports and examinations on a “periodic basis” of covered contractors or subcontractors to assess compliance with FOCI reporting and mitigation obligations.

Domestic Sourcing of Strategic and Critical Materials

Sec. 848: Supply of Strategic and Critical Materials for the Department of Defense

  • Requires, to maximum extent practicable, acquisition of strategic and critical materials from US sources, then from sources within the national technology and industrial base, then other sources.

Sec. 849: Analyses of Certain Activities for Action to Address Sourcing and Industrial Capacity

  • Requires DoD to assess national security industry sectors, including microelectronics and pharmaceutical ingredients, to determine how to increase domestic industrial capacity.
  • Contractors can expect DoD to explore ways to entice critical technology industries to move production to the United States, with recommendations likely in future NDAAs.

Sec. 851: Report on Strategic and Critical Materials

  • Directs DoD to issue a report on supply chain vulnerabilities related to the acquisition of rare earth minerals and metals.

Sec. 852: Report on Aluminum Refining, Processing, and Manufacturing

  • Rejects a proposal for required domestic sourcing of aluminum.
  • Requires DoD to report to Congress on how to increase incentives for domestic aluminum production.

Data Rights 

Sec. 804: Implementation of Modular Open Systems Approaches

  • Increases emphasis on modular open systems for weapons systems, including for cybersecurity systems, to more easily enable competition for upgrades and sustainment.
  • Continues DoD’s interest in obtaining data rights that will facilitate the replacement, enhancement, and maintainence of parts over the life cycle of products and systems.

Space Force

Sec. 807: Space System Acquisition and the Adaptive Acquisition Framework

  • Describes, in detail, expedited acquisition processes and responsibilities affecting major defense acquisition programs for the United States Space Force.
  • Sets goal of quickly and effectively acquiring end-to-end space warfighting capabilities to address requirements of national defense strategy.

Other Transaction Authority

Sec. 831: Contract Authority for Development and Demonstration of Initial or Additional Prototype Units

  • Directs DoD to assess authorities designed to streamline the process for moving prototype technologies into production under the same contract as the technology is matured.
  • Requires DoD to issue a report on this topic by March 31, 2021, potentially enabling regulatory action later this year depending upon that report’s findings.

Sec. 833: Listing of Other Transaction Authority Consortia

  • Ensures greater scrutiny of OTAs issued by consortia.
  • Requires a report to Congress by December 1, 2021 that assesses:
    • The number and dollar value of other transaction awards through consortia;
    • The benefits and challenges of using consortia;
    • A comparison of DoD’s use of consortia compared to other Federal agencies; and
    • Any other matters the Comptroller General determines to be appropriate.

Contractor Business Systems 

Sec. 806: Definition of Material Weakness for Contractor Business Systems

  • Revises and defines terminology for the evaluation of contractor business systems to better align with generally accepted auditing standards.
  • “Significant deficiencies” will be deemed “material weaknesses,” and defined as one or more deficiencies that causes a reasonable possibility of material misstatement.
  • “Reasonable possibility” will mean “probable” or “more than remote but less than likely.”

Commercial Contracting

Sec. 816: Documentation Pertaining to Commercial Item Determinations

  • Ensures better documentation of prior commercial item determinations, which may be relied upon for future contracts.
  • Allows the contracting officer to request assistance in commercial determinations, including from DoD’s Commercial Items Group within DCMA, and requires the contracting officer to document determinations.

Ethics Provisions

Sec. 883: Prohibition on Awarding of Contracts to Contractors that Require Nondisclosure Agreements Relating to Waste, Fraud, or Abuse

  • Requires representations that nondisclosure agreements relating to fraud, waste, and abuse are not used.
  • Similar to FAR 52.203-19, prohibits award of contracts to contractors that require such agreements.

Sec. 885: Disclosure of Beneficial Owners in Database for Federal Agency Contract and Grant Officers

  • Requires disclosure of beneficial ownership of contractors and grant recipients.

Small Business 

Sec. 815: Prompt Payment of Contractors 

  • Strengthens DoD’s goal to pay small business contractors within 15 days of receipt of an invoice.
  • Intends to improve small businesses' ability to continue to do business in the federal marketplace, especially during economic downturns.

Sec. 862: Transfer of Verification of Small Business Concerns Owned and Controlled by Veterans or Service-Disabled Veterans to the Small Business Administration (SBA)

  • Transfers the function of certifying Service Disabled Veteran Owned Small Businesses (SDVOSBs) and Veteran Owned Small Businesses (VOSBs) from the Department of Veterans Affairs to the SBA.
  • Phases out self-certification of SDVOSBs.
  • Seeks to harmonize within 2 years the SDVOSB and VOSB contracting programs with other small business contracting programs administered by SBA.

Section 863: Employment Size Standard Requirements for Small Business Concerns

  • Extends from 12 months to 24 months the time period to which an agency must refer when categorizing a manufacturer as a small business based on its average employment.

Section 868: Past Performance Ratings of Certain Small Business Concerns

  • Requires contracting officers to consider a small business concern’s past performance in a joint venture or as a first-tier subcontractor when evaluating the small business concern’s offer for a prime contract.
  • Once implemented, a prime contractor will be required to provide a small business first tier subcontractor a “record of past performance” upon request by the small business.

Section 869: Extension of Participation in 8(a) Program

  • Allows small businesses participating in the section 8(a) business development program (on or before September 9, 2020) to extend their participation in the 8(a) program for an additional year.

Bid Protests

Section 886: Repeal of Pilot Program on Payment of Costs for Denied Government Accountability Office Bid Protests

  • Repeals the pilot program established in the FY 2018 NDAA that explored the effectiveness of requiring contractors with revenues in excess of $250 million to reimburse DoD for costs incurred in defending against bid protests denied by GAO.

Contract Types / Other Matters

Sec. 888: Revision to Requirement to Use Firm Fixed-Price Contracts for Foreign Military Sales (FMS)

  • Repeals default requirement for firm fixed-price contracts for FMS sales established by FY 2017 NDAA.

Sec. 890: Identification of Certain Contracts Relating to Construction or Maintenance of a Border Wall

  • Requires disclosure of any contracts (including task orders) more than $7 million relating to construction or maintenance of the US / Mexico border wall.

Section 891: Waivers of Certain Conditions for Progress Payments Under Certain Contracts During the COVID-19 National Emergency

  • To support increased cash flow, DoD may temporarily increase the progress payment rate for undefinitized contract actions during the COVID-19 national emergency.
  • Institutes conditions to the waiver pertaining to companies’ receipt of progress payments under contracts.
  • Directs a report by September 30, 2021 on how increasing rate of progress payments from 80 percent to 95 percent has benefitted subcontractors and suppliers.

CATEGORIES: Bid protests, Compliance, Cyber

January 14, 2021 Government Data Rights: Defense Contractors May Use Custom Markings to Signal Rights against Third Parties

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By: Steven R. Englund and Grant B. Schweikert

In the final days of 2020, the US Court of Appeals for the Federal Circuit decided a case providing defense contractors a tool to enhance protection of their technical data (such as specifications and drawings) and computer software when delivering them to the government by including markings asserting rights against third parties not acting under the government’s authority.

Sophisticated government contractors regularly look for strategies to protect the “secret sauce” of their technologies from disclosure to and use by competitors. The standard “data rights” clauses included in most government contracts provide various options for doing so, but those clauses also provide that the government will receive “unlimited rights” to certain types of technical data and computer software. However, even when the government receives unlimited rights (a very broad license), the contractor generally retains ownership of the underlying intellectual property rights and potentially the ability to enforce those rights against third parties who are not acting under color of the government’s license.

The issue before the Federal Circuit in Boeing Co. v. Secretary of the Air Force stemmed from Boeing’s use on technical data delivered to the government of a restrictive legend not authorized by the Defense FAR Supplement (DFARS) to restrict third party use of technical data in which the government had unlimited rights. Boeing Co. v. Secretary of the Air Force, No. 2019-2147 (Fed. Cir. Dec. 21, 2020). The court held that use of such a legend is consistent with the standard DFARS data rights clause, so long as the legend does not restrict the rights of the government.

As background, DFARS 227.7103 and DFARS 227.7203 establish five types of government licenses for noncommercial technical data and computer software: (1) unlimited rights; (2) government purpose rights; (3) limited rights (for technical data); (4) restricted rights (for computer software); and (5) specifically negotiated license rights. The parallel clauses at DFARS 252.227-7013 and DFARS 252.227-7014 are generally incorporated into defense contracts to address the contractor’s and the government’s respective rights in noncommercial technical data and computer software. Paragraph (f) of these clauses contains specific instructions for contractors to mark qualifying technical data and computer software to provide the government less than unlimited rights. Those instructions include specific markings corresponding to each of the license types other than unlimited rights. Other provisions address removal and correction of nonconforming markings.

When Boeing was required to deliver technical data to the government with unlimited rights, it had a longstanding practice of marking that data with what it called a “Non-U.S. Government Notice” claiming the data as proprietary and advising that non-governmental entities may use and disclose the data only as authorized by Boeing or the government. Eventually, a contracting officer rejected technical data marked with that legend, finding it nonconforming because it is not one of the legends specifically authorized by DFARS 252.227-7013.

Boeing’s argument on appeal to the Armed Services Board of Contract Appeals, and later to the Federal Circuit, was based on the specific language of DFARS 252.227-7013(f), which states that the authorized legends are to be used when a contractor wishes to assert “restrictions on the Government’s rights to use, modify, reproduce, release, perform, display, or disclose technical data” (emphasis added). Specifically, Boeing argued that because its legend did not restrict the Government’s rights, but rather the rights of third parties, DFARS 252.227-7013(f) did not provide a basis for the government to object to its marking. 

While the Board upheld the contracting officer’s decision, the Federal Circuit agreed with Boeing, finding that “the plain language of Subsection 7013(f) demonstrates that it applies only in situations when a contractor seeks to assert restrictions on the government’s rights.” The court noted that this conclusion had “the added benefit” of allowing Boeing “to notify the public of its ownership” of the relevant technical data. Although the Court agreed with Boeing’s legal argument concerning the interpretation of DFARS 252.227-7013(f), it declined to opine on whether the specific text of Boeing’s legend actually did restrict the Government’s rights. That question, the Court decided, was a question of fact that must be determined by the Board on remand.

While the court’s decision concerned interpretation of the technical data provisions in DFARS 252.227-7013(f), it would seem to apply with equal force to the parallel provisions for computer software in DFARS 252.227-7014(f).

In view of the decision, it makes sense for defense contractors to consider using a restrictive legend to notify third parties of their claims to ownership when delivering technical data or computer software to the government with unlimited rights. While such a legend may not create any substantive rights against third parties, it would at least serve as a reminder to competitors that certain uses of the data may implicate enforceable intellectual property rights and have an in terrorem effect.  

Jenner & Block lawyers stand ready to assist contractors in protecting their intellectual property rights while complying with this complex regulatory regime. 

CATEGORIES: Compliance, Cyber