Government Contracts Blog

What To Do When Your Proposal Is Late?

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Thu, 2 Feb 2012 15:10:04 -0500

Kenneth B. Weckstein, partner in Brown Rudnick's Government Contracts & Litigation Group, and Raymond Fioravanti, associate general counsel at General Dynamics C4 Systems, authored the article "What To Do When Your Proposal Is Late?" which was published in the January 2012 issue of Federal Contracts Report.

As discussed in this article, the Late Bid Rule is quite simple: offerors are responsible for ensuring that proposals reach the designated office by the "exact time" stated in the solicitation (or 4:30 PM if no time is specified), and a late proposal "will not be considered" unless it falls under a recognized exception.

To learn more about the late bid rules and the exceptions to them, as well as case law applying those rules to particular situations, please read the article What To Do When Your Proposal Is Late? on our website.

The $11,000 Steak

Mon, 9 Jan 2012 13:29:11 -0500

We hope that the steak was not over-cooked. And tell us it didn’t have ketchup on it.

A former employee of a government contractor agreed to pay the United States $11,000 to settle allegations that he accepted illegal kickbacks while working for Fluor Hanford, Inc. at DOE’s Hanford Nuclear site. The two alleged kickbacks referenced in the settlement agreement are: i) a $100 Outback Steakhouse gift certificate; and ii) approximately $400 worth of Seattle Mariners tickets. Both kickbacks were received from the owner of Fast Pipe Supply, Inc., which was a subcontractor to Fluor.

In November 2005 -- the month when the employee received the Outback gift certificate, he reportedly purchased over $10,000 of materials from Fast Pipe. In February 2006 -- the month when he received the Mariners tickets, the employee reportedly purchased over $16,000 of material from Fast Pipe. The settlement agreement does not include any allegations suggesting that Fast Pipe did not provide the purchased materials -- or that the purchased materials were unnecessary. Rather, the settlement agreement alleges that DOE would not have approved any of the amounts used to pay Fast Pipe if DOE had known the employee was accepting kickbacks. Fair enough. The presumption is that kickbacks ultimately are passed through to the Government in the form of increased prices.

Many Federal government contractors have adopted zero tolerance policies for gifts between subcontractors or vendors and their employees, period. Employees do not always view such policies -- or compliance with such policies -- to be that important or in their best interest. This recent settlement is a cautionary tale.

The settlement is related to an investigation in the Eastern District of Washington that has led to indictments filed against Fast Pipe's owner and others. According to the indictment of Fast Pipe's owner, Fast Pipe allegedly received $3.9 million in orders in exchange for approximately $40,000 in kickbacks the company's owner paid to 14 Fluor employees. Kickbacks alleged in the indictment include personal checks to employees, an airline ticket for one employee, $100 gift cards to Macy’s and Outback, Seattle Seahawks and Mariners tickets, and a parking pass for a Seahawks game. Seems like little stuff, but can lead to big consequences.

The New Year provides a good opportunity to review and update compliance programs to incorporate real world examples of questions/issues faced by employees.

New Proposed Obligations for Contractors and Subcontractors Regarding Individuals with Disabilities

Fri, 6 Jan 2012 14:13:38 -0500

Helping out individuals with disabilities is, or should be, as American as apple pie. Requiring contractors to implement procedures and take action to show that they are taking affirmative action in hiring persons with disabilities will create more of a debate. Should that be left to the private sector? Or should the Government use its contracts as a prod to dictate social policy?

The Office of Federal Contract Compliance Programs ("OFCCP") has issued a proposed revision to the regulations implementing the non-discrimination and affirmative action regulations of section 503 of the Rehabilitation Act. See 76 Fed. Reg. 77056. The goal of the proposed rule is to strengthen the affirmative action requirements for federal contractors and subcontractors to ensure equal employment opportunities for qualified workers with disabilities. The proposed rule applies to contractors and subcontractors who have any government contracts valued at $10,000 or more. Among the changes is a new proposed utilization goal for employment of individuals with disabilities of 7% for each job group in the contractor's workforce, as defined in the affirmative action regulations at 41 C.F.R. §§ 60-2.12 & 60-4. This proposed 7% utilization is a goal and not a requirement for contractors, although contractors are required to make an assessment as to whether they have met the goal. The proposed rule establishes steps for contractors to follow to make that assessment.

Other requirements applicable to contractors include: placing job listings with employment service delivery systems; conducting annual surveys of employees giving them the opportunity to self-identify as an individual with a disability; inviting applicants to self-identify as an individual with a disability at the pre-offer stage; and maintaining records on the number of persons with disabilities applying for positions and the number hired. In addition, some requirements that were previously recommendations now will become mandatory if the proposed rule is implemented as is. For example, a contractor would be required at a minimum to review its personnel processes by identifying vacancies and training programs for which applicants and employees with disabilities are considered, provide a statement of reasons explaining the circumstances for rejecting individuals with disabilities, and describe the nature and type of accommodations for individuals with disabilities who were selected for hire. Also, the proposed rule requires a contractor to engage in a minimum number or outreach and recruitment efforts to attract persons with disabilities and conduct a self-assessment of its outreach efforts.

To review all of the requirements of the proposed rule, go to the Federal Register . Contractors are invited to comment on the proposed rule by February 7, 2012.

Mission Accomplished in Iraq?

Fri, 16 Dec 2011 14:55:03 -0500

The war in Iraq drew to a close this week. This time, there were no banners proclaiming victory. There were no sounds of horns blaring triumphantly, and celebrations were muted. It is said that more than one million U.S. troops and civilians served in the almost-nine year conflict and that the U.S. spent more than one trillion dollars on the war effort. The war has left more than 4,400 U.S. service men and women dead, with countless more injuries. The toll on civilians was almost unimaginable. President Obama said that history will be the judge of the decision to invade Iraq, which seems about right.

We wondered what the legacy of the Iraq war would be on government contracting. Even as the war ends, left behind are thousands of private security contractors who will be tasked with protecting U.S. diplomats in Iraq for the foreseeable future. Surely, there will be GAO reports that count the "fraud, waste and abuse." And there will be headlines and press accounts announcing bribery schemes and ethics scandals that seem almost inevitable when billions of federal dollars are thrown into the mix. But what about the many competent, conscientious, ethical, professional procurement officials who do their jobs well and do not get journalist and media attention? We hope their efforts will be recognized and commended. And is it fair in the middle of combat to fault contractors that are responsive to Government demands but do so without a required form or make an urgent or unconventional purchase for the war effort without getting a signed receipt?

At times, a lot is asked of the U.S. government procurement system. The war in Iraq was one such time where the limits of the system were strained, and any accounting of the American blood and treasure expended in Iraq should include an assessment of how that system performed. The bottom line, to channel Churchill and his comment about democracy, may be that the federal procurement system is the worst form of government contracting except for all the other forms that have been tried. History will be the judge.

More Protection for Small Business Subcontractors in the Works

Thu, 13 Oct 2011 09:41:25 -0400

On September 21, 2011, we posted a piece about an initiative implemented by the Obama administration which would, in theory, lead to small business contractors being paid by federal agencies on an accelerated basis. Now, the U.S. Small Business Administration has proposed new regulations which, if implemented, will help small businesses on several fronts.

On October 5, 2011, the SBA proposed regulations which would, by implementing certain provisions of the Small Business Jobs Act of 2010, increase government oversight of contractors that subcontract with small businesses. The new regulations would require prime contractors to notify contracting officers in writing whenever (1) a subcontractor included in a bid or proposal is not actually used; (2) a payment to a small business subcontractor is less than proposed; or (3) a payment to a small business subcontractor is more than 90 days late. These new reporting requirements would apply to contracts with subcontracting opportunities of more than $650,000, except for public building construction contracts, for which the threshold would be $1.5 million. Comments on the proposed rules are not due until December 5, 2011, so don’t count on these new regulations taking effect any time soon.

But, the proposed regulations could offer some powerful tools to small business subcontractors in their dealings with large business prime contractors. Take the case of a subcontractor that is proposed to work on a contract. The small business is counting on that work. If the work doesn’t come through, the small business could sue its large business customer. Good for lawyers. Not so good for the small business. Under the proposed regulation, the prime contractor would have to self-report if it did not use a small business subcontractor that it proposed to use. Same if the large prime pays the small business less than proposed. Ditto if a payment to the small business is more than 90 days late.

Will the prime contractors and contracting officers like the program and the extra reporting obligations? Negative. But will this put more money in the pockets of small businesses sooner? Probably. Even though there may not be a strong enforcement mechanism, contractors like to win and get high grades. This is one more area where large businesses may be able to distinguish themselves from their peers.

And so the march to assist small businesses through the use of Government dollars continues until a new administration with new objectives is handed the keys and does an about face.

Faster Payments to Small Businesses Intended to Spur Economic Growth, but Will the Feds Make Good?

Wed, 21 Sep 2011 15:28:09 -0400

Under the Prompt Pay Act, federal agencies are required to pay contractors within 30 days of receipt of all required invoicing documentation. The Obama administration says it would like to cut that time in half for payments to small businesses.

On September 14th, President Obama announced that all agencies are being ordered to accelerate payments to small businesses (as defined in 48 C.F.R. § 2.101), with the goal of making payments within 15 days. The idea behind this initiative is to improve cash flow and, as a result, increase hiring. We get it. Paying small businesses and all businesses more quickly is a good idea and the right thing to do. It will make doing business with the Government more attractive. It will improve cash flow. But will it lead to more jobs? Let's see, I'm a small business with ten employees. I send the Government a bill for $100,000. The Government pays the amount owed 15 days later instead of 30 days later. I am happy. I take my wife out to dinner. But will being paid money I am due 15 days early get me to hire a new employee?

And, the actual acceleration of payments to small businesses is not a sure thing. There are a few eggs left to hatch before small business contractors can begin counting their accelerated chickens. In a memorandum to the heads of all Executive departments and agencies, the Director of the Office of Management and Budget ("OMB") laid out the parameters for implementing the President’s mandate. (A copy of this memorandum can be found here). It looks like agencies don’t need to be in a big hurry to start cutting checks. Implementation of this initiative does not begin until November 1, 2011. At that time, each agency is required to notify the OMB when it can begin accelerating payments, along with the reasons why it can’t start earlier.

Once the agencies do undertake to comply with the OMB’s memorandum, their compliance won’t necessarily be uniform. Indeed, the OMB is not really "ordering" the agencies to make payments to small business contractors within 15 days - they just have to try to pay "as quickly as possible" after receipt of all proper documentation. Agencies and contracting officers that want to hold up payments based on missing documentation (real or perceived) may do so. And the accelerated payment initiative does not change the timing of late charges under the Act; the government will not be liable for any late charges until the full 30 days have passed. So the agencies really have little incentive to pay more quickly, and there is no penalty for failing to comply with this new "mandate."

Don't get us wrong. Putting more cash in to the economy sooner isn't a bad thing. But will this new initiative deliver as promised? Only time will tell how many agencies actually accelerate their payments, and when they begin doing so. And while small businesses would certainly benefit from improved cash flow, it looks like no one should be holding their breath.

DOD decides that it is a good idea to conduct discussions with offerors for contracts expected to be more than $100 million.

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Tue, 20 Sep 2011 14:30:50 -0400

If I'm going to make a $100 million purchase, I certainly would want to talk with the seller before writing a check. Not so for the Federal Government. FAR 52.215-1, which is a standard clause titled "Instructions to Offerors--Competitive Acquisition", at (f)(4), states that "[t]he Government intends to evaluate proposals and award a contract without discussions with offerors...." DOD is changing that preference. A Final Rule announced on September 20, 2011 added section 215.306(c)(1) to the DFAR and reads: "For acquisitions with an estimated value of $100 million or more, contracting officers should conduct discussions." So what's blogworthy?

First, why has it taken 40 years to come to what seems like an obvious conclusion? The answer: DOD figured out that if it makes awards without discussions, there is a greater likelihood of a bid protest. More procurement lead time is needed when there are protests. So, cutting back on protests will reduce necessary lead time. OK. Except don't discussions take time and lead to submission of BAFOs? And don't inadequate discussions lead to protests? Isn't the real answer that conducting discussions will more likely result in a meeting of the minds and a greater likelihood that the Government will buy what it wants to buy?

Second, even when solutions seem obvious, there is not total agreement. According to the Federal Register notice, one commentator said that the proposed rule is "overkill". Let's see if I have this right. Having some discussions as compared to having no discussions is overkill? No discussions is not too much killing and not too little killing. Just right. Sort of like Goldilocks' take on baby bear's porridge.

Regardless, discussions in large procurements are a good idea. More than that, as DOD said in its notice, it is a best practice. You would never write a check for $100 million without having discussions with the seller. Why should DOD?

Inherently Governmental Functions Policy and Guidance Issued

Thu, 15 Sep 2011 11:28:08 -0400

Two years ago, contractors shuddered when the Obama Administration proposed to shift work from contractors to government employees. That objective was to be accomplished, in part, by more clearly defining what contractors could and could not do. The wait is over. And the answer so far is a big "Never mind". The long awaited guidance on the type of work that is considered "inherently governmental" and thus, cannot be performed by contractors, was issued by the Office of Federal Procurement Policy ("OFPP") on September 12, 2011. See 76 Fed. Reg. 56227. The definition of what constitutes an "inherently governmental function" was not re-written. Instead, the OFPP maintained the definition from the Federal Activities Inventory Reform Act, Public Law 105-270, which defines an inherently governmental function as "a function that is so intimately related to the public interest as to require performance by Federal Government employees." The OFPP explains that these are functions that require the exercise of discretion in applying Federal Government authority including judgment related to monetary transactions and entitlements. The types of things that are inherently governmental would be those that bind the United States, determine and advance United States interests by military or diplomatic action, significantly affect the life of private persons, appoint or control employees of the United States or exert control over acquisitions. Some examples given include: combat, security operations performed in support of combat, determining what supplies or services are to be acquired by the government, participation as a voting member on a source selection board, determining whether prices are fair and reasonable, and awarding and administering contracts.

The OFPP policy letter also explains the types of things that are not considered inherently governmental such as gathering information or providing advice or opinions to Federal Government officials and functions that are ministerial in nature such as building security, mail operations, and cafeteria operations. Other categories of functions broken out include "critical functions" and functions "closely associated with inherently governmental functions." Functions that fall into these categories can be performed by contractors with proper oversight by federal employees. Guidance is also provided on how to determine whether a function is "inherently governmental", "critical" or "closely associated with inherently governmental functions" in the letter.

While many in the private sector feared strict new guidelines would limit the work available, the final guidelines in large part remain somewhat vague and allow room for agency level discretion. In fact, there is not an announced intent to move away from using contractors. In the policy letter, OFPP states that "[n]othing in this guidance is intended to discourage the appropriate use of contractors. Contractors can provide expertise, innovation, and cost-effective support to Federal agencies for a wide range of services." 76 Fed. Reg. at 56236. The OFPP further explains that it "does not anticipate a widespread shift away from contractors as a result of the requirements in the policy letter. As the policy letter explains, insourcing is intended to be a management tool - not an end in itself - to address certain types of over reliance on contractors." See 76 Fed. Reg. at 56234. Nevertheless, the definition of "inherently governmental functions" remains somewhat vague which means that to a certain extent the true impact is yet to be seen as various agencies take the guidance and implement their own internal practices and policies.

Kick the contractor is good sport and, at times, the temptation to play is too much to avoid. For now, there are higher priorities.

The policy letter as well as OFPP's explanation can be found in the Federal Register available here.

The Longest Six Months: Final Rule on Hiring Predecessor's Service Workers Still in Limbo

Tue, 30 Aug 2011 13:31:44 -0400

Ten days after taking office in 2009, President Obama issued Executive Order 13495 entitled "Nondisplacement of Qualified Workers under Service Contracts." The Order directed the Federal Acquisition Regulatory Council ("FAR Council")--the body that manages the Federal Acquisition Regulation or "FAR"--to publish a contract clause and accompanying regulations to require contractors and subcontractors to "in good faith offer those employees (other than managerial and supervisory employees) employed under the predecessor contract whose employment will be terminated as a result of award of this contract or the expiration of the contract under which the employees were hired, a right of first refusal of employment under this contract in positions for which employees are qualified." The Executive Order was hailed by employees of Government contractors that envisioned employment for life and by attorneys who hoped to fight about the applicability of the Executive Order.

Unfortunately, we all have to wait. The Executive Order says, "This order shall become effective immediately and shall apply to solicitations issued on or after the effective date for the action taken by the Federal Acquisition Regulatory Council under section 6(b) of this order." Which is it--was it effective immediately or would it be effective only when a FAR clause was issued?

Also, the Order ordered the Department of Labor ("DOL") to promulgate regulations within six months of the Order for enforcing the Order's requirements, i.e., by July 29, 2009. How did that affect the Order's effective date? What were contractors supposed to be doing in the interim?

The answer is that the Order was effective immediately for the Government agencies--the FAR Council and DOL--that were given new responsibilities under the Executive Order. However, the Order has no impact on contractors unless and until a clause is included in a solicitation implementing the Order. Such a clause still does not exist.

DOL's July 29, 2009 deadline also came and went with no action. Finally, on August 29, 2011--only 25 months late--DOL issued its regulations. And what do they say? They say that the long awaited regulations have no effective date because the FAR Council still has not issued its regulations. (And if a Republican is elected President before the rules take effect, we predict that the Executive Order will be jettisoned pretty quickly.)

What's going on? DOL blames its delays on "organizational restructuring" of the Department of Labor (76 Fed. Reg. 53,270). It also may be connected to the fact that more than halfway through the Obama administration, there is still a "vacancy" sign on the office of the Administrator of DOL's Wage & Hour Division, the office in charge of these regulations. And what about the missing FAR clause? The FAR Council actually closed its files on the Executive Order on October 29, 2009 to be reopened after DOL took action. So, don't expect that anytime soon.

What does this all mean? It seems to be good news for the contractors we have talked to, since they uniformly dislike the Executive Order. For one thing, it may give incumbents an advantage in bidding. DOL's final, but not effective rules, require contracting officers to give bidders a list of the employees who are covered by the Order's hiring requirement, but the rules also say that the successor contractor's obligation to hire the predecessor's employees exists even if the successor does not receive that list. If and when these rules become effective, contractors may have little choice but to protest a procurement until they get the required list. For better or worse, we do not expect to see that anytime soon. This is one provision that has Democrat written all over it. As long as Republicans have a say, any requirement to hire employees of the predecessor contractor could die on the vine.

Time to check those assignment of invention agreements.

Thu, 16 Jun 2011 14:33:35 -0400

Standard employment agreements often contain provisions by which employees agree that their employers will own any inventions that the employees invent on the job. But what if an employment agreement doesn't say that? Who owns the inventions then? For as long as there has been a U.S. Constitution, the general rule in that case has been, "You invent it, you own it!"

Seems simple enough. Enter the "University and Small Business Patent Procedures Act of 1980" -- better known as the "Bayh-Dole Act." That law says that the U.S. Government will own any inventions invented using Government money unless the contractor is a non-profit or small business and it elects to "retain" the rights to the invention.

So where does that leave an inventor who invents something while working for a non-profit or small business contractor using U.S. Government funding? Does the Bayh-Dole Act strip the inventor of ownership of his or her inventions and give them to the employer?

That question was decided by the U.S. Supreme Court on June 6, 2011 in Stanford Univ. v. Roche Molecular Systems, Inc. The stakes in that case were very high -- specifically, the right to profit from a Nobel Prize-winning HIV test kit. Dr. Holodniy had developed the kit while working for both Stanford University and the pharmaceutical company Roche, and had assigned rights to both of them. So Roche began marketing the kit worldwide. The University sued, however, claiming that Dr. Holodniy had no rights to assign because his work at Stanford was funded by the Government, and the Bayh-Dole Act allocated inventor rights to the university.

Not so, declared a 7-2 majority of the Supreme Court. The Bayh-Dole Act only permits contractors to "retain" rights that they have, it does not grant the contractors new rights. And, contractors only have the rights that their employees give them, because that's how the U.S. patent system works. Since Dr. Holodniy gave his rights to both Stanford and Roche, Stanford cannot sue Roche for patent infringement.

There are lots of lessons to learn from this case, but the most important lesson may be a reminder to employers to be very precise in how they write important provisions in their employment agreements such as clauses that govern ownership of inventions. Otherwise, you may be letting your employees use your laboratory and your lab supplies on your time without having much to show your investors in return. That is never a happy ending.

Beam me up, Scotty

Fri, 6 May 2011 16:41:08 -0400

This is for real. On Tuesday, May 3, the Defense Advanced Research Projects Agency (DARPA) issued a Request for Information for "a study to inspire the first steps in the next era of space exploration - a journey between the stars." Dubbed the "100 Year Starship Study," the study’s goal is "to develop a viable and sustainable model for persistent, long-term, private-sector investment into the myriad of disciplines needed to make long-distance space travel practicable and feasible."

Essentially, DARPA and NASA’s Ames Research Center are looking for ideas about how to create a privately funded endowment "by which worthwhile undertakings - in the sciences, engineering, humanities, or the arts - may be awarded in pursuit of the vision of interstellar flight." DARPA specifically wants respondents to describe what such an organization might look like in terms of its structure, governance, "investment strategy [and] Business model for long-term self-sustainment...." After considering these ideas, DARPA plans to "issu[e] an appropriate contract instrument for initial start-up and early operating expenses for the organization not to exceed several hundred thousand dollars."

We have to say that our initial reaction to this announcement included the words "what the." But, having shaken our heads a bit, forward thinking such as this has spawned remarkable achievements. In addition to NASA’s leadership in space travel, DARPA’s efforts have contributed to the development of stealth aircraft, GPS, the internet (with co-inventor Al Gore), and myriad other technologies. Many of these achievements were realized through the joint efforts of these agencies and their contractors. Together, they have fulfilled many of the most creative "gee whiz," "what if" initiatives and represent the best of what Government and its contractor partners can offer.

So, our space helmets are off to them.

Should your inner James T. Kirk inspire you to submit your ideas, be sure to limit your input to five pages and provide your response to DARPA’s email address for this project: 100YSS@darpa.mil. Your deadline is June 3, 2011. By the way, we’re pretty sure they don’t want to know how you would constitute the Federation of Planets.

A Bad Day for Competition

Fri, 15 Apr 2011 09:34:50 -0400

GSA has IDIQ contracts for telecommunication services with Quest, Verizon and AT&T. The Department of Homeland Security ("DHS") needs hosting services. DHS issues an RFQ to the three contract holders. The RFQ says: 1) award of the task order will go to the lowest priced technically acceptable offeror; and 2) a $13.8 million upward adjustment will be made to the evaluated price of all offerors except Verizon -- the incumbent. And, DHS claims that the value of the task order is less than $10 million. So if you’re keeping score at home, this is the deal, Quest could bid $0 for the work and lose because $13.8 million would be added to its price. That adjustment would exceed the under $10 million value of the work that presumably would be bid by the incumbent. Qwest figured that this was a bogus competition and filed a protest.

Not so fast. In Qwest Government Services, Inc., B-404845 (March 25, 2011), GAO found that it did not have jurisdiction to hear a bid protest challenging the price evaluation approach because it only has jurisdiction of protests of task orders under GSA IDIQ contracts that have a value in excess of $10 million. What about that $13.8 million? Didn’t that push the value over $10 million? Negative. The $13.8 million upward price adjustment for all but the incumbent’s bid reportedly was to cover the costs that the Government would incur if required to move the hosting services to a new location. GAO determined that the $13.8 million in costs should be excluded in determining the value of the task order. Result: Value of GSA task order is under $10 million and there is no GAO jurisdiction to consider the merits of the protest. Doesn’t seem quite fair, does it?

Two Wrongs Make a Right...

Tue, 12 Apr 2011 15:49:31 -0400

At least that seems to be the case in a recent dispute between Kellogg Brown & Root ("KBR") and its subcontractor Tamimi Global Company Limited ("TGC"). KBR holds a contract with the U.S. to provide dining services for military personnel in Iraq. The U.S. Government withheld payment under KBR’s contract. KBR, in turn, withheld roughly $34 million in payments it owed to TGC for work performed - claiming it was not required to pay TGC until KBR was paid by the government. TGC disagreed, demanded the parties go to arbitration, and eventually won the full amount owed under the subcontract, plus interest, costs and legal fees.

When TGC went to a U.S. District Court in Texas to confirm the foreign arbitration award, KBR opposed the confirmation. (Tamimi Global Co. Ltd., Kellogg Brown & Root LLC, No. H-11-0585 (S.D. Tex. March 24, 2011)). District courts can refuse to enforce foreign arbitration awards for public policy reasons. KBR relied on the public policy grounds argument to oppose confirmation and ask for a stay pending a decision in a related proceeding at the Court of Federal Claims.

In the related case at the Court of Federal Claims, the U.S. Government alleged that KBR management employees accepted kickbacks from TGC in return for the subcontract work. At the district court, KBR argued that it would be against public policy for the district court to confirm the arbitration award because TGC’s subcontract was procured by fraud. So let us see if we have this right. TGC allegedly paid kickbacks to KBR employees in exchange for awarding a subcontract to TGC.

The district court found that even if TGC had committed fraud, there was no basis for KBR’s public policy argument because KBR participated in the fraud. The court also noted that KBR chose not to raise fraud as a defense during arbitration even though at that time KBR knew about the alleged kickback scheme. The court found that enforcing a foreign arbitration award for payment in favor of one bad actor against another bad actor "does not violate the most basic notions of morality and justice." Translation: A briber can enforce a contract against a bribee.

If KBR had raised the fraud defense during the arbitration, maybe the result here would be different. We can visualize more than one basis to argue that enforcing the subcontract is not equitable. (How about that the KBR bribees were acting outside of the scope of their authority and KBR should not be penalized for their bad acts). And of course the case is subject to appeal. However, at least for now, it looks like two wrongs make a right.

Kenneth B. Weckstein Publishes New National Litigation Blog for Thomson Reuters

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Thu, 7 Apr 2011 15:20:25 -0400

Attorney and blogger Ken Weckstein is authoring a new blog, with a focus on litigations around the country. Published by Thomson Reuters (Westlaw), these postings will offer Ken's insights and perspectives -- to "inform, educate, and amuse" -- based on his experience as a DC-based, seasoned litigator. At Brown Rudnick LLP, Ken leads the Government Contracts team and, since 2009, has been blogging on topics relating to that area of his practice.

Here you can read Ken's second editorial venture -- Some of my best friends are lawyers.

Security clearances and discrimination

Tue, 5 Apr 2011 13:38:35 -0400

Discrimination in employment decisions is bad. But refusing to hire or promote someone who lacks job qualifications is permitted. In particular, Federal law (42 U.S.C. 2000e-2(g)) expressly permits employers to fire an employee from, or to refuse to hire an applicant for, a job requiring a security clearance if the employee does not have a security clearance. You should know where this is going already. Part of not discriminating is, surprise, not discriminating.

A decision of the U.S. Court of Appeals for the Ninth Circuit issued on April 4, 2011 reminds employers that the security clearance exception is not a carte-blanche to discriminate. Employment decisions relating to security clearances will be scrutinized by courts to ensure that the employer is applying policies in a consistent and non-discriminatory manner. Zeinali v. Raytheon Co., No. 09-56283 (9th Cir. Apr. 4, 2011) (available here).

Mr. Zeinali is an Iranian-born engineer who alleges that he was fired by Raytheon based on his national origin. If that is true, the termination would be illegal. Raytheon asserts, however, that Mr. Zeinali was fired because his application for a security clearance was denied and the company has no work for him that does not require a security clearance.

In its April 4th opinion, the Ninth Circuit did not decide whose version of the facts is correct. Rather, the question before the court was whether Mr. Zeinali can sue at all or whether, as Raytheon asserts, all suits relating to security clearances are beyond the jurisdiction of the court system because they relate to matters within the unique expertise of the Executive Branch (i.e., the granting of security clearances). The Ninth Circuit ruled for Mr. Zeinali because it found that Mr. Zeinali is not challenging the denial of his security clearance. Rather, he is challenging Raytheon's claim that a security clearance is a bona fide job qualification. In particular, the court noted, Mr. Zeinali alleges that two non-Iranian engineers whose security clearances had been terminated have not been fired which could be evidence that he was discriminated against.

Only time will tell whether Mr. Zeinali can prove that he was discriminated against. Nevertheless, employers should take note that their hiring and firing decisions that relate to security clearances are not immune from challenges by employees.

Caught in a "Mail Storm"? This Umbrella Might Help.

Thu, 31 Mar 2011 15:24:17 -0400

This can keep Business Development Managers up at night: The RFP permits proposal submission by email to the Contracting Officer. The proposal submission deadline is noon on April 1st. The proposal is finalized and emailed to the correct address 50 minutes early. No bounce-back email is received, but the email is not "received" in the Contracting Officer’s email inbox until 12:04pm. Is the proposal late?

Judge Braden of the Court of Federal Claims says "no" under the facts of the recently decided case, Watterson Construction Company v. United States, No. 10-587C (Fed. Cl. March 29, 2011), available here. There, Watterson Construction Company emailed its second revised proposal at 11:01 am on the due date for proposals. Proposals were due at noon. Watterson’s emailed proposal was received by the "first of four Army Corps servers" at 11:29 am, but did not arrive in the contracting officer’s email inbox until 12:04 pm - four minutes after the RFP-designated time for receipt of proposals. A "mail storm" delayed the delivery of Watterson’s emailed proposal to the contracting officer’s email inbox.

What is a "mail storm"? It is what happens when a large number of email users get a little happy with the use of "reply all" when they receive unwanted emails. As described, in part, by Wikipedia:

Such storms start when multiple members of the distribution list reply to the entire list at the same time in response to the instigating message. Other members soon respond, usually adding vitriol to the discussion, asking to be removed from the list, or pleading for the cessation of messages. If enough members reply to these unwanted messages this triggers a chain reaction of email messages. The sheer load of traffic generated by these storms can render the email servers inoperative, similar to a DDoS attack.

Wikipedia, "E-mail storm", can be found here.

In Watterson, the Court of Federal Claims was asked to decide if a proposal delayed by a mail storm was late, and if yes, was that lateness excused. Judge Braden found for the Plaintiff on both issues.

As most contractors know, the general rule for proposal submission is: "Late is late." If your proposal does not reach the RFP-designated spot for receipt of proposals by the time designated in the RFP, you are out of the competition. A proposal that is received one second after the deadline for receipt of proposals is late.

Watterson adds to the "late is late" body of case law. Watterson’s proposal was not late "because the proposal was both reached and received by the Government’s e-mail servers before the due date." Watterson, No. 10-587C, at 11; see also FAR 52.215-1(c)(3)(i-ii). According to the Court’s reasoning, timeliness for emailed proposals is measured as of the time the offeror’s proposal is received by the Government’s email server - not the time it arrives in the email inbox for the email address designated in the RFP. The case further finds:

1. even if the Watterson proposal was late, the so-called "Government Control" exception to the "late is late" rule for proposals applies. Watterson at 17; see also FAR 52.215-1(c)(3)(ii)(A)(2); and

2. even if the Watterson proposal was late and it was not excused under the "Government Control" exception, Watterson was entitled to a one day extension to submit the proposal because of the "emergency or unanticipated event" rule of FAR 52.215-1(c)(3)(iv). Id. at 18-19. The "emergency or unanticipated event" was the mail storm at the Army Corps of Engineers.

These are interesting developments. That said, Watterson is the well-reasoned decision of only one judge. The decision is not binding on other judges at the Court of Federal Claims or GAO. So, other judges and GAO still may disagree.

Protest sustained. Go back to square 1.

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Tue, 29 Mar 2011 10:46:35 -0400

We are at war. Our troops move from place to place. A DLA RFP required about $800 million of "mobile, non-permanent shelters and soft-sided tents which can be readily assembled and disassembled in the field for troop movement...." The RFP sought the ability to run the equivalent of entire cities including "the following 12 types of shelters: (1) aviation hangers, (2) warehouse units, (3) housing/billeting units, (4) command centers, (5) decontamination units, (6) emergency response shelters, (7) HAZMAT shelters, (8) mobile medical hospitals, (9) first aid stations, (10) security gates/checkpoints, (11) field shelters and (12) large shops." So what's an agency to do if it wants specific brands of the shelters or the equivalent of those brands?

Three choices. Behind door number 1. Clearly state the performance and/or physical characteristics that are required. Behind door number 2. Request a brand name or equal and state "the salient physical, functional or performance characteristics that are necessary to render an 'equal' product eligible." Behind door number 3. If nothing but the brand name will do, prepare and execute an appropriate Justification & Approval that says full competition is not proper because only the brand name will satisfy the requirement. In Let's Make a Deal, the odds of getting the correct answer are 1 in 3. Here, they seemed to be 3 in 3. In Matter of: California Industrial Facilities Resources, Inc., d/b/a CAMSS Shelters, B-403397.3, issued on March 21, 2011, DLA chose door number 4 (yup, that was not one of the choices) and listed 366 brand name products without including salient characteristics for the brand name products. The result, GAO says do not pass go, do not collect $200. Protest sustained. Protester gets attorney fees. DLA told to "prepare an adequately written solicitation that meets the CICA requirement for full and open competition. In the alternative, we recommend that the agency prepare and execute an appropriate J&A that sets forth the agency's reasons for conducting its acquisition using other than full and open competition."

Full Decision can be read here.

The names have not been changed to protect the innocent

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Mon, 7 Mar 2011 09:25:50 -0500

According to a March 6, 2011 Washington Post story, Gray (DC Mayor Vincent Gray) has denied knowledge of payments to Brown (former DC Mayoral candidate Sulaimon Brown) by Green (Gray campaign chairman, Lorraine Green). Orange (unsuccessful candidate in 2010 for Chairman of the DC Council, Vincent Orange) has not commented. (No, this is not the sequel to Reservoir Dogs). The alleged payments were alleged to have been made in return for Brown's attacks during the campaign on then DC Mayor Adrian Fenty. The allegations came to light when Brown was dismissed from a city job that he allegedly received in exchange for attacks on the incumbent mayor during the campaign. The Post story reported that a text message from Gray's cell phone to Brown read, in part "...we did not renege on any commitments to you. You know and we know what agreements had been reached. And none has been breached." The reference to an agreement was, according to Gray, a promise of a job interview, not a job. So Gray's position apparently is there was some sort of deal with an opposing mayoral candidate during the campaign in which if Gray was elected, Brown would be given an interview for a position in the Gray Administration. And, the fact that Brown did get a job with Gray for a position for which Brown apparently is not qualified and from which Brown is scheduled to be dismissed is an unfortunate coincidence. Brown's position is that Green showed him the money to help Gray.

In terms of dirty tricks, this hardly registers. In days of yore in Chicago, Boston, Louisiana or West Virginia, this would be little more than amateur hour. Here, for Gray, Brown and Green, it could provide an embarrassment and distraction for some time to come. It also will be a lesson for all in Government and the public eye: Read that tweet, text or email twice before you hit send. Of course plenty of folks will not heed that warning, which is good news for reporters and lawyers everywhere.

Contracting Officer won't talk to you? Call "myth-busters"!

Wed, 2 Mar 2011 09:42:13 -0500

Last month, the Office of Federal Procurement Policy ("OFPP"), the office that makes procurement policy for the Executive Branch, issued a memorandum entitled: "'Myth-Busting': Addressing Misconceptions to Improve Communication with Industry during the Acquisition Process." Just as the title promises, the memorandum lists, discusses and debunks common myths about the communications between procurement personnel and would be contractors.

Some of the procurement myths addressed and debunked by OFPP are the following:

- Misconception: "We can’t meet one-on-one with a potential offeror."

- Misconception: "A protest is something to be avoided at all costs - even if it means the government limits conversations with industry."

- Misconception: "If the government meets with vendors, that may cause them to submit an unsolicited proposal and that will delay the procurement process."

- Misconception: "Industry days and similar events attended by multiple vendors are of low value to industry and the government because industry won’t provide useful information in front of competitors, and the government doesn’t release new information."

- Misconception: "The program manager already talked to industry to develop the technical requirements, so the contracting officer doesn’t need to do anything else before issuing the RFP."

- Misconception: "Giving industry only a few days to respond to an RFP is OK since the government has been talking to industry about this procurement for over a year."

- Misconception: "Getting broad participation by many different vendors is too difficult; we’re better off dealing with the established companies we know."

Believe it or not, OFPP developed this list based on interviews with actual government procurement personnel. Apparently, there are government employees charged with getting the best value for the government who believe that talking to potential contractors is a bad thing.

The bottom line, says OFPP, is the following:

While agencies do not have the resources, and are not required, to meet with every vendor at every step of the acquisition process, information gathered from industry sources plays an invaluable role in the acquisition process. For this reason, agencies must develop practices that will ensure early, frequent, and constructive communication during key phases of the process. The federal government’s ability to achieve successful program outcomes, effectively and efficiently, depends upon agencies establishing effective strategies for industry engagement and supporting those strategies with senior-level commitment.

While this is good news for contractors, it does not mean, of course, that all communications between contracting personnel and industry are permitted. Contractors and government personnel alike should still take care not to violate the Procurement Integrity Act which prohibits certain types of communications once a procurement is underway. Rather than just being a good practice, the PIA is a criminal law with tough penalties.

A copy of OFPP's memorandum is available here.

In-sourcing, say hello to political reality

Mon, 14 Feb 2011 11:16:42 -0500

There always seems to be a tug of war between how much work should be performed by government employees and how much work should be performed by contractors. It's no surprise that unions that represent government employees want more work performed by government employees and trade associations that represent private contractors want more work performed by their member companies. And there is no clear dividing line. Contracts cannot be used to perform inherently governmental functions, such as commanding military forces or conducting foreign relations. See Federal Acquisition Regulation ("FAR") 7.503 and Defense FAR Supplement 207.503. But after the purely inherently governmental functions, the line gets fuzzy. There are many activities that are listed as possibly bleeding over in to the inherently government category, such as providing inspection services. And then there is the rest--work that government employees and contractors consider fair game. That could include almost anything. And get ready to be shocked: The government employee unions want that work "in-sourced". Contractors want the work "out-sourced".

In the battle between in-sourcing and out-sourcing, the camp that can point to cost savings can claim high ground. Previously, the Obama administration had climbed on board the cost-savings band-wagon to support in-sourcing. In April of 2009, Defense Secretary Gates announced Department of Defense ("DOD") plans "to hire as many as 13,000 new civil servants in FY10 to replace contractors and up to 30,000 new civil servants in place of contractors over the next five years." (Read Secretary Gates' announcement here). That lasted until (Surprise!) we found out we had a budget deficit. And in August of 2010, Secretary Gates did an about face and questioned whether in-sourcing to save money really works: "As we were reducing contractors, we weren't seeing the savings we had hoped from in sourcing."

The latest shoe dropped on February 3, 2011, when Army Secretary John McHugh released a policy directive that effectively stops all Army in-sourcing initiatives in their tracks. (Read McHugh's memo here). Secretary McHugh has it just about right when he says that the Army "must approach the in-sourcing of functions currently performed by contract in a well-reasoned, analytically based and systemic manner, consistent with law and prevailing Presidential and Department of Defense guidance." Really? We're pretty sure that always has been government policy. Here's the real deal: Tell us what work the Government needs to get done. In almost all cases, we can make a case for performance by government employees or performance by contractors. But someone has to choose the winners and losers. Contractors won under Bush II. Government unions started out winning when the Obama Administration came to town. Now, it looks like the pendulum is starting to swing back to contractors.

One small step for women...oh, forget it. SBA's Women-Owned Small Business Federal Contract Program.

Wed, 9 Feb 2011 09:35:25 -0500

In 1994, a law was enacted that set a goal of awarding 5% of all federal contracting dollars to women-owned small businesses. That statute, the Federal Acquisition Streamlining Act, Publ.L.No. 103-355 (Oct. 13, 1994) and codified in scattered sections of Title 10 of the U.S. Code for military agencies and Title 41 for civilian agencies, did a lot of other things in the government contracts world, including promoting "best value" procurement strategies, simplifying procurement procedures and facilitating Commercial Off-the-Shelf purchases. But what became of the 5% goal for women-owned small businesses?

Now, 16 years later, on February 4, 2011, the Small Business Administration ("SBA") has unveiled its Women-Owned Small Business ("WOSB") Federal Contract Program. (Details can be found here). According to SBA, small businesses now "may begin taking steps" to participate in the WOSB Program. However, the WOSB Program is not yet ready for prime time. Although SBA announced that there will be "training and outreach events" over the next several months, the WOSB rule in the Federal Acquisition Regulation ("FAR") is still undergoing review. SBA expects the WOSB FAR rule to be issued in April 2011.

SBA also has announced that companies meeting the WOSB requirements must either self-certify their businesses or "be certified by an SBA-approved Third-Party Certifier." As of February 4, 2011, there were more winning professional sports teams in Washington (one) than there were third party certifiers that have been approved by SBA. In fact, SBA only released the application to become a third-party certifier on February 4, 2011.

So for women-owned small businesses, this may be a case of "hurry up and wait." The rubber may be about to hit the road, however. SBA has announced its goal for WOSBs: the goal is for WOSBs to be "ready to compete for contracts awarded in the fourth quarter of fiscal year 2011, which is when the largest percent of small business contracts are awarded."

Stay tuned.

A Cautionary Tale for New Government Contractors: Ignorance is Not Bliss

Tue, 8 Feb 2011 10:17:30 -0500

A government contract or solicitation can sometimes feel like a puzzle or a set of matryoshkas. You may read all sorts of obligations and requirements that incorporate even more obligations and requirements. Those obligations and requirements may refer to even more obligations and requirements. However, no matter how complicated this puzzle may seem to you, it is your responsibility to read, understand, and comply with all of the requirements in your contract.

In a recent Armed Services Board of Contract Appeals decision, one newbie government contractor learned this lesson the hard way. Appeals of Office Automation & Training Consultants, ASBCA No. 56779 and 56838, January 19, 2011, was a case involving a U.S. Army Corps of Engineers 8(a) set-aside for end-user IT support. The solicitation and resulting contract included FAR clauses incorporating the Service Contract Act ("SCA") wage rate requirements. The solicitation, however, did not include the required wage and fringe benefit rates, but instead referenced a web address where the applicable wage determination could be found.

Unfortunately, the contractor never checked the rates it was required to pay to comply with the SCA and its contract. Ultimately, the Department of Labor sought over $100,000 from the contractor for SCA violations. The contractor sought reformation of its contract, arguing that the solicitation was incomplete and that the contractor was new to government contracts and didn’t understand that it was required to comply with the statutory wage and fringe benefit rates. Good luck with that.

The Board noted that in order to reform a contract based on unilateral mistake, the contractor must show by clear and convincing evidence that: (1) a mistake in fact occurred prior to award; (2) the mistake was a clear-cut clerical or math error or a misreading of the specifications and not a judgmental error; (3) the Government knew or should have known prior to award that a mistake was made and should have verified the bid; (4) the Government did not request a bid verification or the verification was inadequate; and (5) proof of the intended bid is established. The Board was unmoved by the contractor’s lack of government contracts experience and instead found that, in the Board’s words, "the evidence presented upon the motion demonstrates [the contractor’s] business decision to ignore the wage requirement clauses in the solicitation and resulting contract."

It is worth noting that the contractor never provided its actual wage or fringe benefit rates to the government prior to award and the Board found that nothing in the contractor’s bid suggested that it could not, or would not pay the minimum statutory wage and fringe benefits. But it was not the responsibility of the government to assume the contractor did not understand the contract requirements simply because it was the contractor’s first government contract. The "you should have known I didn't know what I was doing" theory will not work.

So government contractors, new and old, listen up. Read your entire solicitation, read all of the requirements incorporated or referenced in your solicitation, and seek clarification before bidding if you are confused. If you choose instead to stay silent, you may win the contract but you could literally end up paying for your mistake.

Litigation Reform--Part 1

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Fri, 4 Feb 2011 16:30:39 -0500

Sometimes attorneys file lawsuits that they shouldn't file. Other times, they get bad press for filing suits that are proper. An excerpt from a February 1, 2011 Decision of the U.S. Civilian Board of Contract Appeals reads: "Here, performance under the contract ended on June 24, 1993. There is no documentary evidence that Marut made any claim for additional amounts due under the contract until March 2007, some fourteen years after performance concluded. Appellant has offered no explanation for this lengthy delay in filing its claims." The Board, predictably, denied the appeal, and I thought--here come the attorney bashers. But then I saw that the Appellant was represented by the President of the contractor and not by an attorney. Bad for the Appellant. Good for attorneys (or at least not a blemish on the reputation of attorneys). Maybe the lesson is that there should be more attorneys. Yeah, right.

Besides the Board's perfectly obvious conclusion that a "fourteen year unexcused delay" in submitting claims is unreasonable, the Decision had some other information of interest. It seems that GSA has a document retention program that calls for destruction of contract files "six years and three months after the end of the fiscal year in which the file becomes inactive." And you thought that your permanent record with the government was permanent.

The Board's Decision can be found here.

House Republicans to White House - Outsource Now (or at least think about it if you want to).

Wed, 2 Feb 2011 12:55:30 -0500

Last November we predicted that one of the outcomes of Republican electoral successes would be an effort to reverse the Obama administration’s drive to return outsourced work from the private sector to the Government. The battle has now been joined - sort of.

On January 24, 2011, leaders of the Republican Study Committee (a caucus of conservative Republicans in the U.S. House) introduced a bill entitled the Spending Reduction Act of 2011 (H.R. 408); Senator Jim Demint (R-S.C.) introduced the companion version in the Senate (S. 178) on January 25. The bill captured much of the pre-State of the Union headlines with its proposal to eliminate 37 federal programs. Among the programs targeted for elimination were Amtrak, the National Endowments for the Arts and Humanities, and the Agency for International Development.

In the midst of this, the sponsors proposed the repeal of prohibitions passed in the last Congress that essentially barred any new studies or competitions to convert functions performed by federal employees to contractor performance under OMB Circular No. A-76 or any other law or regulation. The Republican proposal further would authorize executive agencies to begin, continue and/or finish any studies or public-private competitions to convert functions performed by federal employees to contractor performance - "notwithstanding any other provision of law."

Despite its clear message, the effect of this proposal, if passed, ultimately could be quite minimal. Currently, agencies are prohibited from conducting A-76 competitions. The proposed legislation would lift the prohibition but would not force the issue. This is because the proposal does nothing more than tell agencies that they may conduct A-76 competitions - if they want to.

However, given the announced policies of the President, agencies probably won’t try to outsource anything unless the Republicans succeed in passing one of their other proposals - to cut the federal workforce through attrition by 15%. If that dog ultimately hunts, outsourcing might be one way to keep the Government going.

Call us cynical, but pendulum shifts from outsourcing to insourcing and back to outsourcing really don’t change the business of Government. Someone still needs to mop the floors in federal buildings and mow the Capitol lawns. Soldier’s uniforms have to be stitched, fit and washed.

So, the tug of war between government contractors and federal employee unions continues. But, as we said back in November, we expect the insourcing-outsourcing debate might be one possible area in which the House, Senate and the White House might find common ground to reduce the rhetorical heat in the broader budget debate. Stay tuned.

The text of H.R. 408 can be found here, and S. 178 can be found here. The outsourcing proposal is contained at section 705 of both bills.

No sushi for you!

Fri, 28 Jan 2011 10:43:20 -0500

Sometimes government agencies make mistakes in assessing proposed contractors' past performance. When an agency ignores negative past performance information about a potential contractor, its award decision can be found to be unreasonable. That is what happened in a recent procurement by DOD for commissary deli and bakery resale operations.

In Northeast Military Sales, Inc., B-404153, Jan.13, 2011, GAO considered a protest that challenged DOD's consideration of past performance information. As part of the past performance factor, DOD was required to evaluate "quality history/overall customer satisfaction...." DOD rated the awardee's past performance as exceptional. Instead of being exceptional, the GAO Decision described the awardee's past performance as follows:

"Specifically, the evaluation team was provided with e-mails from various commissaries which reported staff and product shortages during transition periods; unsanitary conditions; employee tardiness and cleanliness; and problems with sushi, including use of expired products and pre-dating products. See, e.g., id. at 147-48 (June 25 e-mail reporting "serious problems" with sushi at Memphis commissary which "nee[d] to be addressed immediately"); 145-46 (July 15 e-mails reporting an "ongoing problem" and that "there are still significant issues" with sushi at Memphis commissary); 154 (July 18 e-mail reporting problems "once again" with sushi at Scott AFB)." (The emphasis in bold was not in the GAO Decision, buy hey, we wanted to make a point).

GAO ultimately sustained the protest and held that DOD was wrong to ignore the adverse past performance information. And GAO recommended that the agency make a new source selection determination.

There are at least two take aways from the decision. First, agencies cannot ignore negative past performance information in their possession. Second, think twice before buying the sushi at DOD commissaries.

Why can't we all be friends?

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Thu, 20 Jan 2011 12:07:25 -0500

On January 18, 2011, the Supreme Court heard argument in the case of General Dynamics v. United States. This case arose from the Navy's default termination in 1991 of contracts that had been awarded (in 1988) to General Dynamics and McDonnell Douglas. The contracts called for developing a carrier-based stealth aircraft called the A-12 Avenger. While the A-12 never was built, what was developed was a cottage industry for some Government Contracts lawyers. The Supreme Court case was preceded by 14 decisions at the US Court of Federal Claims and the US Court of Appeals for the Federal Circuit. Apparently the contractors spent $2.55 billion performing the contract. They were paid $1.35 billion. The Navy wants the $1.35 billion back. The contractors want to get paid the $1.2 billion in extra money they spent but never were paid. Some of the justices asked why the parties couldn't just leave things as they were. That would allow the contractors to keep what they have been paid, but prevent them from getting any further payments. It is good to see the Court look at practical solutions. But in the past 20 years the case has been litigated, I'm guessing someone tried to the settle the case before. But when Justice Scalia tells you to think about settlement, you may take more notice.

Oh yeah. There is a legal issue that was before the Court. Can an agency rely on the State Secrets doctrine to withhold from a contractor information that the contractor may be able to use to defend against a termination for default? Here, the contractors argued that the Navy caused the delay that led to the termination for default by failing to disclose superior knowledge. The Navy refused to give that information to the contractors during the litigation. The legal issue balances the interest of the Government in protecting State Secrets with the right of contractors to defend against Government contract actions.

So what can happen? The options I see:

1. The parties can settle the case and tell the Court that the case is moot.

2. The Court can issue a decision saying no more money for the contractors and no more money for the Government. I'm not sure how the Court would get there but some of the justices seemed to like that solution.

3. The Court can affirm the termination for default. That would create more litigation when the Navy acts to collect the $1.35 billion.

4. The Court could reverse and hold that the termination for default was not justified. That could lead to more litigation. Indeed, if the Navy is required to disclose the State Secrets to the contractors, a court could find that the contractors were not prejudiced by not having had the State Secrets. The end result could still be that the termination for default was valid.

Now if I were given the chance to be Chief Mediator of the United States, my questions would be:

1. After 20 years, is the information requested by the contractors still really a State Secret?

2. Couldn't the Navy find someone within General Dynamics and McDonnell Douglas to whom the State Secrets could be disclosed in such a way that there was no risk of improper disclosure?

3. Did someone look through the materials leaked by Wikileaks to see if the States Secrets already have been disclosed?

Expecting a wage increase next year? Not so fast.

Tue, 28 Dec 2010 12:11:15 -0500

We recently blogged about the Secretary of Energy's declaration that he is implementing a two-year "freeze on salary and bonus pool increases for site and facility management contractor employees" to match the pay freeze for government workers. We noted that the Department of Energy (DOE) may get push-back from those contractors whose support the Secretary is seeking if implementing this freeze means breaching contracts or violating laws, including the Service Contract Act (SCA).

The SCA requires service contractors to the federal government to pay covered workers wages and fringe benefits that are set by the Secretary of Labor. That's right, the Secretary of Labor, not the Secretary of Energy. In fact, the law is clear that contracting officers and other Government personnel do not have the right to excuse contractors from complying with the SCA. Not the Secretary of Energy, for that matter, not even President Obama, can direct a contractor not to comply with the SCA.

Here's how the SCA works: The Labor Department issues wage determinations (WDs) that specify the wages and fringe benefits that are prevailing in a given locality. Contracting officers are required to incorporate the appropriate WDs into contracts. Furthermore, once every year or two years, depending on the type of contract, contracting officers are required to incorporate updated WDs into their contracts. That means that covered contractor employees get pay and benefit increases. That's not what Energy Secretary Chu apparently has requested, but that's the law.

And there's more. The Federal Acquisition Regulation includes a clause called the Fair Labor Standards Act / Service Contract Act Price Adjustment clause. (Depending on the contract type, the clause is either FAR 52.222-43 or -44). The Price Adjustment clause says that when DOL issues a WD with increased wages or benefits and the contracting officer incorporates that new WD into the contract, the contractor is entitled to a contract price adjustment.

And what about collective bargaining agreements (CBAs)? Is the Energy Secretary telling contractors to breach CBAs that call for wage increases? Whatever happened to the National Labor Relations Act (NLRA)?

Will the Energy Secretary try to convince DOL not to increase wages and benefits for two years? Does DOE plan to deny contractor price adjustment requests? That's a recipe for angry contractors and lots of new litigation.

It should be interesting to watch what happens next.

Happy Holidays, from the Secretary of Energy, Part 1.

Thu, 23 Dec 2010 14:46:57 -0500

On December 17, 2010, Secretary of Energy Dr. Steven Chu sent the following email to an undisclosed list of recipients:

Dear Colleagues,

Last month, President Obama spoke to the American people about the need for broad sacrifice in the effort to get the federal deficit under control. He said that if small businesses and families are tightening their belts, our government should do the same.

President Obama proposed a two-year pay freeze for all civilian federal workers, which is predicted to save $2 billion for the remainder of FY 2011 and $28 billion over the next five years.

It’s in the same spirit of shared sacrifice that I am implementing a similar freeze on salary and bonus pool increases for site and facility management contractor employees, who run day-to-day operations at certain Department of Energy sites and facilities, including national laboratories, and do a great service for the country.

As our nation continues to recover from these challenging economic times, and we work to address the massive deficits we inherited, I am asking our contractor staff, who represent the best and brightest in their fields, to join the federal workforce in playing a part.

Our national labs, sites and facilities across the country will continue to attract and retain the nation’s top talent and pursue some of the most important discoveries that will lead us into the 21st century. I look forward to continuing our work together to help advance America’s scientific leadership, economic competitiveness, and national security.

Thank you for your continued service to this nation.

Sincerely,

Steven Chu

What does this mean? Is he "implementing" a freeze on salary and bonus pool increases? Or he is "asking" contractors to forego increases? Or he is making an offer that contractors cannot refuse? And what does this mean? Can DOE prevent contractors from giving salaries increases to its employees? Unlikely. However, for contractors with cost-reimbursement contracts can DOE refuse to reimburse the contractor for salary increases? Maybe. That might depend on the language in the original contract. Also, what does freezing bonus pool increases mean? If the amount in the bonus pool is fixed by contract, freezes increases to the pool may not do much.

While the sentiment that contractors should share the pain with the Federal workforce may be a noble sentiment, the devil will be in the details. And if the details mean breaching contracts or violating laws (like the Service Contract Act), contractors may not enlist in the war on the deficit as requested by DOE.

Stay tuned.

Small business contracting under the microscope

Wed, 15 Dec 2010 10:36:49 -0500

The Washington Post recently ran an article warning of increased enforcement efforts by the Federal Government aimed at identifying fraud and abuse in small business contracting - and recovery of damages from those guilty of receiving federal monies as a result of such fraud and abuse. See Small-business Contracting Under Scrutiny From Several Federal Agencies, here.

Such plans of the Federal Government should not come as much of a surprise. They come after high profile media coverage of alleged abuses in connection with the Alaska Native Corporation ("ANC") preference program, subsequent agency enforcement, including suspension of GTSI and other Federal Government contractors, and Congressional action (and reaction).

The "Small Business Jobs Act of 2010" was enacted this year. Among other things, that law creates a presumption of the amount of loss to the government where a business concern misrepresents its size. That presumption of loss is equal to the "total amount expended" by the Government on the contract, subcontract, grant or cooperative agreement that is tainted by the misrepresentation. See Pub. Law 111-240 § 1341.

While there no doubt are bad actors out there seeking to reap the benefits of small business set-asides and preferences fraudulently, there are other companies that may unintentionally run afoul of the Small Business Administration’s rules regarding size and status. That is because the rules are not always straightforward and contracting officers historically may have blessed arrangements that in reality are improper - as some of the allegations raised in the media coverage of the ANC procurements suggest. Thus, legitimate companies may be at risk as the Federal Government turns its focus to small business contracting fraud and abuse.

Accordingly, as the New Year approaches, contractors, subcontractors, grantees and cooperative agreement holders who perform or bid for small business-preference work may want to add internal compliance audits to their list of resolutions. And it wouldn't be a bad idea to review:

- Written policies/procedures for teaming arrangements related to small business work;

- Actual practices in negotiating and entering into teaming arrangements;

- Teaming arrangement agreements (teaming agreements, subcontracts, etc.) proposed or used for small business work;

- Written policies/procedures for auditing compliance with small business work allocation and other compliance requirements;

- Actual recordkeeping practices related to small business requirements compliance;

- Representations and Certifications related to size and status to confirm that all such reps and certs are current, accurate and complete; and

- Internal compliance program for uncovering and addressing potential compliance issues related to the small business program.

Developments related to this area are likely to continue in the New Year, but identifying and correcting potential compliance issues now may offer some protection against your company being next year’s headline.

Ramping up for cloud computing?

Thu, 9 Dec 2010 15:30:50 -0500

Unemployment may be close to 10% but at least one person's job is safe - the person responsible for coming up with cute acronyms for new Government programs. As part of the Administration’s Federal Cloud Computing Initiatives, the Federal Risk and Authorization Management Program (“FedRAMP”) was created to provide a unified approach to assessing and authorizing cloud computing systems. Upon request of any agency, FedRAMP will assess and authorize vendors against a unified security risk model and once completed, FedRAMP will certify the vendor as FedRAMP authorized. Other agencies may choose to accept the FedRAMP authorization as evidence that the vendor is compliant with applicable security protocols.

FedRAMP is still in its early stages, but its “approve once, and use often” approach is expected to reduce duplicative work for both agencies and vendors, achieve consistency in federal security standards, speed up the procurement process, and achieve overall cost savings for the federal government.

So what does this mean for government contractors? On the one hand, a FedRAMP authorization could prove to be a valuable asset to contractors who intend to provide cloud computing to multiple agencies. On the other hand, there is no requirement that agencies participate and therefore, contractors could still be subject to separate assessments and different security standards. But who are we kidding? If you want to provide cloud computing to anyone, you likely want to get an ATO ("Authority to Operate") from FedRAMP.

The details of FedRAMP have not been finalized. On November 2, 2010, an inter-agency team, consisting of GSA, the National Institute of Standards and Technology, the CIO Council, and others released a Proposed Security Assessment and Authorization for U.S. Government Cloud Computing document. It will serve as the basis for the government-wide assessments and authorizations. If you are a government contractor interested in offering cloud computing services, you may want to access the document CIO.gov’s FedRAMP page. Comments to these documents can be submitted through the FedRAMP webpage of CIO.gov. The deadline for comments recently was extended to January 17, 2011.

The 2010 Election - How will it affect Government Contractors?

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Thu, 9 Dec 2010 13:48:16 -0500

The 2010 elections represent a historic turn-around in American politics from just two years earlier.

Kenneth B. Weckstein, a Partner in Brown Rudnick's Government Contracts & Litigation Group, discusses some potential threats, opportunities, and uncertainties that government contractors should think about in his article The 2010 Election - How will it affect Government Contractors? on our website.

Uncle Sam wants you . . . or, at least your proprietary software!

Tue, 7 Dec 2010 15:10:00 -0500

Some time in the early 1990s, the Federal Government came to the realization that more companies would offer their products and services to the Government if the Government behaved more like a commercial buyer. The result was an expansion of the exemptions from various procurement regulations for contractors supplying "commercial items."

It seems that the Government has changed its mind.

One sign of the Government's about face is the proposed revision to Part 227 of the Defense Federal Acquisition Regulation Supplement (DFARS) dealing with intellectual property rights in computer software. (See 75 Federal Register 59412 (Sept. 27, 2010), available here). Among other changes, the proposed rules reverse the current policy of obtaining commercial software products using the seller's standard commercial license. Instead, the proposed rule says,

"[T]he Government shall have the same rights as those in the standard commercial license customarily provided to the public unless such rights are inconsistent with Federal procurement law. Any portions of the standard commercial license that are inconsistent with Federal procurement law shall be considered stricken from the license and the remaining portions of the license shall remain in effect. The parties will promptly enter into negotiations to resolve any issues raised by the elimination of license terms or conditions that are inconsistent with Federal procurement law." [Emphasis added]

No meaningful guidance is provided on when the contractor's asserted license rights will be considered inconsistent with Federal procurement law. It seems that the Government is not content to follow the same rules followed by other users of commercial software. Stay tuned to see how the Government will exercise this new right to reject terms in standard commercial licenses based on vague policy grounds.

The proposed rule also provides that the Government will be able to challenge a contractor's restrictive markings on commercial computer software if the Government believes it was not created at private expense. If the Contracting Officer issues a final decision determining that the contractor is not entitled to restrict the Government's use or disclosure of the software and the contractor disagrees with that decision -- which we presume a contractor would do -- the contractor will be allowed to appeal that decision under the Contract Disputes Act. Sounds fair. But wait! The proposed rule states that "the Contractor agrees that the agency may access, use, modify, reproduce, release, perform, display, or disclose computer software or technical data as necessary to address the urgent and compelling circumstances" notwithstanding a pending appeal. So, the contractor ultimately may win its case, but only after the horse is out of the barn, in this case meaning after the Government has given a competing contractor access to the software. The proposed DFARS clause makes clear that the contractor is not prevented from seeking damages if the Contracting Officer's decision is ultimately reversed, but monetary damages are unlikely to restore the competitive position that the contractor had when access to its software was restricted. This is a proposal that lawyers may like more than contractors.

Think that's bad policy or just not fair? The public may comment on these proposed rules until December 27, 2010.

Want to sue your boss? DOL may help you find a lawyer.

Wed, 1 Dec 2010 11:49:37 -0500

The best laid plans of mice and men gang aft agley.

There's a large bureaucracy in the Executive Branch called the U.S. Department of Labor (DOL). Part of DOL's job is to enforce the Fair Labor Standards Act (FLSA), which guarantees covered employees a minimum wage and premium pay for overtime work, and the Family and Medical Leave Act (FMLA), which ensures that eligible employees won't lose their jobs just because they or their children get sick. DOL can and does investigate and punish employers for violating the FLSA and FMLA. In Fiscal Year (FY) 2009 (the last year for which DOL has published statistics), the agency collected $172,373,875 in back wages for 219,560 workers, mostly for FLSA overtime violations. (The top three industries hit were restaurants, guard services and healthcare). (DOL's "raw data" statistics are available here in XML format. A trade association that obtained the compiled statistics under the Freedom of Information Act (FOIA) has posted them here). DOL also can, and does, sue employers in federal court to enforce these laws, more than 125 times in FY 2008 alone.

Employees also can initiate private lawsuits to enforce the FLSA and FMLA. In fact, as an incentive for employees to take private action to enforce their rights, Congress provided that the employer must pay the attorneys fees of an employee who succeeds in FLSA or FMLA litigation. This is a departure from the normal American rule that each side in a case pays its own attorneys fees. In FY 2008, employees filed more than 5,000 FLSA actions in federal courts, and even more in FY 2009 (according to the Administrative Office of the United States Courts).

While there is no law against it, the reality is that, until now, employers rarely had to face the disruption of a DOL investigation followed by a private lawsuit over the same charges. Another reality is that DOL may take the path of least resistance and may be more likely to drop an investigation when the employer appears to have real defenses or raises novel legal issues. These realities are about to change.

On November 23, 2010, DOL announced that, beginning on December 13, 2010, when FLSA or FMLA complainants are informed that DOL's Wage and Hour Division (WHD) is declining to pursue their complaints, they may also be given a toll-free number to contact the newly created American Bar Association (ABA) - Approved Attorney Referral System. In addition, when the WHD has conducted an investigation, the complainant will now be provided information about the WHD’s determination regarding violations at issue and back wages owed. While DOL's announcement is vague as to the type of "information" it will share, a typical investigation involves interviews with both management and employees and a review of company employment records, some of which may be sensitive. Whatever information WHD chooses to share will be given to the complainants in the same letter informing them that the WHD will not be pursuing further action, and will be very useful for attorneys who may take the case. The Wage and Hour Division also has developed a special process for employees and their attorneys to quickly obtain certain relevant case information and documents when available. As far as we can tell, there is no provision for WHD to give this same information to the employer.

Why is DOL doing this? Probably as a way of getting more bang for its budget bucks. Resources are limited, so DOL must be picky about which cases it pursues. A case that may not be economically viable for DOL to pursue may interest an attorney working on a contingent fee basis. Why do we think this is wrong? When DOL has started an investigation and decided it is not worth pursuing, why should it turn its investigative files over to the employee but not to the employer? These are materials that usually are not shared with the public and may be exempt from disclosure under FOIA. Also, while DOL's plan may help employees achieve justice in some cases, it will force employers to defend what could be frivolous charges in other cases. Notably, DOL found "no violation" in 51% of FMLA investigations in FY 2009. Will these files be turned over too? To avoid opening the floodgates of litigation, DOL might want to share its findings with the employer as well and also remind employees and their attorneys that the DOL materials, by themselves, do not provide the basis to file a lawsuit. But good luck with that.

What's an employer to do? Understand what wages and overtime must be paid to which employees, conduct reviews to make sure that there is compliance with wage and hour laws, and properly document employment decisions.

So while DOL's heart may be in the right place, its plan may not work the way it hopes. Expect to see more lawsuits, and more complaints that the Obama administration is anti-business and pro-employee.

Cloud Computing: The Next Battleground?

Tue, 30 Nov 2010 12:00:47 -0500

Cloud computing. You heard of it. You probably even benefit from it. Think Google, Facebook, and Amazon.com and you get the idea. Cloud computing is the buzz word for internet-based computing, where resources and data are shared and allocated on-demand over the internet. And now, the federal government has taken the next big leap towards cloud computing. The General Services Administration (“GSA”) recently awarded the first government-wide Cloud Infrastructure contracts to eleven vendors, including AT&T, General Dynamics, and Verizon. Also known as Infrastructure as a Service (“IaaS”) contracts, these are the first of three types of cloud computing contracts that will be available through a new GSA website called Apps.gov. Through the IaaS contracts, government customers will soon be able to purchase cloud storage, virtual machines, or web hosting services.

So why the push for cloud computing and why now? Earlier this year, the Obama Administration announced its Accountable Government Initiative, which included a number of significant IT related reforms. One of those reforms was to halt the growth of federal data centers and shift investments to cloud computing solutions. By storing information in the cloud, government agencies will spend less money investing in IT infrastructure and less money on electricity costs to maintain large data centers. OMB also recently announced that the federal government will follow a “cloud-first” policy as part of its 2012 budget process.

We expect major changes in where the federal government invests its IT dollars. And the industry has caught on quickly. A number of companies, including IBM, Dell, and Google, have been vying for their share of the pie. And although cloud computing may be cutting edge, how you win business from the government is not. In October of this year, Google protested the terms of a Department of Interior procurement for web-hosted messaging services arguing that the RFQ’s Microsoft-specific requirements were unduly restrictive and improper. That case is pending at the Court of Federal Claims.

We will keep you posted. But if you are interested in learning more, visit GSA’s Apps.gov storefront.

Sorry about that Chief--Air Force sends confidential information to Boeing and EADS in $35 billion tanker competition

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Mon, 22 Nov 2010 12:09:25 -0500

In most competitions, the competitors give the Government their best technical proposals and their best prices and the Government selects the proposal offering the best value. In the multi-billion competition to replace the aging KC-135 refueling tankers, the Air Force is trying a different approach: Give the competitors each other's prices. At least that is what the Associated Press is reporting. AP, relying on the Seattle Times, reported that the Air Force mistakenly gave crucial pricing information on the competing bids to competitors Boeing and EADS.

It looks like the Air Force may have given corresponding data to the two competitors. That means that, for instance, if Boeing's price was given to EADS, EADS' price then was given to Boeing. That supposedly levels the playing field and allows both companies to submit their Final Proposal Revisions ("FPRs") on an equal basis. And that should end the matter. Indeed, Air Force spokesman Col. Les Kodlick reportedly has insisted that the incident would not delay the award of the contract. Not so fast Colonel Kodlick.

Here's the GAO rule at 4 CFR 21.5(d): "Procurement integrity. For any Federal procurement, GAO will not review an alleged violation of subsections (a), (b), (c), or (d) of sec. 27 of the Office of Federal Procurement Policy Act, 41 U.S.C. 423, as amended by sec. 4304 of the National Defense Authorization Act for Fiscal Year 1996, Public Law 104-106, 110 Stat. 186, February 10, 1996, where the protester failed to report the information it believed constituted evidence of the offense to the Federal agency responsible for the procurement within 14 days after the protester first discovered the possible violation."

What does that mean? It means that within 14 days of the disclosure, Boeing and EADS should report the disclosure to the Air Force--this probably has been done already. The Air Force then should perform an investigation to see how the information was released--which the Air Force no doubt already is performing. The Air Force will determine that the mistake was accidental. The Air Force will make award. And then the losing bidder will protest the award saying that the mistake may not have been accidental was more involved than the Air Force said.

There is more. The Air Force says that it has leveled the playing field. The competitors may not agree. Before the due date and time for submitting of FPRs, Boeing and EADS can submit protests arguing that the Air Force has not leveled the playing field.

All of these protests are in addition to any protests that the competitors can submit against the actual evaluation and selection decision--the bases for which they will not learn until after they are debriefed sometime next year.

The RFP for the initial refueling tanker replacement contract was issued on January 30, 2007. Eleven protests at GAO followed and resulted in GAO sustaining Boeing's protests on June 18, 2008. Many more protests will follow. I'm jealous. Air Force, call me.

Buddy can you spare a helicopter?

Thu, 18 Nov 2010 09:23:47 -0500

On November 1, 2010, the Army Times reported that the Air Force is close to completing a $3 billion sole-source contract to buy Sikorsky UH-60M Black Hawk helicopters from the Army. Wait. The Air Force needs helicopters. But instead of buying helicopters from a helicopter manufacturer, the Air Force is buying the helicopters from the Army? That raises a number of questions. First, how did the Army get $3 billion in helicopters that it doesn't need? Did it buy helicopters that it did not need? Did it buy helicopters that it needed and then determined that it did not need the helicopters? If so, why does the Army no longer need the helicopters? Or does the Air Force have an immediate need for the helicopters and the Army is the only entity that can meet that need? Is the Army selling used helicopters to the Air Force?

Although full details of the Air Force's contemplated purchase have not been reported, the Army Times and other media outlets do provide some answers. And the "immediate need" rationale appears to be out the window--the Air Force published a sources-sought notice for this purchase last year. While that is good advance planning, and we don't know what was submitted in response to the sources-sought notice, it sort of kills any argument that the helicopters are urgently needed. Other details about the Air Force plan also raise questions. For example, the purported justification for this $3 billion purchase is to save money. However, one of the benefits of competitive acquisitions is that any guess work about saving money can be eliminated: if the Air Force does not compete this purchase, how can it know that it is saving money by purchasing helicopters from the Army? Until precise specifications are circulated, how can the Air Force know that other conforming, less expensive helicopters are not out there? How can the Air Force be sure that it is getting the most bang for its buck?

The original sources-sought notice set forth the Air Force's generic helicopter requirements. The Air Force said that its helicopter, which will replace those used to monitor missile bases in the Northwest United States and to shuttle VIPs around the DC Metropolitan area, must carry nine passengers and cruise at 135 knots. The Sikorsky Black Hawk that the Air Force would buy from the Army exceeds those requirements. Black Hawks carry 13 passengers and can fly at an average cruising speed of 151 knots.

The Air Force's acquisition strategy apparently is to buy the helicopters from the Army under a Depression-era statute, the Economy Act of 1932, which allows one agency to buy goods from another agency without seeking bids from private companies. The FAR addresses interagency purchases under the Economy Act. See FAR Subpart 17.5. That section requires agencies contemplating such purchases to support their orders by a Determination and Finding (D&F) that: the acquisition is in the best interest of the Government; and the supplies cannot be obtained as conveniently and economically by contracting directly with a private source. FAR 17.503. Again we haven't seen responses to the sources-sought notice. But if the Air Force goes down this path, there may be a few helicopter manufacturers waiting in the wings to challenge any D&F and sole source award, especially with $3 billion at stake.

If the now dissolved Coalition Provisional Authority owes you money - - head to Iraq.

Wed, 17 Nov 2010 14:26:40 -0500

A recent Armed Services Board of Contract Appeals ("ASBCA") decision highlights the conundrum some contractors who worked in Iraq now face in their efforts to get paid. You've done the work. You are owed money. And, even the U.S. Contracting Officer that managed your contract agrees that you are owed money, yet no one will hear your claim. The ASBCA recently held that there was not jurisdiction under the Contracts Disputes Act ("CDA") to hear the appeal of a contractor that had contracted with the Coalition Provisional Authority ("CPA") in Iraq. Appeal of MAC Int'l FZE, ASBCA No. 56355 (October 29, 2010). In this matter, MAC International had held a contract with the CPA and sought payment on two task orders it had performed under that contract. However, there were just a few problems with the claim. For one, the contract was funded with Iraqi money, not U.S. appropriated funds. Also, the contract was not with the United States. It was with the CPA, which was made up of multiple countries and was found by the ASBCA to not be an agency of the United States. The ASBCA was not persuaded by the fact that CPA "Memorandum Number 4," which was the CPA's contracting guidance, established that the ASBCA had jurisdiction to hear disputes under contracts with the CPA. The ASBCA noted that Memorandum # 4 was not incorporated into MAC International's contract. Further, when the CPA dissolved it transferred its contracting powers to the Iraqi Government and amended Memorandum # 4 to give sole jurisdiction over CPA contracts obligating Iraqi funds to the Iraqi Courts. The fact that the contract was written on Department of Defense standard forms and administered by U.S. Contracting Officers was not enough to give the ASBCA jurisdiction over the matter.

So what is a contractor to do? How about the Court of Federal Claims? Probably not a good idea. One respected judge at the Court of Federal Claims has held that "extensive involvement by the United States in administering" a contract "cannot overcome the lack of privity of contract" between a contractor and the United States. Laudes Corp. v. United States, 86 Fed. Cl. 152, 165 (2009). Although we can think of arguments to get jurisdiction in the United States, all are fact dependent and none are foolproof. It appears the correct answer may be to bring your case in an Iraqi Court, in accordance with the amended CPA Memorandum # 4--a process that is likely easier said than done.

Transparency in Government Contracting?

Thu, 11 Nov 2010 14:33:24 -0500

Tension between disclosing information about government contracts and protecting proprietary information of companies has become more frequent in the government contracts community.

Kenneth B. Weckstein and Michael D. Maloney, members of Brown Rudnick's Government Contracts & Litigation Group, discuss the issues surrounding transparency in government contracting in the debut issue of Government Contracts Law360.

To learn more, please read the article Transparency in Government Contracting? on our website.

2010 Election Results, Part II

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Wed, 10 Nov 2010 10:45:44 -0500

There will be no Senator Greene (D-Penthouse) or Senator O'Donnell (R-Hogwarts). But we surely have not heard the last from them. There already are reports that Greene is considering a run for President. And O'Donnell is becoming a regular on the late night comedy talk show circuit. But seriously folks, what do you get when you mix 53 Democrat Senators and 46 Republican Senators with 239 Republican House Members and 188 Democrat House Members and a Democrat President?

I went back and checked my High School Government diagram of how a bill becomes a law and I was right. You need approval of the House, the Senate and the President for new "laws". Control of the House and $3.00 will buy you a latte at Starbucks. Neither Democrats nor Republicans can force new laws down the throats of the other. Does that mean that there will be deadlock and that the status quo will be maintained? Not necessarily.

This is what could happen. Republicans will control the House Committees. They can hold hearings, conduct investigations and issue subpoenas. Will that happen? You betcha. If your highest priority is defeating the President in 2012, rooting out fraud and inefficiency in those Departments headed by appointees of the President is a good game plan. In the Government contracts arena, if your company received an earmark sponsored by a D, expect some scrutiny.

Beyond the politics, there is politics. A big part of the President's base is unions, including those that represent Federal employees. How do you pay back those supporters and court them for 2012? You keep the Government employees you have and hire more. Historically, in Republican Administrations more Government work has been outsourced to contractors. In Democrat Administrations, the work has been brought back inside (insourced). The Obama Administration was true to that script. Republicans may use their Committee powers to scrutinize that.

One place where there will not be deadlock is in bills being passed out of the House. The House Republicans will rule. They can pass one bill after another and send them over to the Senate. A Conference Committee of House Members and Senators then will meet to work out differences and present a compromise bill for approval of both Chambers. Stay with me here. If there is never a compromise on anything, nothing ever will be presented to the President. If the Democrats in the Senate and the President want anything, they will have to give up something to the Republicans in the House--and vice versa. The bottom line is that there will be some laws passed and the Republicans will get their way on some issues. One of those issues could be to, once again, make it easier to outsource. And for contractors, that means more work.

It will be a fun dance to watch. Stay tuned.

2010 Election Results--What will it mean for Government Contractors?

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Wed, 3 Nov 2010 16:20:21 -0400

The Republicans have gained control of the House. The Democrats held the Senate. Now what? For Government Contractors, the following are some possibilities:

Afghanistan. The President wants to end the war and win the war. The Republicans want to win the war and end the war. If the Republicans get their way, we may be in Afghanistan longer than the President had planned. Impact on contractors? More work for a longer time.

Federal workforce. Republicans believe that Government in general and the Federal workforce are too big. Federal unions have been big supporters of President Obama and he has rewarded them with initiatives that sought to expand the Federal workforce. These initiatives could be rolled back and we likely will see a smaller Federal workforce. Fewer Federal employees to do the same level of work could mean more claims from contractors if they do not get timely direction or more work for contractors if there is budget to award more contracts. Which brings us to:

In-sourcing of work to Federal workforce. The current Congress passed legislation that made it more difficult to out-source work to Government contractors. Look for efforts to reverse that and to make more work available for contractors.

Burial of spent fuel. This Congress cut off spending for construction of the permanent repository for nuclear waste planned for Yucca Mountain, Nevada. That leaves spent fuel at nuclear power plants around the country with no place to be sent. The main proponent of the spending cut-off was Senator Reid. Given the change in the control of the House, the fact that Senator Reid is wounded from his election fight, and it sometimes feels good to poke your opponent in the eye, don't be surprised if there is an effort to restore funding for Yucca Mountain.

New major programs and spending initiatives. To paraphrase the Bill Clinton election campaign, "It's the deficit, stupid." Forget about it.

Government shut down. The Government needs an approved budget to operate. Will the House, Senate and President get along and if they get along, will they be able to agree on a budget? If they can't agree on a budget will they agree to a Continuing Resolution under which Government will continue to operate? If not, the Government shuts down. While no one will come out in favor of a Government shut down, there are many scenarios that could lead to a shut down. Some parties may have well-founded beliefs and refuse to back down. Other may welcome a shut down as a tool to embarrass an adversary. Either way, if the Government shut downs, there will be confusion for contractors, claims from contractors and extra cost for the Government.

At the end of the day, the new Congress will mean some changes for Government contractors and a little more work, but for the most part, business as usual.

You're a government contractor! And who knew?

Wed, 3 Nov 2010 10:40:28 -0400

Being a government contractor has its rewards. The Government must follow rules designed to treat all competitors fairly. Losers have the right to protest award decisions. You don't have to worry about your clients running out on their bills or not being able to pay. But government contracts also are subject to provisions that some companies consider to be onerous and intrusive. That is OK if you sign a contract with the Government. In that case, you know what you are getting in to. But what if you do not sign a contract with the Government and the Government still imposes its rules on you? Ask Florida Hospital of Orlando.

A Department of Labor Administrative Law Judge in Office of Federal Contract Compliance, U.S. DOL v. Florida Hospital of Orlando (Oct. 18, 2010), found that a hospital providing medical services to TRICARE beneficiaries was subject to OFCCP jurisdiction and required to comply with the affirmative action obligations of various statutes and executive orders because of an agreement the hospital had with a TRICARE management support contractor. (TRICARE is the health care system for Uniformed Service members, retirees and their dependents.) The hospital argued that it was not a federal government "subcontractor" for purposes of affirmative action requirements because the prime contracts between the TRICARE management support contractor and the federal government said that the agreement between the hospital and the prime contractor was not a "subcontract." Saying that your contract is not a subcontract does not make that true. The hospital also argued that it was not a government contractor because it was not providing personal property or nonpersonal services to the government and was not performing any of the prime contractor's obligations under the prime contract. The judge also rejected that argument because the purpose of the TRICARE prime contract and the agreement with the hospital was to provide health care.

While the recent cases involve the health care industry, we also are aware of instances where suppliers of food products have received OFCCP desk audit compliance notices -- even though the suppliers were unaware that the supplies provided ultimately were for a federal government prime contract.

Although the Florida Hospital case is on appeal and could be reversed, this case suggests that DOL is out to expand its jurisdiction over unsuspecting employers. This may mean that companies that never knew they were government contractors will have to undergo compliance audits under affirmative action laws and executive orders as well as investigations of their compliance with the prevailing wage and fringe benefit requirements of the Service Contract Act and Davis Bacon Act. Likewise, they could be subject to other laws and regulations designed to apply to government contractors. So when a request from OFCCP comes in, be ready to object or comply. And since knowledge is power, before entering into any agreement, you may want to confirm that the ultimate customer is not the Federal Government. After all, if you are going to be a government contractor, you might as well do it with your eyes open.

Ten years in the making, but who's counting. The new, improved Women Owned Small Business Federal Contracting Program

Fri, 22 Oct 2010 10:31:44 -0400

President Clinton signed the Equity for Women in Contracting Act 10 years ago. The purpose of the law, surprise, was to create more opportunities for Women-Owned Small Business ("WOSBs") to obtain Federal Government contracts. Prior to that there were programs that gave preferences to small businesses, Alaskan Native Corporations, veteran owned businesses, and certain businesses owned by Black Americans, Hispanic Americans, Native Americans and/or Asian Pacific Americans. Woman-owned businesses? Nada (as in nothing, not the National Automobile Dealers Association). But the government moves in mysterious ways, and often slowly.

The Small Business Administration ("SBA") issued regulations to implement the law in 2008. See 73 Fed. Reg. 56940. The same rule proposed just four (out of hundreds of) North American Industry Classification System ("NAICS") categories that would be covered by the WOSB program. That meant that very few woman-owned businesses would be able to benefit from being woman-owned businesses. The SBA also issued proposed rules regarding what data it would use to establish which industries were underrepresented by women-owned businesses and sought comments. See 73 Fed. Reg. 57014. The 2008 regulations never were finalized as to which NAICS categories would be eligible for federal contracting assistance. That meant the program could not be implemented. Instead, in March 2010 the SBA withdrew the proposed rule found at 73 Fed. Reg. 57014 and proposed a new method for calculating which NAICS codes would be eligible for WOSBs. The 2010 proposed rule resulted in 83 4-digit NAICS categories, rather than the four previously proposed. Finally, the end is in sight. On October 7, 2010, SBA issued a new Final Rule with an effective date of February 4, 2011, amending its regulations governing the WOSB Federal Contract Assistance Procedures. See 75 Fed. Reg. 62258. When that rule becomes final, this is what you can expect:

- Businesses that are small under the relevant NAICS code and are at least 51% owned and controlled by women, eligible for the WOSB program.

- Ability of a WOSB to self-certify its status as long as supporting documentation is provided to the SBA's document repository or directly to the relevant Contracting Officer.

- More opportunities for WOSB preference in federal contracting through contracts set aside for WOSBs. These procurements must be within one of the 83 NAICS categories representing industries where WOSBs are underrepresented or substantially underrepresented. The Contracting Officer must have a reasonable expectation that two or more WOSBs will submit offers. And, the anticipated award price of the contract must not exceed of $5 million (including options) for manufacturing contracts and $3 million for other contracts.

- Parity with other SBA small business programs with regard to agency decisions to set aside a procurement.

- Elimination of requirement for an agency certification that it has engaged in discrimination against WOSBs in order for the program to apply to that agency.

To see the details of the Final Rule including the methodology used to determine which NAICS codes are eligible for the program see 75 Fed. Reg. 62258.

Government contractors: No sex, no drugs

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Fri, 15 Oct 2010 10:53:30 -0400

We recently blogged about the Government using the award of contracts to promote social policies. Our September 29, 2010 post talked about the ban on text messaging while driving. It turns out that this is not the first time that the Government has used contracts to influence personal behavior. Government contractors also have been deputized to make sure that their employees do not use illegal drugs or pay for sex.

Most Government contracts must include the Drug-Free Workplace clause at FAR 52.223-6. As the title suggests, the clause requires contractors to notify their employees that the unlawful manufacture, distribution, possession or use of controlled substances is prohibited in the contractor's workplace. The clause also says that if the contractor is an individual, he or she must agree not to engage in the unlawful manufacture, distribution, possession or use of a controlled substance "while performing this contract." While it is not clear whether the clause applies to use in the workplace or use during the pendency of the contract, the Government has a legitimate interest in its contractors not being high while they perform Government work.

But sex in Government contracts? FAR 52.222-50 is titled Combating Trafficking in Persons. There can be nothing more vile than trafficking in persons. And the clause states that the "United States Government has adopted a zero tolerance policy regarding trafficking in persons." To that end, the clause prohibits contractors and their employees from engaging in "sex trafficking in which a commercial sex act is induced by force, fraud, or coercion..." The clause also prohibits the use of forced labor in the performance of the contract. No argument there. But the clause goes further. It prohibits contractor employees from procuring "commercial sex acts during the period of performance of the contract." And "Commercial sex act means any sex act on account of which anything of value is given to or received by any person." Basically, if you are a Government contractor and you perform Government contracts all year long, your employees (outside of work) are prohibited from paying for sex--even where paying for sex would be legal. So if any employees were planning a trip to the Mustang Ranch in Nevada, they better cancel.

Pre-award Protests May Increase Chances for Contract Award

Wed, 6 Oct 2010 10:57:31 -0400

A recent case from the Government Accountability Office shows how pre-award protests can be good for contractors, the government and the public.

On September 27, 2010, GAO sustained a pre-award protest that argued the Department of Health and Human Services, Centers for Disease Control and Prevention did not adequately justify its decision to make a single contract award under an IDIQ contract for toxicological profiles. The GAO recommended that the CDC "reconsider whether, in accordance with FAR § 16.504(c)(1)(ii)(B), the RFP should be competed on a multiple-award basis, and that the agency document a well-supported rationale for its conclusion." Information Ventures, Inc., B-403321, Sept. 27, 2010.

Regulations provide that for most IDIQ contracts:

the contracting officer must, to the maximum extent practicable, give preference to making multiple awards of indefinite-quantity contracts under a single solicitation for the same or similar supplies or services to two or more sources.

FAR 16.504(c)(1)(i) (emphasis added). A contracting officer can overcome the multiple award preference if, for example, "[m]ultiple awards would not be in the best interests of the Government." FAR 16.504(c)(1)(ii)(B)(6). The contracting officer, however, "must document the decision whether or not to use multiple awards in the acquisition plan or contract file." FAR 16.504(c)(1)(ii)(C).

In the Information Ventures procurement, the CDC was asked during the Q&A process for "the Agency’s well-supported advance justification for a single contract award[.]" The CDC responded by stating:

This is an internal acquisition sensitive document which isn’t releasable, however, the solicitation file contains the proper, comprehensive justification to support the strategy of making a single vs. multiple award.

Solicitation No. 2010-N-12083, Questions and Answers #2, Q&A No. 10, are available here. Because the CDC stated its intention to make a single contract award, but did not disclose the rationale in response to the Q&A, the only way to find out the basis for the determination was to file a pre-award bid protest. (A protest after contract award likely would have been viewed as untimely under GAO protest rules). In this case, the protest showed that CDC had relied on issues experienced in 1988 to justify the single contract award some 20 years later. And GAO did not buy it.

CDC still may not make multiple awards after the corrective action. However, Information Ventures shows that the pre-award protest process can be used to help increase competition and transparency.

Ban on Text Messaging while Driving

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Wed, 29 Sep 2010 15:35:24 -0400

The Government uses the award of contracts to implement important social policies. Contractors know that as a condition to receiving Government contracts they often must have affirmative action plans, provide United States made products and strive to use small business subcontractors. Bribery and pollution also are no-no's. Now, add to the list of prohibited practices--text messaging while driving. Texting while driving is no joking matter, but still, prohibiting it by contract does sound like a joke. Eating while driving. OK. Putting on make-up while driving. No problem. Reading the newspaper (remember those) while driving. Go for it. Texting while driving. Breach of contract.

The September 29, 2010 Federal Register set forth the new interim rule. It applies to solicitations issued and contracts awarded on or after September 29, 2010. It includes a new contract clause at FAR 52.223-18 titled "Contractor Policy To Ban Text Messaging While Driving (Sep 2010)". The clause states, in part: "(c) The Contractor should--(1) Adopt and enforce policies that ban text messaging while driving--(i) Company-owned or -rented vehicles or Government-owned vehicles; or (ii) Privately-owned vehicles when on official Government business or when performing any work for or on behalf of the Government." Note the little semi-colon after "Government-owned vehicles in (c)(1)(i). That means that when a company has a Government contract, it is agreeing that there can be no texting while driving company cars--even if the company cars are not being used for Government business. And note the "or" between (c)(1)(i) and (c)(1)(ii). Does that mean that the contractor has the choice of banning texting while driving in either 1. company owned vehicles, or 2. privately-owned vehicles used to perform Government business? I don't think so. Contract attorneys love those little contract interpretation issues.

The repercussions of the new clause could be far reaching. If a contractor fails to adopt "and enforce" policies that ban text messaging while driving and if an employee texts whiles driving and causes an accident, there will be fall-out. Anyone injured by the accident will have additional ammunition to sue the company for negligence. And, the Government will have remedies against the contractor for breach of contract.

The rule is effective immediately but comments can be submitted on or before November 29, 2010.

Senate Considers Bill to Require Debarment of Government Contractors Who Violate FCPA

Tue, 28 Sep 2010 14:30:49 -0400

The Overseas Contractor Reform Act of 2010 ("OCRA") has been passed by the House and submitted to the Senate Committee on Homeland Security and Government Affairs for consideration. It was introduced earlier this year by Rep. Peter Welch (D-VT) in response to reports that Blackwater USA continued to perform U.S. government contracts after paying $1 million in bribes to Iraqi officials in connection with the 2007 Nisour Square shootings in Baghdad. The OCRA would automatically debar from federal contracting anyone "found to be in violation of" the Foreign Corrupt Practices Act ("FCPA"), which prohibits the payment of bribes to foreign officials and requires covered businesses to maintain accurate books, records and internal controls.1 The OCRA also provides that the head of a federal agency may waive the automatic debarment requirement, provided that any such waiver is reported to Congress with "accompanying justification."

For more information, please click here.

Clean Energy Contracting with the Government: A New Era for Government Funding

Mon, 30 Aug 2010 11:02:09 -0400

The ramifications of the Gulf oil spill on the Gulf of Mexico and surrounding ecosystems have created a new focus on federal government funding to support green alternatives for the sustainable energy community.

Kenneth B. Weckstein and Michael D. Maloney, members of Brown Rudnick's Government Contracts & Litigation Group, discuss the opportunities and challenges that cleantech companies face in federal government contracting matters. In this article published in Bloomberg's Sustainable Energy Report, they highlight the "Ten Things You Need to Know as a Government Contractor."

To learn more, please read the article Clean Energy Contracting with the Government: A New Era for Government Funding on our website.

One small step against Bundled Contracts

Wed, 4 Aug 2010 14:57:35 -0400

The Obama Administration recently took a small step to execute its agenda to promote transparency in contracting and small businesses. The Department of Defense ("DOD") released an interim rule effective July 13, 2010 amending the Defense Acquisition Regulation Supplement ("DFAR") to require DOD contracting officers to publish a notice of a solicitation for a bundled acquisition on a public website. "Bundling" is a practice where an agency will combine a number of small requirements that were separate contracts into a single larger contract that may be unsuitable for award to a small business concern. The separate smaller contracts often had been performed by small business concerns or were at least suitable for award to a small business concern. When contracts are bundled into one larger job with different categories of work, small businesses that had been capable of performing the smaller contracts may not have the capability to perform the larger, bundled contract. For that reason, bundling has been criticized as limiting opportunities for small businesses to compete for government contracts.

Currently only the incumbent small business contractor is required to be notified if the follow on contract is going to be bundled. With the new change, the information will be posted for any interested contractors to see. As a result, more small businesses will have the opportunity to submit concerns to the agency (and possibly protest) a bundled acquisition. This notice is to be posted at least 30 days prior to release of the solicitation on the website www.FedBizOpps.gov. In the notice, the DOD is required to describe the "measurably substantial benefits" that are expected to be derived as a result of the bundling. This notice requirement only applies to DOD contracts but it will likely be seen as an improvement by small business owners that seek business with the DOD. DOD is accepting comments on this interim rule until September 13, 2010. For more information see the Federal Register at 75 FR 40714 available here.

Challenging bad past performance reviews

Wed, 4 Aug 2010 13:26:54 -0400

Past performance is a key evaluation factor in virtually every federal procurement, yet it is something over which contractors have frustratingly little control. How can that be, you wonder? Doesn't a contractor create its own past performance by how it performs its contracts?

Not entirely. Under the performance evaluation system legislated by Federal Acquisition Regulation (FAR) part 42.15, contracting personnel input detailed past performance information -- including subjective opinions -- into databases that other agencies can access to see what experiences their colleagues have had with a given contractor. One such system is the Contractor Performance Assessment Reporting System or "CPARS." In the CPARS, contractors are evaluated at least once a year, and sometimes more frequently, on a variety of factors, including their Business Relations. A contractor who is deemed uncooperative by the contracting officer, for example, because the contractor is trying to hold the Government to the terms of the contract, might be marked "unsatisfactory" under Business Relations. And, the contractor might get the kiss of death -- a rating of "Definitely would not award another contract."

Officially, contractors can review their CPARS and have their rebuttals included in the database, but what Government employee is going to believe the rebuttal of a biased contractor over the "unbiased" assessment of another Government employee? Contractors have occasionally tried to challenge negative CPARS in court, but have been largely unsuccessful. When the suits have been filed in U.S. district courts, the Government has typically moved to dismiss because Government contract cases are supposed to be brought in the Court of Federal Claims or at the Boards of Contract Appeals. But, when the cases have been filed in those traditional Government contracts forums, the Government has argued that they should be dismissed because the contractor has not filed a certified claim under the Contracts Disputes Act (CDA).

A recent decision of the Armed Services Board of Contract Appeals (ASBCA) suggests that contractors may have a remedy, albeit an incomplete one. In Colonna’s Shipyard, Inc., ASBCA No. 56940 (June 24, 2010), the ASBCA found that when the contractor receives a bad performance evaluation because of a disagreement with the contracting officer over what the contract requires, the contractor can use the disputes process to obtain a ruling that its contract interpretation is correct. The contractor need not request monetary relief to get a decision from the ASBCA. For example, if the contractor believes that it was wrongly assigned low grades for the timeliness of its performance, it can obtain a contract interpretation saying that it was right and the Government was wrong.

The question then becomes, what happens with the bad past performance review in the CPARS or other databases? Boards of Contract Appeals do not seem to have authority to order the Government to remove the improper past performance ratings. That leaves the contractor with few options. It could go back to the court and try to get relief and it could ask the Government to post the Board decision along with the past performance review. Either way, if a contractor wants to challenge a negative past performance review, there is a way to navigate the case law to get some practical relief.

Exceptions to Every Rule

Tue, 6 Jul 2010 12:48:54 -0400

In Federal Government Contracts, for every black letter rule, there often is an exception. This maxim was proven yet again by a case decided by the US Court of Federal Claims in May.

In Magnum Opus Technologies, Inc., et al., v. United States, et al., -- Fed. Cl. --, 2010 WL 2255523 (Nos. 10-106C, 10-127C May 28, 2010), the Court of Federal Claims granted Plaintiffs’ Motion on the Administrative Record, concluding that the Air Force improperly exercised options for extending ID/IQ contracts for four out of six of the contract-holders. The case was framed as a bid protest - with the plaintiffs arguing that the Air Force violated FAR 17.207 and was required to hold a new competition for the option work. Ultimately, the Court agreed.

As a general rule, an agency’s exercise of a contract option does not give competing contractors a basis to protest. And, as a general rule, an agency’s failure to exercise a contract option does not give a contractor a right to file a protest. The Magnum case is somewhat interesting because it represents an example of exceptions to both of those general rules.

The two plaintiffs in the case were: 1) an entity that was not party to one of the ID/IQ contracts at issue; and 2) a contractor that did have an ID/IQ contract but whose option was not exercised by the Air Force. And, both prevailed in the litigation.

The ID/IQ contracts at issue were to provide health care service providers, e.g., doctors, nurses, etc., for Military Treatment Facilities. The original 2005 RFP envisioned award of a minimum of five ID/IQ contracts, with subsequent competition among the ID/IQ contract-holders at the task order level. As part of the initial competition, bidders proposed "Not to Exceed" rates for various health care service provider positions that were to be filled at the task order level. During contract performance, however, the Air Force, by bilateral modification, eliminated all of the "Not to Exceed" rates in the ID/IQ contracts.

The deletion of the Not to Exceed rates from the ID/IQ contracts ended up being the determinative fact in the litigation because the Court ultimately found, among other things, that the deletion of those rates from the ID/IQ contracts rendered the Air Force unable to exercise awarded options without violating FAR 17.207(f) - absent a sole-source justification. Magnum, 2010 WL 2255523 at *24.

FAR 17.207(f) states in part:

Before exercising an option, the contracting officer shall make a written determination for the contract file that exercise is in accordance with the terms of the option, the requirements of this section, and Part 6. To satisfy requirements of Part 6 requirements regarding full and open competition, the option must have been evaluated as part of the initial competition and be exercisable at an amount specified or reasonably determinable from the terms of the basic contract....

Id. (Emphasis added). The Court explained:

The contract modification [deleting Not to Exceed rates] thus removed the only basis the Air Force possessed for meaningfully comparing the cost to the Government of the contractors’ options. Notwithstanding [other] "cost control" measures, the price of the options was not ‘reasonably determinable’ from the ID/IQ contracts.

Magnum, 2010 WL 2255523 at *24.

FAR Pt. 6 outlines the policies and procedures for promoting full and open competition in Federal government procurements. It applies to all Federal acquisitions with limited exceptions. One such exception is "the exercise of priced options that were evaluated as part of the initial competition (see 17.207(f)), that are within the scope and under the terms of the existing contract". FAR 6.001(c).

In the Magnum case, because the deletion of the "Not to Exceed" rates rendered the option prices "not reasonably determinable", the Air Force could not exercise the options in compliance with FAR 17.207(f). Because the Air Force could not exercise the options in compliance with FAR 17.207(f), the Air Force legally was required to use full and open competition to contract for the requirements covered by the options - or prepare a justification for other than full and open competition in accordance with FAR Subpart 6.3.

Thus, sometimes it is the exceptions and not the general principles that carry the day. That said, it is notable that even though the plaintiffs prevailed in the case, the injunctive relief granted was "tailored" to permit the Air Force to continue to obtain work under the improperly exercised ID/IQ contract options through May 13, 2012. Magnum, 2010 WL 2255523 at *36.

Government to publish J&A's for sole source contracts

Tue, 29 Jun 2010 16:34:29 -0400

We previously blogged that the Government soon may resort to sole-source contract awards in response to the overwhelming oil clean up and containment needs along the Gulf Coast in the aftermath of the BP oil spill disaster. Flexibility is an important feature of federal government contracting.

But so is transparency. And the Government just announced new rules that should go a long way to ensure that the sun shines on agencies' sole-source contracting decisions.

The new rules, at FAR 6.305 and 13.501, require agencies to make publicly available Justification and Approval ("J&A") documents for noncompetitive contracts. The new rules go into effect on July 16, 2010. After that date, agencies must post their J&A documents on the agencies' website and at fedbizopps.gov. Generally, the rules require agencies to post the J&A documents within 14 days of the sole-source award and to maintain the posting for a minimum of 30 days. As with all Government contract rules, there are nuances and exceptions. For example, the publication requirement does not apply if it would disclose the agency's needs and such disclosure would compromise national security or create other security risks. The rules also ensure that contractor proprietary information is not publicly disclosed. Overall, the rules will make sole-source award decisions more transparent and that is a good thing.

If you are a government contractor, however, be careful. These rules have no impact on the bid protest timeliness requirements at GAO or the Court of Federal Claims statutory jurisdiction. These rules and the implementing statute behind them do not affect a sea change in bid protest law. Nor were they intended to do so. For protests at GAO, disappointed bidders generally still must protest sole-source awards within 10 days of when the basis of the protest was known or should have been known. That means that as soon as a company learns that the Government is contemplating a sole source award for work that the company believes it also can perform, the spurned competitor needs to file its protest. That knowledge could come before the J&A is published.

Click here to see the new rules.

Gulf Coast Oil Leak--Government Contractors to the Rescue

Tue, 1 Jun 2010 09:50:40 -0400

The mayor of Grand Isle, Louisiana and the head of Homeland Security for Jefferson Parish, Louisiana recently appeared on CNN to discuss the response of BP and the Government to the Deepwater Horizon crisis. They asked why greater resources were not being mobilized. They wondered why more skimmer ships had not been dispatched to the waters off Grand Isle. They’re not looking for an armada that meet finely tuned specifications - they simply yearn for more boats to win a few battles in what they called the war unleashed by the Deepwater Horizon disaster.

We don’t know whether there are any private skimmer ships that could be dispatched to augment the Coast Guard's own vessels. But these officials’ comments highlight what might be coming soon: a large-scale Government-led mobilization of public and private resources to contain the damage that seems to be getting beyond BP’s ability to respond.

The Government’s mobilization necessarily will require the use of contingency contracting authority under part 18 of the Federal Acquisition Regulation. Among many other "acquisition flexibilities," Contracting Officers are expressly allowed to "limit the number of sources and full and open competition need not be provided for contracting actions involving urgent requirements." FAR 18.104. The Federal Government does have flexibility to flex otherwise inflexible procedures.

While many critics decried the use of sole-source contracting in the response to Katrina and for operations in Iraq and Afghanistan, the fact remains that, in times of crisis, perfection may not be an option. Consider what’s worse: somewhat flawed bargains for imperfect goods and services or unmitigated damage to the Gulf Coast from Florida to Louisiana. At times, trading procurement risk for the irretrievable consequences of delay is a good deal.

Undoubtedly the trade-off is not so dire. Government officials in DHS and DoD have learned important lessons in emergency contracting. Large contractors have taken their knocks in Congressional inquiries. After all this, we’re confident that practices in the public and private sectors have improved. But, we’re equally confident that in years to come, there will be a lot of finger pointing over glitches that occur in the approaching weeks and months if the Government must call contractors into action.

Certainly the procurement community must strive to be worthy stewards of the resources needed to respond to this crisis. But those who may be anxious to find fault down the road should remember that fixing a mess is just that - messy. Perfection should not come at the cost of destruction.

Legal Interpretation Stand down - GAO v. Executive Branch

Tue, 18 May 2010 09:35:36 -0400

The Government Accountability Office ("GAO") sustained a protest of a solicitation that was not set-aside for a Historically Underutilized Business Zone ("HUBZone") small business. See DGR Associates, Inc. B-4002494 (May 14, 2010). In its decision, GAO stated that the plain language of the HUBZone statute, 15 U.S.C. § 657a, requires agencies to set aside contracts for HUBZone small business concerns when: 1) the agency has a reasonable expectation that not less than two qualified HUBZone small business concerns will submit offers, and 2) that the award can be made at a fair market price. Here, the contract was set aside for 8(a) small business concerns rather than HUBZone small business concerns and GAO concluded that the agency was required to first consider whether conditions for HUBZone set aside were met.

The agency challenged GAO by citing a Department of Justice ("DOJ") memorandum that stated it disagreed with the GAO's interpretation of the statute and instead concluded that the Small Business Act does not compel the Small Business Administration ("SBA") to prioritize the HUBZone program. The DOJ memorandum instructs Executive Branch agencies to instead follow SBA's regulations placing different categories of small businesses on an equal footing for competition and award of contracts. The DOJ memorandum further instructs agencies that the SBA regulations are reasonable and binding on Executive Branch agencies, notwithstanding GAO decisions. DOJ reminds agencies that GAO decisions are not binding on the Executive Branch. Nevertheless, GAO stands its ground and sustained the protest because the agency failed to consider whether the conditions existed for procurement to a HUBZone small business. GAO also noted that the fact that its recommendations are not binding on the Executive Branch does not affect GAO's statutory obligation to decide protests and absent some change in the statutory scheme or a contrary decision by the U.S. Court of Appeals for the Federal Circuit, GAO will continue to interpret the HUBZone statute as it always has.

To read the full decision in DGR Associates, Inc. B-4002494 (May 14, 2010), click here.

Bigger Government Coming Soon

Wed, 28 Apr 2010 14:36:04 -0400

Not long after his inauguration, President Obama went on the offensive against Government contractors, declaring that, "The American people's money must be spent to advance their priorities, not to line the pockets of contractors or to maintain projects that don't work." Now, the Office of Federal Procurement Policy ("OFPP") has issued draft guidance whose stated purpose is "to assist agency officers and employees in ensuring that only federal employees perform work that is inherently governmental or otherwise needs to be reserved to the public sector."

OFPP says that nothing in its proposed guidance is intended to discourage the appropriate use of contractors. OFPP says that contractors can provide expertise, innovation, and cost-effective support to federal agencies for a wide range of services. And, OFPP says, reliance on contractors is not, by itself, a cause for concern.

We agree with OFPP's sentiments. What is a cause for concern, though, is the notion expressed in the draft guidance that Government employees are more "accountable" than contractor employees and that relying on contractors causes "the inability to be certain whether the contractor is properly performing the specified work at a proper price and the inability to be sure that decisions are being made in the public interest rather than in the interest of the contractors performing the work."

In fact, federal procurement laws, regulations and policies already provide the checks that are needed. If the concern is "a proper price," the Government can, and does, use independent Government cost or price estimates to determine how much it should be paying. The fact that there is competition provides further comfort that the Government gets competitive prices. Prices charged by contractors often are subject to audit. When the Government itself performs work, there is no competition. And, some would argue that the Government has no incentive to be efficient. Does contractor performance cost more than Government performance? Maybe. Maybe not. In fact, laws allowing for public-private competitions have been in place for many years. Recently, however, Congress has passed laws that put great limits on those competitions.

The bottom line is policies are being put in place that will result in work shifting to Government employees. This will make Government unions happy. Some Government contractors will lose work and contracting opportunities. And, as we have seen in the past, one day the pendulum will swing back in the other direction.

Interested parties may comment on the proposed policy letter until June 1, 2010. The draft guidance is at 75 Fed. Reg. 16,188 (March 31, 2010) and can be found here.

When does buying a car from the U.S. come with one year's room and board in a Mexican jail?

Wed, 10 Mar 2010 09:37:52 -0500

Buying property at auction can be full of surprises. It is not unusual for property to be sold "as is, where is" and for buyers that end up with a broken item to be left without recourse. And we all have heard stories about purchases of old furniture that come with hidden, valuable papers. But when you buy a car at an auction held by U.S. Customs and Border Protection ("Customs"), you probably aren't planning to go to prison for drug trafficking. Unfortunately, for Francisco Javier Rivera Agredano, instead of a one year warranty, his car purchase came with a one year prison sentence in Mexico. And here's the sad part: Both Mexican and U.S. courts found that he did not do anything wrong.

Less than five months after purchasing a 1987 Nissan Pathfinder from Customs, Mr. Agredano and Mr. Alfonso Calderon Leon were arrested at a mandatory checkpoint after Mexican authorities discovered concealed narcotics in the car. They were charged with drug trafficking and possession. In his defense, Mr. Agredano argued that the drugs were in the Pathfinder when he bought the vehicle from the United States Customs. Mr. Agredano asserted that Customs failed to adequately inspect the Pathfinder prior to sale and locate the concealed narcotics.

Now we know what you are thinking: Two guys get caught trying to smuggle drugs and argue that they never saw the drugs and the drugs must have been in the car when they bought it five months ago. That sounds like something a high-priced lawyer would come up with. And, surprise, the Mexican judge that first heard Mr. Agredano’s case did not believe the explanation. Instead, the Judge said that to accept the defense would mean that U.S. Customs violated U.S. laws by failing to adequately inspect the Pathfinder and locate the concealed narcotics prior to the sale of the car. And the judge was not prepared to believe that Customs had not done its job. The result -- Mr. Agredano (and Mr. Leon) remained in a Mexican penitentiary from approximately January 24, 2002 until January 10, 2003 -- when a Mexican three judge panel ordered their release.

By all accounts, Mr. Agredano was wrongly imprisoned. And, that imprisonment was the direct result of his purchase of the 1987 Nissan Pathfinder from the U.S. Government.

So what do you think happens when you buy something from the Government and get more (or less) than you bargained for? The Government makes you whole, right? Wrong.

Here, the purchaser filed a contract claim with the U.S. Court of Federal Claims. And the evidence in the case showed, and the Court found, that Customs had sold the Pathfinder to Mr. Agredano with the hidden drugs. That means that the U.S. court believed that Mr. Agredano was not a drug dealer. His story checked out. So, you figure that Mr. Agredano should be able to recover damages for his year in prison. Wrong again. According to Customs and the Federal Circuit, which heard the case on appeal, Customs sold the vehicle with an "AS IS" disclaimer which was broad enough to disclaim liability arising from unknown illegal contraband contained in the car.

Customs is charged with searching vehicles and removing illegal contraband. When it seizes vehicles and sells the cars at auction to the public, isn't it responsible for identifying and removing drugs? Indeed, as Court of Federal Claims found, Customs "is responsible for ‘getting narcotics off the street and not giving it to the public.’ . . . The government has that responsibility because only the government may possess illegal narcotics." Agredano, 82 Fed. Cl. at 439. And, a Customs agent testified, in part, as follows:

Well, as an officer of the U.S. Customs Service[,] it was one thing we don’t want to do is be selling vehicles with contraband still left in them. . . . I would say it’s embarrassing to the Customs Service to, you know, sell a vehicle that has narcotics already in it. I mean, we’re supposed to be getting narcotics off the street and not giving it to the public.

Id.

According to the trial testimony, Customs permitted a visual inspection of the Nissan Pathfinder before purchase. Prospective bidders were not permitted to search the vehicle for hidden drugs. In fact, the Court of Federal Claims heard testimony that a lay person would not be able to identify illegal drugs hidden in the car without some training.

When Customs is auctioning cars to the public, Customs is engaging in a commercial transaction. In many commercial transactions, courts will "reform" contracts to strike illegal or invalid terms. In fact, in some instances, such reformation is applied against the United States Government. See, e.g., GHS Health Maintenance Organization, Inc. v. U.S., 76 Fed. Cl. 339, 376 (2007) (reforming contracts to delete contract term based on invalid regulation), aff’d 536 F.3d 1293 (Fed. Cir. 2008).

Here, a private individual paid $2600 for a 1987 Nissan Pathfinder. While the buyer assumed the risk that the transmission on the car did not work, did he assume the risk of being jailed in Mexico for a year and spending $350,000 in legal fees fighting drug trafficking and possession charges because Customs sold the car with hidden drugs? Ultimately, the Court of Appeals found that there was not a contract theory that allowed the purchaser to recover his damages. Like Customs, maybe the Court should have looked harder. The case is Francisco Javier Rivera Agredano and Alfonso Calderon Leon v. United States, --- F.3d ---, 2010 WL 537160 (Fed. Cir. 2010) and was decided on February 17, 2010.

Get ready. Government contractors may be paying higher wages.

Wed, 3 Mar 2010 09:53:55 -0500

The media have been reporting that the Obama Administration plans to make the wages and fringe benefits that a bidder pays its workers an evaluation factor in competitions. We haven't seen the details yet but are curious as to what wages will be favorably evaluated. Will offerors get extra points for proposing reasonable wages, high wages, low wages? Government contracts have long been used to promote social policy. And this Administration has made no secret of its pro-labor leanings. So if we get one guess, it is that this policy, if implemented, could lead to higher wages. After all, in many evaluations the Government already evaluates the reasonableness of wages and there is no chance that the Government will be promoting lower wages.

In fact, most contractors are already subject to laws that govern wages and benefits. First, there is the Fair Labor Standards Act (FLSA) which requires that nonexempt employees receive the minimum wage as well as premium compensation for working overtime. Second, there are state minimum wage laws that often require higher wages than the federal minimum wage. There also are so-called prevailing wage laws, including the Davis-Bacon Act, which applies to construction contracts, and the Service Contract Act (SCA), which applies to contracts that are principally for services. Both the Davis-Bacon Act and the SCA also require the payment of fringe benefits. In many cases, the wages and benefits required under these two laws are at union scales.

Many contractors may not be aware of the serious consequences for violating these laws. In the case of the SCA, for example, a contractor can be debarred, i.e., prohibited from competing for government contracts, for three years. Agencies may also terminate the contracts of companies that violate these laws.

In short, the Government already has tremendous influence over the wages and benefits that its contractors pay. And it is not uncommon for a solicitation to include evaluation criteria that relate to whether offerors will be able to retain the workers necessary to perform the contract. However, as a general rule, compliance with these laws is not expressly an evaluation factor in awarding contracts.

We will keep our eyes open for new developments on the wage front. But don't be surprised if you see future RFPs that lead offerors to propose higher wages and benefits for employees.

"The money truck will back up to the building" -- but whose money?

Thu, 25 Feb 2010 15:36:12 -0500

It's a well-known principle in contract law that each subcontractor usually has a relationship (called "privity of contract") only with the contractor at the tier directly above the sub. This applies no matter how many levels or tiers of subcontractors there are.

A recent case from Utah (E and M Sales West, Inc. v. Bechtel Jacobs Co.) demonstrates the risks of blurring those lines of privity. In that case, a third-tier sub below Bechtel Jacobs was required to provide a second heater for a Government job after the first had failed inspection testing. E and M thought it should be paid for the second heater. Ordinarily, this would not have been Bechtel Jacobs' immediate problem. The third-tier sub should have sued the second-tier sub, which could have sued the first-tier sub, which could have sued Bechtel, which could have submitted a claim to and sued the Government. While that may sound like a wasteful mess, the beauty of the system is that each tier has the opportunity to assert whatever defenses it has, which may differ based on the contract language at each level.

Here, though, a Bechtel Jacobs manager allegedly told E and M to build the second heater and said "The money truck will back up to the building.". He probably did not intend for it to be Bechtel Jacobs' money in the truck, but a court found that, if he really said those words, he formed a new and direct contract with E and M, and that could form the basis for Bechtel Jacobs to pay.

We suspect that wherever that manager is working now, he has learned to be more careful with his words.

Auctions are fun

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Fri, 29 Jan 2010 09:32:07 -0500

Admit it, you have gone to an auction or you would like to go to an auction. And, first time auction goers often are scared about scratching their ear and ending up with an ugly painting, or worse. So how does the Government handle an accidental bid in the age of electronic auctions? The Federal Government auctions a lot of stuff. On GSA Auctions, there are categories for aircraft and aircraft parts, construction equipment, crash test vehicles and even the NASA Shuttle/Hubble (no current auctions). See http://gsaauctions.gov/gsaauctions/aucbddet/#. If you are in the market for a barge, forklift or test equipment, you can check in at Government Liquidation. See http://www.govliquidation.com/index.html. But just like private auctions, Government auctions have a lot of rules. For example, the terms and conditions for GSA Auctions go on and on. See http://gsaauctions.gov/html/Terms_main.htm#T15 Among other things, "contracts resulting from the sale of any offer in the GSAAuctions.gov website are subject to the Contract Disputes Act of 1978 (41 USC 601-613), as amended." One difference between Government and private auctions is that if you submit the winning bid and fail to pay up, the private auction company may not chase after you for $730. Not so with the Government. Ask James Duyon. Mr. Duyon was the winning bidder for a 2006 Guld Stream CVDH Travel Trailer. Mr. Duyon did not pay within two days of being notified that he had submitted the winning bid. After notice, GSA terminated the contract (the agreement to purchase the property) and assessed $730 in liquidated damages against Mr. Duyon. Mr. Duyon appealed to the United States Civilian Board of Contract Appeals. He claimed he made a mistake. The Board, in a five page decision, denied the appeal holding that the mistake was a unilateral error of judgment that arose from the appellant's negligence. The decision is well-written and legally correct. But can't we come up with a better way for the Government to resolve and collect disputes over $730? Duyon v. GSA was decided on January 14, 2010 and is at: http://www.cbca.gsa.gov/2007App/SHERIDAN_01-14-10_1745__JAMES_R._DUYON.pdf.

Bible Study in the Battlefield

Fri, 22 Jan 2010 12:23:15 -0500

On Monday, January 18, 2010, ABC News reported that Trijicon, a Federal government contractor, was placing "secret" Biblical codes on gun sights that it sold to the U.S. Government for use in Iraq and Afghanistan. << http://abcnews.go.com/Blotter/us-military-weapons-inscribed-secret-jesus-bible-codes/story?id=9575794>>. Those "secret" codes essentially are abbreviated citations to Bible verses that are printed along side of the serial number for the sight. Bible citation examples included on the sights include: 2COR4:6 or Second Corinthians 4:6 and JN8:12 or John 8:12. When the story first broke, the Trijicon representative stated that the Bible citation inscriptions had "always been there." And according to a statement released by Trijicon on January 20, 2010, the Biblical references have been on the Trijicon sights for "two decades." Trijicon stated in part: As part of our faith and our belief in service to our country, Trijicon has put scripture references on our products for more than two decades. As long as we have men and women in danger, we will continue to do everything we can to provide them with both state-of-the-art technology and the never-ending support and prayers of a grateful nation. . At the same time, spokespeople for the U.S. Army, the Marine Corps, the New Zealand’s Defense Force, and Britain’s Ministry of Defence (all customers of Trijicon) said they were unaware of the Bible verse inscriptions when each purchased the sights from Trijicon. The public relations issues presented by this story seemingly are obvious. What isn’t so clear is whether the US military had a contractual basis to require Trijicon to act to remove the inscriptions from sights that already had been sold to the US military. Trijicon’s statements suggest that the sight with the Biblical verse inscription is how Trijicon sells its products to all customers. And, the spokesman for the overall command for the U.S. military in Iraq and Afghanistan ("CentCom") down played the controversy, claiming that the inscriptions (on the military weapon sights) were essentially the same as the "In God We Trust" language on US currency. According to that spokesperson, since the weapon sights were not being given to the "locals", the Biblical verse inscriptions did not amount to proselytizing in the countries where the sights were in use. Significantly, there is a US military directive that prohibits such proselytizing. But, as noted, the military spokesperson is on the record asserting that Trijicon has not violated that directive with the religious inscriptions sold to the US military as part of its sights. As is often the case in high profile Federal government contract controversies, public relations (and business realities) work faster than possible contractual remedies. While Trijicon and the CentCom were defending Trijicon’s practices, spokespeople for the U.S. Marines announced intentions to meet with the contractor to speak about "future" procurements. The Britain Ministry of Defence similarly announced its intention to "talk with" the contractor to discuss the issue. New Zealand announced plans to remove the "inappropriate" inscriptions from the sights it had purchased and to make sure the contractor did not include such inscriptions on future sights. . And, yesterday, Trijicon reportedly "voluntarily" offered, among other things, to stop placing scripture references on the products manufactured and sold to the U.S. military; provide 100 modification kits to remove the scripture code from sights already in the field; make sure that future sights provided for Department of Defense procurements are produced without the scripture references; and provide similar remedies to foreign military forces that have purchased Trijicon sights with the "secret" Bible verse references. . As part of routine compliance training, contractors often are advised to approach possible compliance challenges by asking: "How does this play out on the first page of The Washington Post?" Turns out, not so good for the so-called "Jesus-guns".

Delinquent federal contractors better fess up if they owe taxes - NOW

Thu, 21 Jan 2010 16:41:25 -0500

President Obama yesterday directed the Internal Revenue Service ("IRS") to conduct a review to identify federal contractors who have falsely certified that they do not presently owe taxes for which they are delinquent. Contractors whose certifications are found to be false may face severe consequences such as suspension, debarment, or even criminal charges for violations of the False Statements Act. At a minimum, contractors could be subject to a finding that they are not responsible offerors. In yesterday’s announcement, the President stated that he intended that "the Office of Management and Budget, together with the Treasury Department and other federal agencies . . . take steps to block contractors who are delinquent on their taxes from receiving new government contracts." Thus, the memorandum signed by the President, specifically directed the IRS to compare its records with the certifications required of federal contractors that state whether the contractor has "been notified of any delinquent Federal Taxes in an amount that exceeds $3,000 for which the liability remains unsatisfied" in the three year period preceding the certification. This review is to be completed in the next 90 days. The President further directed the Office of Management and Budget ("OMB") to make "recommendations on process improvements to ensure [that] contractors [whose taxes are delinquent] are not awarded new contracts...." These recommendations are due to the President within the same 90 day period as the IRS review of contractor certifications. Finally, the President called on Congress to provide contracting officials with the tools "necessary to ensure that the public’s tax dollars are not used to boost the profits of companies who refuse to pay their taxes." These tools presumably would include the authority to "to recoup [delinquent taxes] or stop tax scofflaws from getting federal contracts," which was proposed by the President in legislation he sponsored while he was in the Senate. The President is on the hunt for deadbeats. Contractors who owe delinquent taxes must immediately review their responsibility certifications. If they are inaccurate, immediate correction and remedial efforts to satisfy the tax liability may be a contractor's best tools to mitigate the consequences of a false certification. The White House Press Release announcing these actions can be found at http://www.whitehouse.gov/the-press-office/president-obama-directs-administration-crack-down-tax-cheats-seeking-government-con. The Presidential Memorandum is available at http://www.whitehouse.gov/the-press-office/memorandum-heads-executive-departments-and-agencies-1. The certification requirement is set forth at Federal Acquisition Regulation ("FAR") Clause 52.209-5 Certification Regarding Responsibility Matters (Dec 2008), specifically § 52.209-5(a)(1)(i)(D). Provisions regarding responsibility, suspension and debarment are located in subparts 9.1 and 9.4 of the FAR.

A Federal Agency Must "Stay" When Told

Tue, 12 Jan 2010 09:44:23 -0500

In a recent decision, the Court of Federal Claims held that if GAO timely notifies an agency of a protest, the agency must comply with the Competition in Contracting Act ("CICA"), 31 U.S.C. § 3553, provision requiring an automatic stay of the protested contract. See Unisys Corp. v. U.S et al, No. 09-800C available at http://www.uscfc.uscourts.gov/sites/default/files/GMILLER.UNISYS121809.pdf. That is true even if the agency is disputing GAO's jurisdiction. A challenge to GAO jurisdiction, by itself, does not override an otherwise proper CICA stay. The case arose out of a Transportation Security Agency ("TSA") task order awarded under a Department of Homeland Security ("DHS") Indefinite Delivery/ Indefinite Quantity contract. Some confusion on protest jurisdiction was created because the task order contained a provision indicating the Federal Aviation Administration's ("FAA") Acquisition Management System ("AMS") governed. And, AMS covered contracts are exempt from all federal acquisition laws and regulations. Also, AMS provides that the FAA's Office of Dispute Resolution for Acquisition ("ODRA") has exclusive protest jurisdiction. However, the task order also incorporated by reference the DHS IDIQ contract which is governed by the FAR and allows for GAO protest jurisdiction. As a result, the parties to the lawsuit were in disagreement whether GAO had jurisdiction and, in turn, whether the CICA provisions requiring an automatic stay of contract performance were applicable, or whether the ODRA was the proper forum and CICA did not apply. TSA, arguing that CICA did not apply, lifted the stay without following the statutory procedures to override the stay. The Court of Federal Claims' answer - it doesn't matter- the automatic stay applies when the statutory requirements are met. The Court focused only on the statutory language that requires GAO to properly notify the "Federal agency involved" within "one day after the receipt of a protest." And, if the notice was made within ten calendar days of contract award or within five days of debriefing then the agency is required to suspend performance. 31 U.S.C. § 3553. In this case there was no dispute that the prerequisites for application of the automatic stay were met and GAO had not dismissed the protest. Further, the court held there was nothing in the laws creating AMS that exempts TSA from following a directive to a "federal agency". Therefore, the Court held that the plain language of the statute requires an agency, including TSA, to comply with the automatic stay until such time as GAO dismisses the protest or the agency follows the statutory procedures to override the stay. For an agency to ignore the stay--even if it believes that GAO does not have jurisdiction--is not an option.

Looking for loose change in Uncle Sam’s couch: Obama focuses on overpayments to contractors.

Mon, 7 Dec 2009 16:12:03 -0500

According to OMB, the U.S. Government made $98 billion in improper payments in 2009. That is up from $72 billion in 2008. These figures represent a wide-range of alleged mistakes or abuses -- from improper payment of benefits under Medicare or Medicaid to overpayments to government contractors. But does this new data show a dangerous trend? Not likely. The 36% increase in improper payments may simply be a result of increased government spending associated with the ARRA or TARP funds. Nonetheless, this new data has encouraged the Obama Administration to go digging for its missing change. President Obama recently signed an executive order aimed at reducing these improper payments by requiring additional transparency and accountability. Among other things, it requires the Secretary of the Treasury to create a web page to post information about improper payments (including the originating agencies and entities that have received the most overpayments) as well as a centralized, internet-based system for the public to report suspected overpayments. Agencies must establish methods to identify and measure improper payments and a plan to reduce overpayments. And as a government contractor, if you fail to disclose an overpayment, you may be subject to financial penalties, listed as an "offender" on the internet, or be debarred or suspended from receiving government contracts. There will likely be additional FAR guidance on this topic. The Executive Order requests the FAR Council to recommend "actions designed to enhance contractor accountability for improper payments" including subjecting government contractors to "debarment, suspension, financial penalties, and identification through a public internet website" for knowingly failing timely to disclose credible evidence of significant overpayments received on Government contracts." (Section 4(a)). Government contractors are already subject to debarment for failing to timely disclose credible evidence of a significant overpayments (see FAR 9.406-2(b)(1)(vi)(C)), so it is possible that the FAR Council will recommend additional incentives, e.g., financial penalties or public identification. We can expect specific guidance about the implementation of the Executive Order within the next three months. In the meantime, check out "Executive Order" Reducing Improper Payments and Eliminating Waste in Federal Programs” at http://www.whitehouse.gov/the-press-office/executive-order-reducing-improper-payments.

OMG Like the Gov Totally Wants ur Ideas; Social media meets Government Contracts

Wed, 18 Nov 2009 09:03:07 -0500

"Betterbuyproject.com", a recently launched website has set up a forum and blog for people to post ideas for improving Government acquisition practices with an eye towards greater collaboration and use of social media. When we checked in at www.twitter.com/betterbuyproj the first tweet was "Ideas are rockin' on @betterbuyproj - would love to see you give us yours!" The site asks "How can we use collaboration and social media to make the federal acquisition process more efficient and effective?" Focusing primarily on "the pre-contract-award stages of the process," GSA will choose "[p]romising ideas . . . to be piloted on future acquisitions." Ideas have ranged from conducting pre-bid/Q&A conferences using onlinevideo to providing updates on procurements via Twitter. Site visitors can register, post ideas, and vote on the ideas that others have posted. What’s the top vote getter -- more training for acquisition professionals. Closely trailing in second place: putting an end to the "dump" of end-of-year procurements. These ideas are not particularly 2.0, but they get our votes. GSA does seem serious about moving towards "acquisition 2.0." It’s in the process of assembling a team, figuring out how this could work under the law and selecting procurements on which to test some of the new ideas. For more, go to www.betterbuyproject.com. The project's blog is http://blog.betterbuyproject.com/. C u l8r.

Get it right the first time

Fri, 6 Nov 2009 12:53:19 -0500

A recent case in the US Court of Federal Claims sends a clear message: pick your forum and give it your best shot -- you won’t get a second chance. That’s the painful lesson given to the owner of a small trucking company that had objected to the loss of two contracts to haul mail. The contractor appealed the contracting officers’ decisions to the Postal Service Board of Contract Appeals. The Board rejected the appeals, and the Federal Circuit Court of Appeals declined to reverse the Board’s judgment. Undaunted by the losses, the claimant turned next to the Court of Federal Claims where he reworked the same facts into a new legal theory. The Court threw the case out because it was nothing more than an attempt to get a second bite at the apple. The Court based its decision on two legal doctrines that prohibit judicial do-overs: collateral estoppel and res judicata. Collateral estoppel prevents you from getting one court to retry an issue identical to one that was essential to a judgment you previously litigated in another court (or, in this case, a Board of Contract Appeals). Res judicata prohibits the pursuit of a second case against the same party, if the second case is based on the same transactional facts. We won’t bore you with the subtle differences between collateral estoppel and res judicata because the point actually is quite simple: if you don’t like a contracting officer’s decision, appeal it to the Board of Contract Appeals or the Court of Federal Claims and put forward your best case. Because, once it’s over – it’s over. The case is Emiabata d/b/a Nova Express v. United States, No. 06-702C (Oct. 30, 2009) and is posted on the Court’s website: http://www.uscfc.uscourts.gov/sites/default/files/SMITH.EMIABATA103009.pdf.

Justice delayed is justice delayed

Thu, 29 Oct 2009 10:11:33 -0400

Contractors do have a right to damages if the Government breaches a contract, but the judicial process can be long and slow.
Republic Savings Bank, et al v. U.S., Case No. 2008-5075, (Fed. Cir. 2009), is a Winstar case that dates back to 1985 when the U.S. Government solicited bids to take over failing thrifts. During the early 1980's rising interest rates triggered widespread insolvency in the savings and loan industry. The Government began offering incentives to encourage private investors to take over failing institutions. The Plaintiffs were the successful bidders to take over two of the failing thrifts that formed the contract that is the basis of the suit.
The case for restitution damages first was filed in June 1992. In January 2008, the Court of Federal Claims found that the Government breached the contract when it changed regulations in a way that was contrary to the terms of the original contract with the Plaintiffs. As a result of the breach, the Plaintiffs were awarded $14,641,059.29 in restitution damages. The U.S. Government appealed the decision to the Court of Appeals for the Federal Circuit. The court largely affirmed the lower court's decision holding that restitution damges on summary judgment was appropriate because there was no real question as to the value of the assets at the time of contracting. However, the court did agree with the Government that Plaintiffs were not entitled to proceeds from a sale that the Government had not turned over to the Plaintiffs. The court also agreed that $4.287 million in tax benefits that Plaintiffs enjoyed from the contract should offset the restitution damages and remanded the case on those points.
Now, the case goes back to the Court of Federal Claims and the long road to justice continues.

GAO does more than decide bid protests

Wed, 28 Oct 2009 09:14:23 -0400

The U.S. Government Accountability Office (GAO) is "an independent, nonpartisan agency that works for Congress." GAO conducts audits, investigations and analyses, and issues legal decisions and opinions. Those who practice Government Contracts law are most familiar with GAO's bid protest function. Less well known is the fact that GAO acts as a board of contract appeals. Congress has authorized GAO to hear appeals of Contracting Officer Decisions involving contracts of legislative branch agencies. That means, for instance, if you have a contract dispute with the Government Printing Office or the Architect of the Capitol, and you are not satisfied with the decision of the GPO or AOC Contracting Officer, you can file an appeal with the GAO Contract Appeals Board. The rules of the GAO Contract Appeals Board are at: http://www.gao.gov/cabrulesjun2008.pdf . The published decisions of the GAOCAB over the last several years can be found at: http://www.gao.gov/legal/appeals.html. There are seven reported decisions dating back to 2004. And based on the docket numbers, it looks like there are less than 10 cases heard each year. Despite its light caseload, the GAOCAB can present an attractive forum for contractors with the right case. In one case, the contractor received an award in excess of $2 million, and the Board wrote a 362 page decision with 596 footnotes. See: http://www.gao.gov/cab2003-1.pdf Somebody got their day in court.

Does being a friend of the District of Columbia Mayor qualify you for $82 million in contract awards?

(Kenneth B. Weckstein) kweckstein@brownrudnick.com — Mon, 26 Oct 2009 09:24:08 -0400

In the Federal system, a personal relationship with the Source Selection Official could disqualify you from receiving a contract award. In Washington, D.C., the opposite may be true. On October 23, 2009, the Washington Post reported that the D.C. Housing Authority awarded $82 million of contracts to build parks, ball fields and recreation centers. The paper reported that a spokesperson for the D.C. Housing Authority did not known whether the contracts had been competitively bid. The article did report that the construction manager on 12 of the contracts was Banneker Ventures, a firm that is owned by a fraternity brother of D.C. Mayor Adrian Fenty. And on two of the projects, RBK Landscaping and Construction, which was reported as being owned by another friend of the mayor, was listed as the general contractor. Were the contracts awarded after competition? Was there improper influence exercised to make the contract awards? Were the evaluation factors for award followed? All good questions for an Inspector General. But apparently not on the radar of the D.C. Government yet. The focus for now is how is it that the contracts were awarded at all. Apparently the law in D.C. requires that all contracts greater than $1 million must be approved by the D.C. Council. Surprise. The contracts never were presented to the D.C. Council for review and approval. So next time you have a complaint about the Federal contracting system, be grateful that you are not competing for a D.C. contract--or jealous that you are not a friend of the mayor.

You got your ARRA money-now tell us about it.

Fri, 16 Oct 2009 10:59:46 -0400

The long awaited American Recovery and Reinvestment Act ("ARRA") contractor reporting tool initially scheduled to launch in July 2009 was scheduled to be open for reporting on October 1, 2009. The reporting tool will be available at FederalReporting.gov. Contractors that have been anxiously awaiting the availability of the reporting tool will now be able to publish the data from the quarter ending June 30, 2009. The purpose of the reporting is to provide transparency to the public on how ARRA funds are being used and how many jobs are being generated. Using the reporting tool, contractors will input data that identifies the contractor, the amount of ARRA funds received, information about the contract, and the congressional district of the contractor. Contractors must also report how many jobs are retained each quarter and how many full time equivalent jobs are created each quarter. And, the FederalReporting.gov website even provides a calculator tool to assist contractors in determining jobs created and retained. Certain contractors also will have to report the name and total compensation of each of their five most highly compensated officers--not a happy prospect for privately held companies. Once the reporting tool is up and running, contractors will have to update their information quarterly no later than the 10th day after the end of the quarter. ARRA contractors should get ready for the new reporting because contracting officers will be watching. And, a failure to make these required reports can impact a contractor's performance assessment. For more information on reporting requirements see FAR Case 2009-009, 74 Fed. Reg. 14639 and 74 Fed. Reg. 48971.

Defense Department to Private Security Contractors: Drinking While Carrying a Weapon in a War Zone is Bad

Fri, 18 Sep 2009 17:20:47 -0400

It looks like private security contractors will continue to play a large role in Iraq and Afghanistan. And DOD wants to make sure that they are not drunk when they fire their weapons. That has to be a reason for a new DOD regulation designed to improve oversight of private security contractors working in areas of military operations. Link: http://www.regulations.gov/search/Regs/contentStreamer?objectId=09000064809f3eed&disposition=attachment&contentType=html

The regulation requires DOD officials to develop and publish guidance and procedures for certain private security contractors and personnel. Those procedures must include a process for arming those personnel. Requests for permission to arm personnel must include written acknowledgement from both the contractor and the personnel of several rules. These include acknowledgement that private security contractor personnel are "prohibited from consuming alcoholic beverages or being under the influence of alcohol while armed." These rules definitely will hamper the guards in bar fights. And hopefully they will not be deployed to Virginia, and other states, where patrons can legally carry concealed weapons in restaurants.

Kidding aside, oversight of private security contractors in war zones is likely to become increasingly more important. DOD noted in the preamble to the regulation that 'The expansion of troops in Afghanistan will result in a corresponding increase in the number of [private security contractors] performing' there. DOD plans to issue further regulations on this controversial issue.

Small Business Fair Competition Act Would Stifle Competition

Fri, 18 Sep 2009 17:23:09 -0400

How many times growing up did you complain to your parents that something was not fair, only to be given the sage advice: "Life is not fair"? Along the lines of that sage advice (and as something of a misnomer), Representative Griffith from Alabama introduced legislation entitled the "Small Business Fair Competition Act." The primary purpose of the legislation is to permit businesses that are no longer considered "small" to compete for certain follow on work as if they still were small. Thus, even though those businesses legally would be "large", they would be considered "small". Real small businesses that have to compete against these large business under contracts set aside for small businesses might have a hard time seeing how this legislation introduces any "fairness" in small business competitions. The legislation is H.R. 3558 and it was introduced on September 14, 2009. A copy of the bill can be viewed at: . The legislation would create a loophole in the Small Business Act that would permit certain large business incumbent contractors (who were once small) to compete for follow on requirements that are set aside specifically for small businesses. According to the legislation, an admittedly large business incumbent contractor could represent itself as a "small business concern" if, among other things, it was small at the time of the initial award of the incumbent contract, and it would "revert to being a small business (as defined in the solicitation for the proposed contract) if not awarded' the follow-on contract. H.R. 3558, Sec. 2(a)(2). So here's the deal. When the follow-on small business set-aside contract is competed, the competitors would include the now large business incumbent contractor. That large business would have the resources of a large business and direct experience (and likely dedicated staff) for the follow-on requirement. If the incumbent, formerly small, now large business has been doing a good job performing the work, it will be very hard for legitimately small businesses to displace the now, large business incumbent. There is nothing the matter with that if the follow-on work were competed under full and open competition, but to let a large business win a small business set-aside contract does not sound very fair. In fact, the new "Fair Competition Act" would allow the large business incumbent to protest the size of its small business competitors but would not allow the small businesses to protest the size of the large business incumbent. How fair is that?

It is impossible for the Government to act in bad faith--well almost.

Tue, 15 Sep 2009 15:54:46 -0400

Companies not selected for award of government contracts sometimes claim they are the victims of a government official's "bad faith." Sometimes such clients present counsel with objective evidence--in the form of statements made by government evaluators or questionable consulting relationships by former government selection officials--that appear to support these allegations of bad faith. The problem is, bad faith allegations rarely succeed in government contract litigation. The standards to support bad faith allegations are very high. In AFR & Associates, Inc. v. HUD, CBCA 946, August 7, 2009, the contractor ("AFR"), filed a claim against HUD for failing to exercise its option to extend a management and marketing ("M&M") contract, claiming that the decision was tainted by HUD's bad faith. AFR based its bad faith claim on the actions of two of the government personnel on whose advice the contracting officer relied in making her decision. Those actions included the following: (1) One HUD official told AFR's president, "I've one run [sic] M&M contractor out of town and I have no problem running AFR [out of town]." (2) Another HUD official retired from government service and launched a consulting firm that served clients who were HUD M&M contractors, including AFR's competitor that was selected to replace AFR for the work under the M&M contract at issue. The Board was not impressed by AFR's allegations. The Board said that there is a presumption that Government officials act in good faith and to overcome that presumption, the proof must be almost "irrefragable ". That is a great word. We ran for our dictionaries when we first saw it years ago. It means "that cannot be refuted; indisputable." It seems that if you cannot refute the good faith, you will never be able to show bad faith. However, the standard is not quite that high. In the cases where courts have considered allegations of bad faith, the necessary "irrefragable proof" has been equated with evidence of some specific intent to injure the plaintiff. At the end of the day, the Board denied AFR's claim and characterized the one official's comments as "intemperate." The Board also noted that the other government official retired five months after HUD made the decision not to extend AFR's contract and that there was no evidence that she acted unfairly in her assessment of AFR. The lesson is that bad faith claims are tough to win. Even with some objective evidence to support them, bad faith allegations rarely satisfy the standard necessary to overcome the presumption that the Government has acted in good faith. Now use the word "irrefragable" when you go home and talk to your spouse.

The Public Health Option that you will not hear about.

Fri, 11 Sep 2009 12:01:19 -0400

When President Obama addressed a joint session of Congress on September 9, 2009, there wasn't much in his speech about the possibility of a Government-funded health insurance plan as a fallback for the poor and unininsured. Ironically, many well-paid American workers already are receiving Government-funded health insurance as a result of being covered by the Service Contract Act (SCA) or the Davis Bacon Act (DBA). These federal laws require Government contractors to pay service and construction workers certain minimum wages and health and welfare benefits. (Sometimes the minimum wage is $50 an hour--quite a change since we were making minimum wages.) Under the SCA, service contractors must pay their non-unionized workers a health and welfare benefit of $3.35 per hour, while unionized workers may get even more. While employers could pay their workers this benefit in cash, employers are permitted to, and many do, use this amount to pay for or subsidize a health insurance plan. So there's the health insurance, but where's the Government funding? The reason that Congress passed the SCA and the DBA was to ensure that contractors do not compete for work by slashing employee wages and benefits. And Congress fully understood that contractors would pass these wage and benefit costs on to the Government. Contractors who are bidding on a contract covered by one of these laws should make sure they understand what the laws require and permit in order to ensure that their proposals are priced appropriately. It will not be an excuse to non-compliance that the contractor can't afford to pay the correct wages or benefits. And, the sanction for non-compliance is severe--an automatic three-year debarment for Government contracting for SCA violations, for example. The math is simple. Each time the Federal Government increases spending on service and construction contracts, more health benefits are provided to more private sector employees. So increasing spending on Government Contracts is good for the economy, good for private enterprise and good for the health of American workers. That's another reason why we are fans of Government Contracts.

GE Beats Back FOIA Request

Thu, 10 Sep 2009 10:24:44 -0400

As most readers likely know, the Freedom of Information Act ("FOIA") lets private parties request the release of information related to Federal Government contracts. In many industries, FOIA requests are a routine part of a company’s "intelligence" gathering efforts. Where bid and proposal information is not otherwise exempt from FOIA disclosure, a competitor can gather pricing information and technical proposal submission(s) of the winning contractor. What is and is not FOIA exempt, however, often is decided by Federal courts. A recent case involved unit prices of General Electric Company under two different Air Force contracts to supply spare parts for certain GE engines. https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2001cv1549-67 The contracts were awarded to GE in 1999 and 2000. And, in 2000 and 2001, the Air Force received two FOIA requests seeking public release of the GE contracts, including GE’s unit prices. In what appears to be a somewhat tortured history, the Air Force initially determined that the unit pricing information was releasable under FOIA. GE objected, arguing, among other things, that it would suffer substantial competitive harm if the unit prices were released. GE argued that its competitors, once armed with the unit pricing from the Air Force contracts, would be able to "reverse engineer" certain GE pricing strategies. And, GE argued that future commercial customers could leverage the admittedly lower unit pricing offered the Air Force to negotiate lower prices with GE in the future for similar commercial work. GE ultimately prevailed (in court) with both arguments. The case took approximately eight years to wind its way through the system to final decision by the District Court. (The eight years included a remand to the Air Force and a stay pending the appeal of another reverse FOIA case presenting similar issues.) And, during that eight year period, GE’s unit prices were not released to the public (or to the two FOIA requesters who sought the information). So what's the take-away? You have the right to fight the Government release of your information under FOIA. By just fighting the release, you may be able to tie up things until your information loses any value it might have to competitors. (Did we say that the case took eight years?) And, GE not only brings good things to life, but when it wants, it can keep things from seeing the light of day.

New Contract Performance Database Emphasizes Integrity

Wed, 9 Sep 2009 16:52:20 -0400

Contractors better shape up. A new database containing past performance and integrity information on contractors, the Federal Awardee Performance and Integrity Information System ("FAPIIS") is on its way. See FAR Case 2008-027, available at 74 Fed. Reg. 45579. FAPIIS will draw from current past performance databases and include performance and integrity information on contractors dating back five years. Contracting Officers will be required to review and consider the information in the database before making any awards over $100,000--including contracts for commercial items and commercial-off-the-shelf items. Previous bad conduct will cost you. Contracting Officers will be required to input new findings of non-responsibility due to lack of satisfactory performance or poor integrity into FAPIIS. There is also a requirement that Suspension and Debarment Officials enter information on administrative agreements between the contractor and the Government that are entered into in lieu of suspension or debarment. And, because FAPIIS displays data spanning a five year period, Suspension and Debarments (which could be for three years or less) that are no longer in effect may be included in the database. Contractors get their say as well. For example, contractors that have contracts totaling $10 million are required to provide information relating to certain criminal, civil and administrative proceedings, including in some cases settlement agreements. Contractors also can input comments regarding any adverse information in the database. The creation of this new database and the data that is required to be included for consideration indicate an emphasis on business ethics and integrity. Ergo [we love that word], Contractors are on notice to mind their P's and Q's. The proposed rule has not been finalized. If you have concerns, you have until October 5, 2009 to submit comments.

Who wants to be a multi-millionaire?

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Thu, 3 Sep 2009 12:59:08 -0400

The stock market could be stalled for years. Real estate may not reach its prior heights for a decade. And the odds of winning big money on a game show are miniscule. Where is the aspiring multi-millionaire to turn? Some enterprising folks have sued their employer or a Government contractor for making false claims to the Government. If you win, Jackpot! The Department of Justice could decide to prosecute your case and you could receive 15-25% of the proceeds of the action or any settlement of the claim. Our latest multi-millionaires come to us courtesy of Pfizer. According to a Department of Justice Press Release on September 2, 2009, "Pfizer Inc. and its subsidiary Pharmacia & Upjohn Company Inc. ... have agreed to pay $2.3 billion, the largest health care fraud settlement in the history of the Department of Justice, to resolve criminal and civil liability arising from the illegal promotion of certain pharmaceutical products..." See http://www.usdoj.gov/opa/pr/2009/September/09-aag-900.html As a part of the resolution of the cases, "six whistleblowers will receive payments totaling more than $102 million from the federal share of the civil recovery." Let's see, that is $102 million divided by six, an average of $17 million per person--not Warren Buffet numbers, but probably better than Dog the Bounty Hunter makes in a day.

Obama Administration Reaffirms its Commitment to Small Businesses--So what? Posted

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Mon, 31 Aug 2009 16:52:26 -0400

Since he took office, President Obama has spoken of the importance of small and minority businesses, his commitment to those businesses and how he would use government contracts to promote the growth of small businesses. The President reaffirmed those commitments in an August 18, 2009 announcement (SBA Release Number: 09-58). However, when you look more closely at the President's new initiative, it looks like the Administration is talking the talk but not walking the walk. The announcement says that over the next 90 days there will be over 200 events to share information on government contracting opportunities. The announcement also says that small business contracting opportunities will be promoted in remarks by the Secretary of Commerce and the Administrator of SBA. Yawn. That will just get out the word that there are (or could be) some opportunities for small businesses. That will not increase the amount of awards to small businesses. It only will create more competition between small businesses. That is not a bad thing. But by itself, it will not move contracting dollars to small businesses. There are only two ways small businesses can get business from government contracts: 1. When the government sets aside or otherwise awards a contract to a small business (in a full and open competition), and 2. When a prime contractor to the government awards a subcontract to a small business. Having 200 meetings to tell small businesses that there are contracting opportunities, by itself, does not put more contracting dollars in the pockets of small businesses. That is not how it works in the real world. For example, SBA can ask agencies to set-aside certain contracts for small businesses. That means that only small businesses can compete for that set-aside contract. However, the agencies have the right to reject recommendations from SBA. And while SBA and the agency can fight back and forth, as between SBA and the agency, "[t]he decision of the agency head shall be final." 48 CFR 19.505(e). That's not good or bad; it is the law. And, the law presumably recognizes that agencies are more qualified than the SBA to decide whether specific contracting work should be set aside for small businesses. So while the Administration may sincerely want to increase the government contracts work of small businesses, it might want to focus more on persuading contracting agencies to make more awards to small businesses than on holding meetings to tell companies about contracting opportunities. Is that the end of the story? Probably. Will such deals between competitors always go through smoothly? Not necessarily. Every time the Government takes an action in connection with a competition, there are disappointed bidders who have protest rights. Here, the Government directly or indirectly approved the Dyncorp/L-3 post-competition division of the work. Other, third party companies that competed for the work would have had standing to complain that the Army approval of the award to the "new" Dyncorp/L-3 team was improper. That could have led to a new round of protests. Here, it looks like any such protest now would be too late and that losing bidder L-3 has turned its loss into a big win.

How to Leverage a Loss into a $1 Billion Win

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Thu, 13 Aug 2009 12:48:38 -0400

We all know that companies compete for trillions of dollars in Government contracts. We all know that the Government has to follow the rules in awarding those contracts and that disappointed bidders can file bid protests with the US Government Accountability Office and with the US Court of Federal Claims. Those protests can take three months to over a year to resolve. However, sometimes the mere fact that a protest is filed is enough to force a quick resolution of the dispute. Sometimes the Government agency will act on its own and take corrective action. Sometimes the competing contractors will get together and cut a deal. While two competitors getting together to divide up business might have anti-trust implications in other circumstances, such a collaboration may be possible as a device to resolve bid protests. Federal Times is reporting one such deal today. See http://www.federaltimes.com/index.php?S=4232395 According to the story, Dyncorp's Global Linguistic Services Division and L-3 competed for an Army translation services contract. Dyncorp won the $4.65 billion contract. L-3 protested. Dyncorp then agreed to give L-3 22.5% of the contract if L-3 dropped its protest. L-3 dropped the protest. In exchange, Dyncorp eliminated the risk that the protest would be sustained and was able to proceed with performance without waiting for a decision on the protest. Effectively, Dyncorp recived 77.5% of the work and L-3 received 22.5% of the work as a subcontractor. The deal was worth $1 billion to losing contractor L-3. The lesson is that bid protests can be an effective tool to win business--even where the protests never are decided. Is that the end of the story? Probably. Will such deals between competitors always go through smoothly? Not necessarily. Every time the Government takes an action in connection with a competition, there are disappointed bidders who have protest rights. Here, the Government directly or indirectly approved the Dyncorp/L-3 post-competition division of the work. Other, third party companies that competed for the work would have had standing to complain that the Army approval of the award to the "new" Dyncorp/L-3 team was improper. That could have led to a new round of protests. Here, it looks like any such protest now would be too late and that losing bidder L-3 has turned its loss into a big win.

When is final acceptance of work not "final"?

Fri, 31 Jul 2009 10:07:58 -0400

Imagine performing a contract, having your work inspected by your customer, the customer accepting the work, the customer paying you, and then the customer taking back the payment. It can happen. If you engage in fraud to get the acceptance, the customer can argue that the acceptance shouldn't count. That makes sense. But what if you just made mistakes in performing the work? If the mistakes are bad enough, the result can be the same. Under the Inspection of Construction clause in most government construction contracts, the Government can revoke "final" acceptance for a contractor's "gross mistakes amounting to fraud." Recently, the Armed Services Board of Contract Appeals upheld the Air Force contracting officer's decision to revoke acceptance and to terminate the design/build contract for default. See Appeals of -- American Renovation and Construction Company, ASBCA Nos. 53723, 54038, June 30, 2009. There, the contractor made some bad mistakes and compounded those mistakes by failing to provide inspection reports to the Government in a prompt manner. The contractor's foundation preparation work for military family housing at an Air Force base in Montana was found to be "inadequate." The contractor allegedly mismanaged water, selected improper foundation backfill and performed improper compaction during the course of the construction project. The Government argued that these mistakes caused the housing units to move--or "heave"--and led to significant exterior damage. According to the ASBCA, the contractor's mistakes were so egregious that they amounted to fraud that justified the Government's decision to revoke final acceptance and to terminate the contract for default. Apparently, the Government relied on the contractor's representation at the time of acceptance that the units were ready for occupancy. The nature of the contractor's mistakes and the fact that the contractor failed to provide the required inspection reports prevented the Government from discovering the mistakes. So if you think that you have to intend to commit fraud, think again. "Honest" mistakes, if frequent--and egregious--enough, can lead to claims of fraud and all the negative consequences that follow allegations of fraud.

OMB to Agencies: Cut back on sole-source and cost reimbursement contracts.

Fri, 31 Jul 2009 10:04:35 -0400

As we discussed in our first blog entry, the President’s March 4, 2009 memo outlined his government contracting policy and tasked the Office of Management and Budget, in two steps, to help Federal agencies implement that policy. The memo triggered much discussion about what changes OMB might make to the procurement rules. OMB took the first step on July 29, 2009, but is apparently waiting to make what could be the most important moves in the fall. The President’s memo directed OMB to issue Government-wide guidance: to assist agencies in reviewing, and creating processes for ongoing review of, existing contracts in order to identify contracts that are wasteful, inefficient, or not otherwise likely to meet the agency’s needs, and to formulate appropriate corrective action in a timely manner. With its three July 29, 2009 memos, OMB started the ball rolling. The memos are titled "Improving Government Acquisition," "Improving the Use of Contractor Performance Information," and "Managing the Multi-Sector Workforce." They can be found at: http://www.whitehouse.gov/omb/assets/memoranda_fy2009/m-09-25.pdf ; http://www.whitehouse.gov/omb/assets/procurement/improving_use_of_contractor_perf_info.pdf; and http://www.whitehouse.gov/omb/assets/memoranda_fy2009/m-09-26.pdf. "Improving Government Acquisition" requires agencies to develop plans to cut 3.5% of contract spending in Fiscal Year 2010 "and a further" 3.5% in FY 2011. It also requires agencies to cut by 10% the percentage of money spent on new contracts awarded with "high-risk contracting authorities." The memo targets as "high risk" acquisition methods noncompetitive contracting, cost-reimbursement contracts, and time-and-materials and labor-hour contracts. It further provides guidance to help agencies meet these requirements. Regardless of how and when the agencies get there, the bottom line is that some contractors who have gotten used to cost-reimbursement and sole-source work are going to have to compete for fixed-price contracts. More details are likely to follow by September 30, 2009, the deadline from the President’s memo for further OMB action.

HUBZone battle opens on another front

Tue, 14 Jul 2009 12:39:40 -0400

A conflict has developed between GAO and the Obama Administration over which small businesses must be first in line when Federal agencies limit competitions for contracts to small businesses. We first blogged about a controversial GAO decision on July 13, 2009, and predicted there would be fallout. GAO decided that agencies must consider whether they are required to set aside an acquisition for HUBZone small businesses before setting it aside for other kinds of small businesses. The Office of Management and Budget is telling Federal agencies that they can ignore GAO’s decision, at least for now. In a memo dated July 10, 2009, the OMB said the GAO’s decision is not binding on Federal agencies, and that it is contrary to the Small Business Administration’s regulations. OMB says the SBA regulations require "parity" among three small-business contracting programs: HUBZone, 8(a), and Service Disabled Veteran Owned Small Businesses. It argues that agencies "should not, as a result of the GAO’s decisions, be compelled to prioritize HUBZone small businesses" over the others. Ultimately, OMB is telling agencies not to follow the GAO decision until "the Executive Branch" completes a legal review. So, a key rule on who’s first in line for set-aside competitions for a large number of government contracts is up in the air, or up for grabs. Because OMB is relying on regulations and GAO relied on a statute, next stop for aggrieved parties could be Congress or the courts.

You are now entering the HUBZone

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Mon, 13 Jul 2009 09:32:51 -0400

The Federal Government uses its contracts to implement social policy. There are special rules that allow for sole source contracts to Alaska Native Corporations and limited competitions to small businesses and 8(a) concerns (businesses certified as socially and economically disadvantaged). Now, after a recent GAO decision, they all take a back seat to Historically Underutilized Business Zone (HUBZone) small businesses. HUBZone small businesses are those located in historically underutilized business zones. Contract awards to such businesses are supposed to increase economic development and employment in those areas. The law requires that contract opportunities "shall" be awarded on the basis of competition limited to qualified HUBZone small businesses if the Government has a reasonable expectation that two or more qualified HUBZone businesses will submit offers and award will be made at a fair market price. So what happens when one social policy pushes up against another social policy? In the May 4, 2009 Decision in Matter of Mission Critical Solutions, GAO said that HUBZone businesses trump Alaskan native and 8(a) businesses. In that case, GAO sustained a protest against an Army contract for IT support that had been filed against a sole source award to an Alaska Native Corporation. GAO also said that setting aside a contract opportunity for HUBZone businesses also had to be considered before a contract opportunity could be set aside for 8(a) concerns. While these are small businesses, this is no small matter. Billions in contracting dollars are at stake. The Small Business Administration did not like the GAO Decision. SBA asked GAO to reconsider its decision. However, on July 6, 2009, GAO denied the SBA's request for reconsideration. There will be fallout from the decision in Mission Critical Solutions. Small businesses will try to qualify as HUBZone businesses. Large businesses will look to team with HUBZone businesses. And we probably will see legislation in the next year that will attempt to restore 8(a) contractors to the King of the Hill.

God bless America--Give me money.

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Mon, 6 Jul 2009 09:41:06 -0400

Sarah Palin celebrated Independence Day by declaring her independence from the governship of Alaska. As governor, her salary is $125,000. In the next year, she will take in how much? $1 million? $2 million? $5 million? More? But according to Palin, it is wrong for lame duck governors to "draw a paycheck" and "kind of milk it." According to reports, she used phrases like a "higher calling" and "it's about country" to describe her abdication from Alaska's throne. As a public official, Palin is governed by ethics rules and Government contract conflict of interest rules. As governor of Alaska, it would be problematic for Palin to collect $60,000 for giving a speech or big bucks for serving on a corporate board. But as a former governor, many of those restrictions go away. What may not go away are rumors that Palin, as mayor of Wasilla, Alaska, benefited from the construction of the Wasilla Sports Complex. An attorney for Palin has denied those allegations. See http://www.politico.com/static/PPM124_release_for_7-4-09-1.html Is this a great country or what? Where else can a former third place finisher in the Miss Alaska pageant play a pivotal role in electing the country's first black President. And where else can milking your popularity make you a millionaire overnight and be called a "higher calling"? Our founders would be proud. Happy July 4th.

Sole source is bad and competition is good, except when it is not.

Mon, 29 Jun 2009 09:31:54 -0400

The Obama administration has become the champion of competition in government contracting. Or has it? The President has stated the policy of the Federal Government that executive agencies shall not engage in noncompetitive contracts except when fully justified and when appropriate safeguards are in place to protect the public fisc. But there may be limits to how far the administration will go to foster competition in Government Contracts. And one area where recent developments suggest competition may give way is when it must go head to head with the interests of federal government employee unions. OMB Circular A-76 (May 29, 2003) provides that it is the longstanding policy of the Federal Government to rely on the private sector for needed commercial services. The Circular provides for agencies to make determinations about which services are "commercial activities" and to set up competitions between private sector contractors and the existing public sector workforce in appropriate circumstances. According to OMB, there were 1375 public-private competitions from Fiscal Year 2003 to 2007. Competitions often are used for IT support, logistics and property management. These A-76 competitions can save the taxpayer money. Estimates are that DOD saves more than $1 billion a year from such competitions. In these days of bailouts and trillion dollar deficits, $1 billion does not seem like much. But outsourcing work to the private sector also has the potential to create new private sector jobs. Recently, the House Armed Services Committee reported out language as part of the Defense Authorization bill for Fiscal Year 2010 that places a three year moratorium on future A-76 studies and a temporary hold on studies already in progress. The moratorium is to give the Administration an opportunity to "study" the process. The House passed the bill on June 25th and the Senate now is considering similar language. When it comes to competing commercial work being performed by Government employees, it looks like the Administration wants to continue performance of that work by Government employees on a sole-source basis.

Follow the Rules or you don't get to play

Wed, 10 Jun 2009 14:30:27 -0400

Everyone knows that the Government's RFP sets forth the rules for submitting proposals. And, if you don't follow the rules, the Government could reject your proposal. But sometimes, you may think you are following the rules when in fact you are not. That is what happened in the protest of Northern Lights Production decided by the GAO on June 1, 2009.

In that case, the National Park Service sought proposals for audiovisual production and services. The protester received a total of 95.64 points out of a possible 100 as a result of the evaluation--a pretty good score. However, the National Park Service rejected the proposal as unacceptable because the protester included language in its final proposal that the Contracting Officer thought took exception to the Data Rights requirements of the solicitation.

The solicitation included FAR 52.227-17 Rights in Data-Special Works, which defines "unlimited rights" as:

the rights of the Government to use, disclose, reproduce, prepare derivative works, distribute copies to the public, and perform publicly and display publicly, in any manner and for any purpose, and to have or permit others to do so.

The solicitation also included another "Ownership of Products" provision that, according to the GAO decision, said: "All original media produced under this contract is the property of the National Park Service."

In response to these requirements, the protester submitted a proposal that addressed the Government’s data rights by stating: "All materials will be cleared for educational and museum presentation use for the life of the program, up to twenty years." That was its downfall. The National Park Service wanted the property period. It didn't just want the property for 20 years or for just certain uses.

The protester argued that its proposal should not have been rejected because it did not label the above language an "exception" or a "deviation". GAO rejected that and found that "the plain language of protester's proposal clearly took exception to a material term of the RFP." And, in denying the protest, GAO repeated a basic tenet of government contracts law-- "a proposal that fails to comply with the material terms of the solicitation should be considered unacceptable and may not form the basis of award."

Is that Elliott Ness at the door?

Thu, 4 Jun 2009 11:07:50 -0400

FBI Director Robert Mueller, in remarks delivered on Tuesday before the Economic Club of New York, spoke of the Government's plans to step up enforcement efforts to combat abuses of stimulus funds. "Where there is money to be made, fraud is not far behind, like bees to honey." Director Mueller's speech highlighted the FBI's intention to work with other agencies "to prevent what has the potential to be the next wave of cases: fraud and corruption related to the TARP funds and the stimulus package." In recent weeks, we have blogged about the expansion of compliance requirements directed at government contractors whose projects are funded by the stimulus package. Director Mueller's remarks make it clear that the FBI will scrutinize contractors with greater intensity than perhaps the government contracting industry has seen before. To do this, the Director stated the FBI "must collect the intelligence necessary to target potential waste and abuse at all levels [so it is] able to follow the money all the way down the line." Strict adherence to recordkeeping, reporting and compliance requirements will be critical so contractors can demonstrate that they are trusted stewards of taxpayer funds. Otherwise, Director Mueller may send a Special Agent to knock on your door. The full text of the Director's speech can be found at http://www.fbi.gov/pressrel/speeches/mueller060209.htm

Supreme Court, Here We Come

Wed, 3 Jun 2009 14:45:53 -0400

The dispute over the Navy's termination for default of the McDonnell-Douglas and General Dynamics A-12 contract is now entering its 18th year. There apparently have been 14 reported decisions on the case to date. Beside the many attorneys for the two plaintiffs, the Navy and at least one trade association retained outside counsel. (Yes, we are jealous that we didn't have any part of this work.) The most recent decision was released by the Court of Appeals for the Federal Circuit on June 2, 2009. It found that the default termination was justified. As things now stand, the contractors recover nothing and the Navy can pursue a money judgment against the contractors. Was the decision good? Was the decision bad? Does it make a difference? The Court struggled with the decision. It sympathized with the contractors but held against them. The next decision for the contractors is whether to appeal to the US Supreme Court. The contractors’ claim at one time was nearly $4 billion, plus perhaps 18 years of interest. The Navy has asserted a claim against the contractors for $1.35 billion. If there is no appeal, the contractors get nothing. After 18 years of fighting, what would you do?

Greenbacks for Green Buildings

Mon, 1 Jun 2009 09:55:11 -0400

The American Recovery and Reinvestment Act provides at least $4.5 billion to convert federal buildings to "High-Performance Green Buildings." Pub. L. No. 111-5, 123 Stat. 115,149. GSA already has begun the process of contracting out that work, and companies eligible to perform Federal Government contracts can compete for it. But what kind of work is this? What makes a building a "high-performance green" building? The Recovery Act defines "High-Performance Green Buildings" by reference to the Energy Independence and Security Act of 2007 ("EISA"), Pub. L. No. 110-140. To qualify as a high-performance green building under that law, the building has to be "high-performance." That means that the building has to integrate, throughout its lifecycle, "all major high performance attributes." Those include energy conservation, environment, safety, security, durability, accessibility, cost-benefit, productivity, sustainability, functionality, and operational considerations. Then comes the "green" part. The building must meet the following requirements, compared with similar buildings: (1) cut energy, water, and material resource use; (2) improve indoor environmental quality, including reducing indoor pollution, improving thermal comfort, and improving lighting and acoustic environments that affect occupant health and productivity; (3) cut negative impacts on the environment, including air and water pollution and waste generation; (4) increase the use of environmentally preferable products, including biobased, recycled content, and nontoxic products with lower life-cycle impacts; (5) increase reuse and recycling opportunities; (6) integrate systems in the building; (7) cut the environmental and energy impacts of transportation through building location and site design that support a full range of transportation choices for building users; and (8) consider indoor and outdoor effects of the building on human health and the environment, including improvements in worker productivity and other factors. EISA § 401(13). GSA gave Congress a preview earlier this month of the kinds of projects it planned. Trees on roofs apparently could be in play. GSA plans to replace flat roofs with energy star "membranes, integrated photovoltaic panels bonded to the membrane, photovoltaic panels, or planted roofs." It also plans to install "intelligent lighting systems" that provide daylight and provide controls for occupants to adjust for ambient light versus task light. For GSA’s full testimony on these plans, visit the following link: http://www.gsa.gov/Portal/gsa/ep/contentView.do?contentType=GSA_BASIC&contentId=28011&noc=T. Contractors interested in competing to help GSA turn Federal buildings into high-performance green buildings should monitor the agency’s solicitations on FedBizOpps, at www.FBO.gov.

President Starts His Full-Court Press Against Contarctor (and Subcontractor) Fraud

Thu, 28 May 2009 10:49:06 -0400

President Obama promised to cut out fraud, waste and abuse from government contracts, and Congress is on board with the President's program. Last week, Congress delivered and President Obama signed the Fraud Enforcement and Recovery Act of 2009 (FERA). This new law includes important changes to the federal False Claims Act that will make it easier for whistleblowers and their attorneys to file qui tam lawsuits against government contractors--and their subcontractors. FERA includes new provisions that allow for liability even though the "false claim" was not presented directly to a federal official or agency. The effect will be to expose businesses to federal false claims act liability at all tiers. Under FERA, subcontractors--who have no direct relationship with the government--may be liable to the federal government and/or to whistleblowers/relators for false claims submitted to a prime contractor. Liability under FERA also may extend to sub-subcontractors. Another effect of the new law will be to expand the universe of claims outside of the federal government contract sphere. Under FERA, state government contractors and their subcontractors may be liable for false claims under state government programs that include disbursement of federal funds. The Justice Department has estimated that recoveries under the False Claims Act have exceeded $20 billion since 1986. Those numbers likely will increase substantially under this new law. Unfortunately, not all False Claims Act suits are meritorious and with the expanded ability to sue, businesses should expect to spend more money fighting questionable cases.

Protecting Your Company in the Age of Government Transparency

Thu, 21 May 2009 16:07:56 -0400

"A democracy requires accountability, and accountability requires transparency," according to President Obama’s January 21, 2009 Memorandum for the Heads of Executive Departments and Agencies. Since that pronouncement and the March 19, 2009 Memorandum issuance by the Attorney General, many in the government contracts community have been questioning whether government contractors can count on government agencies to apply the Freedom of Information Act ("FOIA") exemptions to withhold confidential information from their competitors. Standing alone, the FOIA exemptions are considered "discretionary" as opposed to mandatory. And, in issuing new FOIA guidelines, the Attorney General specifically instructed that "an agency should not withhold information simply because it may do so legally." According to the Attorney General, just because records fall within a FOIA exemption "as a technical matter" does not mean that the records should be withheld from public disclosure. This change in policy (and guidelines) very well may mean that government contractors will need to be more vigilant in asserting their rights for nondisclosure of their trade secrets and privileged/confidential commercial or financial information. It, however, does not mean that the government has the discretion to release such trade secrets. That is because the Trade Secrets Act, 18 U.S.C. § 1905 makes it a crime for Federal government employees to disclose information covered by the Act. And, the Trade Secrets Act covers: "trade secrets, processes, operations, style of work, or apparatus, or to the identity, confidential statistical data, amount or source of any income, profits, losses, or expenditures of any person, firm, partnership, corporation, or association...." So for now, no matter how much transparency is required by new policies, there is at least one very important tool that contractors can use to protect their trade secrets from disclosure by the Government.

How to Save Money on Labor Costs and Lose Your Government Contract

Tue, 12 May 2009 17:19:55 -0400

Innocent until proven guilty! It's as American as motherhood and apple pie. But not if you're a Government contractor charged with violating the Service Contact Act (SCA), as Mr. Ousama Karawia and his company, International Services, Inc., recently learned. The SCA requires companies performing service contracts for the Federal Government to pay the prevailing wages and fringe benefits specified in Wage Determinations prepared by the U.S. Department of Labor and included in the contract. The law says that, "Unless the Secretary [of Labor] otherwise recommends because of unusual circumstances," a contractor that violates the SCA will be debarred from Government contracts for three years. That means no new contracts, no exercises of options, and possibly termination of existing contracts. And, debarment applies both to the company that holds the contract and to its principals--officers, directors and sometimes even shareholders. Usually the prosecutor has the burden of proof. Not in an SCA debarment case. Debarment is automatic, unless the contractor can prove "unusual circumstances" exist to relieve him from the penalty of debarment. As the U.S. District Court in New York stated in Mr. Karawia's case, it is a long-standing rule that "debarment of contractors who violated the SCA should be the norm, not the exception, and only the most compelling of justifications should relieve a violating contractor from that sanction." So you say, "No problem. If I'm caught violating the SCA, I'll promptly rectify my violation and pay the back wages. Then they won't debar me." That's what Mr. Karawia thought, but you'd be wrong, just as he was. "Alright, then. I'll cooperate with the Government's investigation. They won't debar me if I cooperate." Guess again. Those are not "unusual circumstances" justifying relief from debarment. How about this one: "They can't expect me to pay wages on time when the Government pays me late"? Nice try, but wrong again. Well, then, is all hope lost for a contractor who violates the SCA? Of course not. DOL nearly always prefers to negotiate a pay-out to employees rather than litigate with a contractor over debarment. Plus, a lawyer who knows the ins-and-outs of the SCA could help contractors limit their liability for back wages and fringe benefits, and help the contractor develop "legal issues of doubtful certainty" that constitute unusual circumstances and justify relief from debarment penalties. Prudent contractors also often conduct SCA self-audits in which they bring in outside counsel to investigate their compliance with the law. It beats taking an involuntary vacation from contracting for three years.

Trade Wars--Coming to a Country Near You

Thu, 7 May 2009 11:21:15 -0400

The US is pumping $787 billion in stimulus funds into the economy. What happens if the US says that foreign owned firms need not apply for that money? US firms would get all the money, but good luck to them winning any business from foreign governments. At the same time, Congress didn't appropriate $787 billion for the purchase of Chinese consumer goods (that was the intent of the individual tax cuts). The "Buy American" provision in the economic stimulus plan sparked an outcry that the United States is resorting to every-nation-for-itself protectionism. The determinations of who gets the pieces of the stimulus package from the government of the world’s largest economy could also decide which firms survive the economic downturn, and which firms fail. Despite the criticism, the Recovery Act’s primary "Buy American" provision allows plenty of room for foreign firms and firms offering foreign materials to convince government agencies that they deserve a piece of that pie. The provision does block Recovery Act funds for certain projects unless all of the iron, steel, and "manufactured goods used" in it are produced in the United States, but it doesn’t cover every acquisition that uses those funds. First, the provision only applies to projects for the "construction, alteration, maintenance, or repair of a public building or public work." That leaves room for procurements of several kinds of goods and services that don’t fall within this description. Second, even when a project does fall within the restriction, the provision carves out three exceptions: (1) the restriction is contrary to the public interest; (2) there aren’t enough quality U.S. materials available; or (3) the use of materials produced in the United States will increase the project’s cost too much. Third, for high-value construction contracts, the materials from nearly 100 countries are eligible for a complete exemption from the Buy American restriction. A recently published Federal Acquisition Regulation interim rule implements the provision. It provides an exemption when the value of construction meets a threshold; $7,443,000 for most of the eligible countries. When a specific construction project meets or exceeds the threshold, the Buy American restriction does not apply to materials from any of the nearly 100 listed countries. Despite these exceptions, the fact is that any preference for US products will be met with restrictions on access of US companies to foreign markets. Remember that the new FAR Recovery Act Buy American rule is an interim rule. So, if you want to weigh in on how the Government decides who gets a piece of the funding pie, you can submit comments through June 1, 2009. Check out the rule at the following link: http://edocket.access.gpo.gov/2009/pdf/E9-7031.pdf.

Congress Considers Adding New Exception For Sole-source Contract Awards?

(Kenneth B. Weckstein) kweckstein@brownrudnick.com — Tue, 5 May 2009 16:26:12 -0400

Under the FAR, there are seven exceptions to full and open competition. These are: 1. only one responsible source, 2. unusual and compelling urgency, 3. need for industrial mobilization, 4. required by international agreement, 5. required by statue, 6. national security, and 7. public interest. These exceptions often are used to justify sole-source awards or limited competition. The President believes that there are too many sole source awards and not enough competition. And we expect that these exceptions will be tightened up. Despite that, today's news brought word of "$4 million in Defense Department contracts, all of them without competitive bidding, for a range of warehousing and engineering services" received by Murtech Inc. We don't know the exception to competition that was used to justify these contract awards. And one would think that DoD could find more than one responsible source for warehousing services. Could there be another exception to competition at work? How about the nepotism exception? You see, Murtech Inc. is apparently owned by Robert Murtha, Jr.--who happens to be the nephew of Representative John Murtha--who happens to be the Chairman of the House Appropriations defense subcommittee. We think that it is wrong for commentators to suggest that Murtech Inc. received special treatment because of its family relationships. We look forward to the bi-partisan investigation that permits Robert Murtha, Jr. to fully explain the basis for the non-competitive awards. The hearing could be held at Johnstown. PA Airport, otherwise known as "Fort Murtha"--something to do with the $150 million in federal funds and $800,000 in stimulus moneys steered to the airport by Congressman Murtha.

The Path to Stimulus Money is Paved with--Rules

Fri, 24 Apr 2009 10:59:16 -0400

The Government is giving out money. Well, not really. But every special interest group rightly thinks that if banks, automobile manufacturers and other industries can be bailed out, why can't they receive a bailout. News media have reported that the porn industry has asked for a $5 billion bailout, Hollywood wants the Feds to show them the money, and funeral homes want help digging out. In reality, there are funds available under The American Recovery and Reinvestment Act ("Recovery Act") to create jobs and stimulate the economy. But if you are fortunate enough to navigate the maze and receive funds, there are strings attached. These include quarterly reporting, compliance with the Buy American Act, paying prevailing wages, and maintenance of records to track the recovery funds separately from other monies. Now there is a rulebook (at least interim rules) that OMB issued, effective April 23, 2009. The rules outline certain requirements for recipients of Grants, Cooperative Agreements and Loans. (74 Fed.Reg. 18449). First, any entity, other than an individual, receiving these funds as well as first tier sub-contractors must register in the Central Contractor Registration ("CCR") database. Financial assistance recipients must also follow the quarterly reporting requirements that have been created to track the use of the funds. Some of the reporting requirements include: the total amount of Recovery Act funds received, the total amount of funds obligated to a project, the name and description of the project for which the funds are being used, an evaluation of the project's completion status, and an estimate of the number of jobs created and retained for the project. If recipients sub-contract out any of the work using these funds, that must be reported. Also, State and local governments that use Recovery Act funds for infrastructure projects must report the purpose, cost and rationale of using Recovery Act funds for the project. According to the rulebook, failure to comply with these reporting requirements can lead to termination and will become part of a recipient's past performance record. Recipients of Recovery Act funds must also comply with the Buy American Act. The Recovery Act prohibits the use of funds on any construction, alteration, maintenance or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States. Of course, there are a number of exceptions to this rule such as when there is not enough American made supplies, or the American made supplies are too costly, or if it is determined that the restriction is inconsistent with public policy. There are also exceptions made under a number of trade agreements. Recipients of Recovery Act funds also must pay prevailing wages. This requirement includes recipients whose awards are only partially funded out of Recovery Act funds. Essentially, this requirement follows the Davis Bacon Act requirement to pay all laborers and mechanics wages at rates not less than those prevailing on projects of a similar character in the locality. The rules require Federal Agencies providing grants, loans and cooperative agreements using Recovery Act funds to include the standard Davis-Bacon contract clauses from 29 CFR 5.5(a) in contracts that are in excess of $2,000 for construction, alteration or repair, including painting and decorating. Finally, Uncle Sam wants to be able to follow the money trail. States, local governments and non-profits must separately identify expenditures of Recovery Act funds including to whom the money goes, when it is awarded and how much is given out. These entities must also require the ultimate recipients of these funds to separately identify the Recovery Act funds in their expenditure reports, in order to continue tracking the funds to sub-recipients. If your feathers are ruffled by any of this -- remember these are interim rules. The door is open for comments to Office of Management and Budget until June 22, 2009.

Wanted: Systems Engineer, Salary $19.2 million

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Thu, 16 Apr 2009 13:20:16 -0400

According to an April 8, 2009 Settlement Agreement, Igor Kapuscinski worked for NetApp as a Systems Engineer and in other positions. He sued his former employer in a qui tam action. That allows private individuals to file lawsuits in the name of the USA. The lawsuit alleged that NetApp made false statements and claims to GSA and violated the price reduction terms of two contracts "by failing to extend proper discounts to government customers..." NetApp denied all of these contentions. Nonetheless, as part of the Settlement Agreement, NetApp agreed to pay $128 million to the USA and the USA agreed to pay $19.2 million of that amount to Igor. Now I know what you are thinking. Why would NetApp agree to pay $128 million to the USA after denying all the allegations of wrongful conduct? And the answer is "to avoid the delay, uncertainty, inconvenience, and expense of protracted litigation...." That would have paid for a lot of uncertainty and litigation expenses. I would have been happy to handle the litigation for half that amount. Besides the fact that mothers should tell their children to grow up to be engineers or qui tam relators, what does this settlement tell us? First, there are some very good mechanisms in place to detect alleged fraud. These include the qui tam provisions of the False Claims Act, which may have created more millionaires than AIG. Second, don't be surprised if the Obama Administration publicizes and strengthens the qui tam provisions so that more such lawsuits are encouraged. Third, the Price Reduction clause in GSA FSS contracts is a big trap for the unwary. Putting aside those pesky allegations of false statements and claims, you can get in trouble by giving commercial customers discounts that you do not give to the Federal Government. As to Igor's former job, we don't know whether it still is open.

Bailout Basics

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Tue, 14 Apr 2009 13:41:12 -0400

The Emergency Economic Stabilization Act (EESA), also known as the Financial Bailout Law, authorizes the U.S. Department of the Treasury to spend up to $700 billion to secure the national economy. However, the Treasury Department has and will spend much of that money without following the long-established rules that govern more typical government procurements, including the Federal Acquisition Regulation (FAR). The Treasury Department’s implementation of the EESA has been a fluid process, with important developments occurring almost every day. And it is very possible that significant developments will have occurred between the time this article was authored to when you read it in this magazine. Nonetheless, this introduction to the government contracting issues in the EESA will remain useful. This article discusses the kinds of purchases the Treasury Department is authorized to make under the EESA. It also addresses how a company could challenge the Treasury Department’s decision to select a competing bidder for a contract.

For more information, please click here.

No matter who is President, there always will be sole source contract awards

Mon, 13 Apr 2009 14:20:22 -0400

President Obama wants to cut back on sole source contracts. That may be easier said than done. Sole source contracts are specifically allowed by the law and are necessary in many cases. GAO recently upheld the Army's award of a sole source contract in Matter of Pegasus Global Strategic Solutions, LLC, B-400422.43 (March 24, 2009). Pegasus challenged the Army's sole source award of a contract modification to SRCTec, Inc. for the production of a device that would upgrade existing systems to thwart remote control detonation of IEDs by Iraqi insurgents. Pegasus claimed that the Army should have acquired the device under a separate competitively awarded contract. GAO rejected Pegasus's protest and determined that the "continuing and urgent need to address the use of more sophisticated IEDs" justified the modification of SRCTec's contract where it was the only contractor positioned to meet the Army's urgent needs. In GAO's view, the Army reasonably determined that no other contractors in the marketplace (including Pegasus) were positioned to meet the Army's schedule. A competitive procurement would have delayed the delivery of this device vitally needed for the protection of troops on the ground. Long after the President's new policies are in place, we are likely to see that competitive awards are not always a panacea. Yes, in some cases sole source contracts look like sweetheart deals. And yes, in some cases sole source contracts may cost the US more than if the contract had been awarded after competition. However, what will happen when an urgent requirement is competitively let and the selected contractor doesn't get the job done? In those cases, there will be second thoughts about cutting back on sole source contracts. The Government always will need the flexibility to say that only one contractor can get the job done. If new policies take away the discretion of the technical folks to award sole source contracts, we may not like the result.

Government Contracts Continue to Occupy Center Stage

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Thu, 9 Apr 2009 12:48:56 -0400

In an April 6, 2009 Budget Press Briefing, Defense Secretary Gates announced plans for a budget that would increase "the size of defense acquisition workforce, converting 11,000 contractors and hiring an additional 9,000 government acquisition professionals by 2015 - beginning with 4,100 in FY10." The Secretary also announced plans for "greater funding flexibility and the ability to streamline our requirements and acquisition execution procedures."

What does this all mean? We will be seeing more fights in the Government Contracts arena: Fights over what to buy; fights over whether the work should be done with Government employees or outside contractors; and fights about how to award contracts. Stay tuned, or click here for more information.

Keeping Your Dirty Laundry Out of Bid Protests

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Wed, 8 Apr 2009 14:34:58 -0400

Bid protests serve an important function in the Government procurement system. The rewards of winning bid protests can be significant and shift billions of dollars from one competitor to another. The main consequence of losing a bid protest generally is the cost of pursuing the protest. That, however, is not always the case.

How would you like to read the following about your company in a GAO Decision: "In sum, we find reasonable the agency's determination here that KBR's LOGCAP IV program manager knowingly and improperly obtained access to source selection sensitive and proprietary information ...." Or how about: "Nor...is there any question that the program manager, at a minimum, knowingly obtained that source selection sensitive and proprietary information by accessing the 6:35 p.m., September 23 e-mail and attachment; that he did so even though he had been previously advised by the agency that the e-mail and its attachment should be deleted without being viewed; and that he did so after he had in fact advised the agency that he had complied with the direction to delete the e-mail and its attachment." KBR recently had that experience when it protested its elimination from certain Army task order competitions and GAO denied KBR's protests. See Kellogg Brown and Root (B-400787.2; B-400861, February 23, 2009).

Is there any way to file a protest and avoid seeing your dirty laundry aired in public? Maybe. After you file a protest, you often receive the Agency Report and the documents on which the agency relied to make its decision. If you can read the tea leaves and see that the protest is likely to be denied, you always have the right to withdraw the protest. Also, sometimes GAO will help you by holding an outcome prediction conference. (That did not appear to be the case in the KBR protests.) In most cases, if GAO predicts that it will sustain the protest, the agency should take corrective action on its own. If GAO predicts that it will deny the protest, that usually is good sign that the protest will be denied and withdrawal may be appropriate. And although a withdrawal is not a win, it will feel better than having someone rub salt in your wound.

President’s Memo on Government Contracting Could Mean Big Changes in How the Federal Government Does Business

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Tue, 7 Apr 2009 14:41:24 -0400

On March 4, 2009, President Obama signed a memorandum that tasks the heads of all executive agencies with ensuring that the Federal Government will perform its functions efficiently and effectively while ensuring that its actions result in the best value for taxpayers. The memo creates a critical issue for government contractors: it suggests that the President may be inclined to have the Federal workforce, as opposed to private contractors, perform a greater portion of the Government’s work, including that covered by the new Stimulus Law.

For more information, please click here.

What in the world is a RAT board?

Wed, 1 Apr 2009 15:45:07 -0400

You don't use it to hit rats and it is not made up of rats. My guess is that the officials at Names Intended to Thrill, Wow, Instruct and Tutor (NITWIT) sat around a table and said that the crooks who stole from the Government were rats and they needed a RAT Board to ferret out that fraud. They probably are having second thoughts now, at least about the name.

The fact is that with billions of dollars of federal stimulus money being made available for government spending through the American Recovery and Reinvestment Act of 2009 (ARRA), the desire to ferret out fraud and abuse has increased. As a result, government contractors who receive stimulus funds should expect an unprecedented level of information about their government contracts to be made available to the public.

The ARRA (for real) has created a new Recovery Accountability and Transparency Board (RAT Board) to coordinate and conduct oversight. The RAT Board can conduct audits, issue subpoenas and hold hearings. The RAT Board will maintain a website, Recovery.gov, to provide the public with access to data relating to contracts and grants awarded with stimulus funds and the results of audits. The public also will be able to give feedback on the performance of government contracts that use stimulus funds. According to Earl Devaney, the Chairman of the RAT Board, Recovery.gov is only in its early development stage and has not yet been transitioned to the Board's control.

There is no doubt that the public is extremely interested in how this money is spent. According to news sources, Recovery.gov is already receiving an estimated 3,000 or 4,000 hits per second. It remains to be seen how intrusive these new transparency measures will be for government contractors or how effective they will be in curbing fraud, waste and abuse in government contracting.

Read All About It -- Your Total Compensation

Thu, 26 Mar 2009 14:11:26 -0400

The idea of AIG executives receiving big bonuses did not sit well with the public, Congress or the President. The uproar subsided a little when we learned that the bonuses had been agreed to in prior contracts and the Government knew of the bonuses when it was bailing out AIG. Still, that was little comfort to the AIG executives who received hate mail and resigned from their jobs. Could the same publicity be coming to your neighborhood Government contractor?

Federal Acquisition Regulation Case 2009-009 purports to implement section 1512(c) of the American Recovery and Reinvestment Act of 2009. It would require certain non-publicly held companies to report the names and total compensation of each of the five most highly compensated officers of the Contractor for calendar years in which they receive more than 80% of their revenues from "Federal contracts (and subcontracts), loans, grants (and subgrants) and cooperative agreements" and those revenues exceed $25 million. Under the proposed regulation, "the Contractor shall report the ... information, using the online reporting tool available at www.FederalReporting.gov."

Do you want to see your compensation information in print? If not, you might want to let the regulators know.

President Obama's March 24, 2009 Press Conference

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Wed, 25 Mar 2009 15:55:31 -0400

At his March 24, 2009 press conference, the President said: "And there is uniform acknowledgment that the procurement system right now doesn't work. That's not just my opinion. That's John McCain's opinion. That's Carl Levin's opinion." The President also referred to "cost overruns of 30 percent or 40 percent or 50 percent...."

Government contractors and government misspending are easy targets, but we jump to conclusions when we say the procurement system doesn't work. The Government buys trillions of dollars of goods and services without overspending and without incident. Of course, there is some overspending and fraud. And, we always should review the procurement system and make adjustments to try to reduce fraud and misspending. But the procurement system does work. And, the reforms that the President is championing -- fixed-price contracts and competitive contracts -- already are integral parts of the procurement system.

No one wants cost overruns. But if you budget $1000 to do a $10,000 job, don't be surprised if there is an overrun. Or, if you tell a contractor to follow one set of specifications and later make changes to those specifications, don't act shocked if the cost of the work escalates. The way to avoid cost overruns is to know what you are buying before you buy it and clearly define what you want your contractors to do.

It is easy to be against fraud, waste and abuse, but when we say that the procurement system is a hotbed of fraud, waste and abuse, we overstate and simplify the problem. We also suggest that there are villains. That ignores the fact that the vast majority of contractors and Government workers who make the procurement system work are honest, conscientious and getting the job done. Hopefully, the President understands that.

Fighting FOIA Disclosure of Confidential Information

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Thu, 19 Mar 2009 17:29:22 -0400

Anyone can submit a request under the Freedom of Information Act that asks for your confidential records that are in the possession of the Government. But, you have the right to oppose those requests. A company recently did just that when the Government was planning to release a contractor's emails attacking a competitor's qualifications. The company did not want its competitor to know that it had made negative comments about the competitor. The company filed a reverse-FOIA suit and won.

Your company may be able to oppose FOIA disclosures of its business sensitive information. You need to make sure you mark your information with the proper legends and notices, and promptly respond when the Government tells you it has a FOIA request for your records. See our website for information on the reverse-FOIA case, Tybrin Corp. v. United States.

US Government Contracting Reforms

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Fri, 6 Mar 2009 16:01:24 -0400

Today marks the launch of our Government Contracts blog. It coincides, more or less, with President Obama's March 4, 2009 memo launching his Government Contracting initiatives. On their face, the initiatives are nothing new. They really just ask Office of Management and Budget to develop some guidance on various contracting topics. Still, the President has given us a good idea of his preferences. He doesn't like sole source contracts. He likes competition. He doesn't like cost-reimbursement contracts. He likes fixed-priced contracts. He wants to stimulate the economy by increasing the size of government. He plans to shift work that has been performed by private contractors to the government. Is some of this pay-back to Federal employee unions? Maybe. Will contractors sit still while their work is shifted to Federal employees? Unlikely.

The impact of the proposed government contracting reforms will unfold in the coming months. I invite you to visit this blog regularly to keep abreast of developments, analysis and perspectives.