Changes in Regulations Now Allow Litigation Support Government Contractors To Access Sensitive Information

This post was written by Cody Roberts, Gunjan Talati and David Cohen.

The government is a frequent litigant as both a plaintiff and defendant on a variety of matters at any given time. Like many other litigants, the government sometimes finds itself needing litigation support. Litigation support contractors fill that need and, because of a new interim rule published February 28, 2014, the Department of Defense (“DoD”) is making it easier for such support contractors to have access to “sensitive information”—subject, of course, to certain restrictions and disclosures.

This interim rule expressly authorizes the DoD to provide its litigation support contractors with access to certain types of non-public information, provided that the litigation support contractors are required to protect that information from any unauthorized disclosure, and are prohibited from using that information for any purpose other than providing litigation support services to the DoD.

DFARS subpart 204.74, Disclosure of Information to Litigation Support Contractors, along with its associated new clauses, provides the policy governing the new subpart in a two-pronged implementation approach:

  • The DoD is authorized to release litigation information, including sensitive information, to its litigation support contractors, provided that the litigation support contractors are subject to appropriate requirements and restrictions that comply with the requirements of 10 U.S.C. § 129(d).
  • Although not required by the statute, the DoD will, to the maximum extent practicable, ensure that offerors and contractors submitting information to the DoD under solicitations and contracts will be notified that the submitted information may be disclosed to the DoD's litigation support contractors under the aforementioned conditions.

The DoD avows that failure to issue this rule as an interim rule would severely impact the government’s ability to obtain administrative, technical or professional services, including expert or technical consultation, in support of the government during or in anticipation of litigation, thereby adversely affecting the government's ability to successfully engage in legal proceedings.

The interim rule, on its face, could be potentially troubling to companies subject to government investigations and administrative enforcement actions. Such investigations and actions are usually highly confidential, and sensitive information is produced to the government with the understanding that it will be protected and not be made public or otherwise fall into the hands of competitors. Wider sharing of such information leads to greater concerns about breaches of confidentiality.

The DoD has attempted to ameliorate these concerns by implementing safeguards under 10 U.S.C. § 129(d) to ensure that this broad usage of sensitive information does not threaten the data owner's competitive advantage because of the proprietary information, and to provide the data owner with legal remedies against the support contractor for any breach of those use restrictions. The section identifies “sensitive information” to mean confidential commercial, financial, or proprietary information, technical data, or other privileged information. (See 10 U.S.C. § 129(d)(b)(2)).

(See DFARS; Disclosure to Litigation Support Contractors (DFARS Case 2012-D029), 79 Fed. Reg. 11337-11339 (February 28, 2014)).

This new rule provides both an opportunity and a challenge to litigation support contractors. The opportunity is being able to handle additional information, but the challenge is ensuring that appropriate safeguards are in place. Thus, before accepting “sensitive information,” litigation support contractors should ensure they can comply with all of the government’s requirements.

 

 

Are Internal Compliance Investigations Privileged? D.C. District Court Rules No

This post was written by Lawrence S. Sher, Joesph W. Metro and Erin E. Atkins.

We want to alert our readers to a recent decision out of the U.S. District Court for the District of Columbia.

  • U.S. District Court for the District of Columbia holds documents related to internal investigations of possible violations of corporate code of conduct not protected from disclosure under either attorney-client privilege or attorney work product doctrine
  •  Ruling serves as timely reminder for companies in a wide variety of industries to review internal procedures relating to internal corporate compliance program or code of conduct investigations to maximize the likelihood that appropriate privileges will be honored

On March 6, 2014, the United States District Court for the District of Columbia granted a qui tam relator’s motion to compel the production of documents relating to the defendant Kellogg Brown & Root Services, Inc.’s (“KBR’s”) “Code of Business Conduct (“COBC”) investigations,” holding such documents were not protected from disclosure under either the attorney-client privilege (“ACP”) or the attorney work product doctrine (“AWP”). The court concluded that the company’s investigations were conducted pursuant to “regulatory law and corporate policy,” rather than for the purpose of obtaining legal advice. Accordingly, KBR was ordered to produce some 89 documents that it previously claimed as privileged under the ACP and/or AWP. U.S. ex rel Barko v. Halliburton Company, No. 1:05-CV-1276 (D.D.C., March 6, 2014). The court’s broader statements could have significant implications for companies in regulated industries where corporate compliance programs are commonplace, or even required.

Click here to read the issued Client Alert.

Equal Opportunity Flowdown Changes - Coming Soon to a Contract Near You!

This post was written by Lorraine M. Campos and Erin Felix.

On March 24, 2014, the Department of Labor’s revised Vietnam Era Veterans' Readjustment Assistance Act of 1974 (“VEVRAA”) regulations take effect. Among various changes to the existing rules found at 41 C.F.R. Part 60-300, including establishing veteran hiring benchmarks, posting open jobs, and collecting quantitative recruiting data, federal government contractors with covered prime contracts will now be required to implement specific, mandated flowdown language when incorporating VEVRAA’s equal opportunity clause; merely referencing the equal opportunity statues and regulations alone will no longer be sufficient.

The Final Rule modifies 41 C.F.R. § 60-300.5(d) to require that the following language be included, in bold text, in all covered contracts and subcontracts following the citation to 41 C.F.R. § 60.300.5(a):

This contractor and subcontractor shall abide by the requirements of 41 CFR 60-300.5(a). This regulation prohibits discrimination against qualified protected veterans, and requires affirmative action by covered prime contractors and subcontractors to employ and advance in employment qualified protected veterans.

Since the Department of Labor recognizes that federal contracts are required to contain multiple equal opportunity clauses pursuant to various provisions of 41 C.F.R., the Agency allows contractors to combine all of their required equal opportunity flowdowns into a single provision. The Agency’s VEVRAA Frequently Asked Questions website provides an example of such a combined clause:

This contractor and subcontractor shall abide by the requirements of 41 CFR §§ 60-1.4(a), 60-300.5(a) and 60-741.5(a). These regulations prohibit discrimination against qualified individuals based on their status as protected veterans or individuals with disabilities, and prohibit discrimination against all individuals based on their race, color, religion, sex, or national origin. Moreover, these regulations require that covered prime contractors and subcontractors take affirmative action to employ and advance in employment individuals without regard to race, color, religion, sex, national origin, protected veteran status or disability.

The Final Rule states that this new flowdown requirement applies to all covered contracts and subcontracts valued at or above $100,000 that are entered into after March 24, 2014, the effective date of the rule. However, the regulation does not automatically apply to existing contracts. It is not until a new contract has been issued or an existing contract has been modified – for any reason – that the contract then becomes a covered contract. For example, if a $100,000 contract exists on March 24, the requirement does not immediately take effect. But if that contract is modified on March 25 for any reason (e.g., solely to add funding), the contract is now a covered contract subject to the new VEVRAA regulations. Thus, contractors are not required to proactively implement the new subcontract clause prior to March 24, 2014. Instead, the clause must be incorporated into any new covered subcontract or subcontract modification issued after March 24, 2014.

While the regulations do not outline specific sanctions or penalties for contractors who fail to comply, the Department of Labor website notes that violations of VEVRAA may result in cancellation, suspension, or termination of contracts, withholding of progress payments, and debarment. The sanctions for violating a mere administrative provision of the statute are likely to be less severe than a substantive compliance violation, but could still potentially result in a contract breach allegation.

Finally, it is important to note that the VEVRAA statute and regulation expressly provide that the equal opportunity clause shall be considered to be a part of every applicable contract and subcontract, whether or not it is physically incorporated in such contract and whether or not there is a written contract between the agency and the contractor. Thus, to the extent that a contractor enters into Federal contracts, subcontracts, or associated modifications after March 24, 2014, the new flowdown requirements will apply regardless of whether they are properly incorporated.

Help Not Wanted: Delinquent Taxpayers and Felony Convicts Still Not Sought as Contracting Partners to the U.S. Government

This post was written by Joelle E.K. Laszlo.

The pool of potential competitors for federal contracts may have just gotten a little bit smaller. On February 21, 2014, the Undersecretary of Defense for Acquisition, Technology and Logistics issued a memorandum to all Department of Defense (“DOD”) contracting agencies and officers instructing that, effective immediately and with limited exceptions, no funds made available under DOD’s 2014 appropriations acts may be used for contracting with a corporation delinquent on its taxes or recently convicted of felony. The DOD memo reflects express prohibitions on the use of federal funds peppered throughout the Consolidated Appropriations Act for 2014. Thus, it is only a matter of time before civilian agencies follow suit in implementing similar prohibitions.

The DOD memo effectuates a class deviation to the Defense Federal Acquisition Regulation Supplement (“DFARS”) that will remain in effect until incorporated in the DFARS or the Federal Acquisition Regulation, or otherwise rescinded. The deviation, which is codified as a new DFARS provision required in all affected solicitations (DFARS 252.209-7993), prohibits any DOD agency from spending 2014 funds on a contract with any corporation that: (1) has assessed an enforceable federal tax liability that the corporation is not paying in a timely manner; or (2) was convicted of a felony under any federal law within the preceding 24 months. A DOD agency is not required to enforce the prohibition if it has considered suspending or debarring the corporation, and made a determination that such action is “not necessary to protect the Government’s interests.” To assist DOD agencies in making the necessary considerations, DFARS 252.209-7993 requires a corporation submitting a proposal to a DOD agency to provide affirmative representations regarding its tax and felony liability.

The fact that the government would rather not do business with corporations that have failed to pay their taxes or comply with federal criminal law should come as no surprise. Indeed, the prohibitions at the root of this policy have appeared in previous years’ appropriations bills. But the affirmative representation requirement that comes with these prohibitions makes them worthy of special attention. A contactor that misrepresents its tax or felony liability to a contracting agency at the very least risks (criminal) penalty under the False Statements Accountability Act. This and other potential consequences should keep contractors on notice of the certification requirements in the contracts they seek, as well as the ones they have. Even a mistaken misrepresentation can have dire consequences – including making the pool of potential competitors even smaller (but not in the way one would want).

Prepare for Agency Rulemaking - OMB Super Circular Overhauls Federal Grant and Funding Award Guidance

This post was written by Christopher Rissetto, Carlos Valdivia and Erin Felix.

In December 2013, the Office of Management and Budget (“OMB”) released its long-awaited final guidance for grants and other Federal non-procurement awards, entitled “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards.” See 78 Fed. Reg. 78589. Also referred to as “the Super Circular,” this final guidance is “a key component of a larger Federal effort to more effectively focus Federal resources on improving performance and outcomes while ensuring the financial integrity of taxpayer dollars,” and is part of a Government multi-step process to simplify and streamline Federal acquisition practices. The Super Circular was specifically developed in response to multiple Presidential directives (see EO 13520 and this recent Presidential Memorandum) that called for eliminating waste and fraud, increasing accountability, and reducing administrative burdens. The final guidance represents more than two years of work between the Federal government, state and local governments, and non-federal partners, and supersedes prior OMB Circulars A-21, A-50, A-87, A-89, A-102, A-110, A-122, and A-133.

There are three major parts to the final guidance, which spans more than 100 pages: (1) changes to administrative requirements; (2) changes to cost principles; and (3) audit requirements. These changes apply to Federal agencies that make Federal awards to non-Federal entities, and in some instances significantly deviate from prior Federal practice. In addition, certain portions of the final guidance apply to different types of Federal awards. Generally, the terms and conditions of Federal awards flow down to subawards to subrecipients unless the guidance or the specific agreement’s terms and conditions state otherwise. Non-Federal entities will therefore also be required to comply with the Super Circular, whether they are recipients or subrecipients of Federal awards. Nothing can substitute reading the final guidance itself, but some excellent resources are available for those who need additional help understanding how it may affect you. The Council on Financial Assistance Reform has helpfully posted training videos on YouTube: (1) Intro, (2) Administrative Requirements, (3) Cost Principles, and (4) Audit Requirements.

It is important to remember that OMB itself is not a regulatory body. The final guidance that was issued is just that – guidance, and not rules. Thus, while the Super Circular’s guidance was effective immediately upon its publication in December, Federal agencies must take action to properly implement the guidance in their policies, procedures, and official regulations. The OMB makes this clear at the outset of the guidance, stating that the standards set forth only “become effective once implemented by Federal agencies…” OMB then establishes a deadline of December 26, 2014 for Federal agencies to implement the policies and procedures applicable to Federal awards by promulgating regulations to be effective by that date.

The forthcoming period of rulemaking between now and December 2014 affords recipients of Federal funds an opportunity to influence the way agencies implement the new OMB guidance. Agencies are required to provide the public with meaningful participation in the regulatory process, including an opportunity to review and comment on proposed rules. Recipients are encouraged to be on the lookout for notices of proposed or interim rules in the Federal Register, review the draft language, and provide feedback to agencies regarding any issues or concerns. In addition, recipients always have the ability to submit a request for rulemaking to an agency. Such requests may be made not only once regulations have been promulgated, but also preemptively in order to influence the rulemaking from the earliest stages.

2014 will be a very dynamic year for recipients of federal funding as agencies wrestle with understanding and implementing the new OMB guidance. However, despite some likely growing pains during the process, the resulting streamlined rules and procedures should be a significant improvement over the prior multitude of guidance that was often duplicative or conflicting. Recipients are strongly recommended to be proactive, and to participate as much as possible in agency rulemaking so as to ensure reasonable implementations of the Super Circular in forthcoming Federal regulations.

As a footnote, increased congressional attention will be paid to the level of programmatic grant funding, as well as compliance with imposed requirements. While individual project earmarking may continue to be barred, techniques can be available to impact appropriated funding, as well as the “re-use” of “returned” grant funding.

Lessons Learned: 3 Important Takeaways from the Recent Boeing Termination Settlement Appeal Decision

This post was written by Erin Felix.

On December 3, 2013, the Armed Services Board of Contract Appeals (“ASBCA”) issued its decision in Case No. 57409, a termination for convenience settlement appeal by the Boeing Company. The ASBCA held that Boeing’s financial recovery from the U.S. Air Force was capped by the presence of FAR 52.232-22, the Limitation of Funds (“LOF”) clause, in Boeing’s contract. At a macro level, this holding is not surprising since the language of the LOF clause expressly limits the government’s liability to the funded value of the contract. However, the facts of the case suggest that multiple, compounding factors – which are often present in dynamic program environments – ultimately led to Boeing exceeding the funding limit. In reviewing this dispute, contractors should take away the following three key lessons as they navigate the day-to-day performance of their programs.

Lesson #1: You are Only Entitled to What the Actual Contract Provides. The government issued its termination for convenience approximately four years into Boeing’s period of performance. At the time of termination, Boeing had almost two years of performance remaining under its partially funded contract. Boeing and the government had previously “agreed in principle” that a new program estimate to complete (“EAC”) was required, and the parties were actively working to develop a new, increased budget. Despite this informal agreement, the ASBCA held that the government was only obligated to reimburse Boeing up to the funded limit stated in the contract. This dispute should serve as a warning to not rely on understandings or “agreements in principle” that contractors believe they have with the government, when the clear language of the contract states otherwise.

Lesson #2: Manage Your Prime/ Subcontractor Relationships Carefully. Multiple subcontractors, including Honeywell, performed large portions of Boeing’s contract. As part of the termination proceedings, Honeywell provided Boeing with a combined termination settlement and request for equitable adjustment (“REA”) proposal. The value of Honeywell’s proposal alone exceeded the value of remaining funds on Boeing’s contract. Since many critical details surrounding Honeywell’s subcontract and proposal were not discussed in the case, Boeing and Honeywell will likely be stuck negotiating a settlement in which one or both parties will not be made financially whole as a result of this decision. Contractors wishing to avoid similar situations should be hyper-aware of their subcontractors’ funding forecasts, and take proactive measures to manage their subcontractor agreements.

Lesson #3: Include Sufficient Termination Liability Funding Requirements in Your Program Funding Profile. Contractors are generally required to submit and maintain financial profiles that forecast funding needs over the life of incrementally funded contracts. These funding profiles should include a time-phased forecast of potential expenses in the event of contract termination. Such termination liability expenses include cancellation costs for supplier purchase orders, settlement expenses, and employee severance pay resulting from the termination. Accounting for termination liability costs does not increase the total value of the program. Rather, it shifts more funding to the front end of the contract, which decreases over time as the impact of a potential termination wanes. In Boeing’s case, the inclusion of sufficient termination liability funding may not have fully prevented Boeing’s funding shortfall because of the added EAC and REA circumstances. However, actively managing your funding profile to account for changing contractual and programmatic realities is a legitimate and critical way for contractors to protect themselves from adverse LOF impacts.

Contractors should view the Boeing decision as an opportunity to examine their current contracts for potential termination funding issues. In addition, contractors should consider the takeaways from this dispute when entering into contracts with the government and subcontractors in the future.
 

Prepare for Impact - The Executive Order Increasing the Minimum Wage for Federal Government Contractors is Imminent

This post was written by Lorraine M. Campos and Erin Felix.

During his 2014 State of the Union address, President Obama announced that he intends to use his executive power to increase the minimum wage for federal government contractors to $10.10 per hour.  The forthcoming Executive Order is expected to impose this wage increase on all new and renewed federal service and construction contracts after the Order’s effective date.  However, specific details regarding the Order’s contents are still under development by the White House.

An increase from the current federal minimum wage of $7.25 per hour will have varying effects on government contractors.  Twenty-one states, as well as the District of Columbia, currently have established minimum wage requirements greater than $7.25.  As a result, contractors in these areas will feel less of an impact than those in states with minimum wages at or below the current federal level.  Similarly, some contractors may already have self-imposed minimum pay rates that meet or exceed $10.10 per hour, and will not be affected by the mandate.  Contractors who will be affected, however, should be sure to consider the following direct and indirect effects to their existing workforce and contracts:

  • Personnel wages for all labor categories at and around the new minimum wage requirement.  The most direct and immediate impact to government contractors will be the requirement to increase the wages of any affected employees making less than $10.10 per hour.  An indirect consequence of this, however, is that contractors will likely need to also reassess and consider wage increases for employees who were previously paid at or slightly above $10.10 per hour.  If more senior or highly skilled employees are suddenly paid the same amount as their less qualified colleagues, employers will likely see an increase in employee turnover and a negative impact on morale.  Contractors who have unionized employees may also be required to renegotiate their collective bargaining agreements.
  • Impacts to negotiated government rate agreements and proposals in processContractors who have negotiated forward pricing or other rate agreements with the federal government will need to assess, propose, and negotiate the impact of their increased direct wages on such agreements.  Contractors may also be required to re-price proposals for new or renewed government contract bids in process, depending on how much lead time the Executive Order provides before the wage increase takes effect.
  • Effects on existing contracts containing future option years.  While the minimum wage increase will only directly apply to future new and renewed contracts, it may have a collateral impact to existing contracts with options that overlap with the new wage effectivity.  A contractor may have pre-existing contract options for future work based on today’s rates.  If this same contractor also intends to obtain new government contracts for the same or similar work after the new minimum wage becomes effective, the contractor will have to wrestle with how to handle having similarly qualified personnel being paid at differing rates.  If the contractor maintains disparate rates, employee morale and retention could suffer.  Conversely, the contractor could suffer significant financial impacts if it chooses to increase wages for personnel on the existing contract without the benefit of re-pricing its contractual compensation.
  • Subcontractor concerns.  Finally, contractors should be prepared for similar concerns to be voiced to them by their subcontractors.  Subcontractors who are paid on a fixed-price or time-and-materials basis will likely be more vocal regarding these issues because they will bear the impact of increased costs to perform.  However, contractors who compensate their subcontractors on a cost-reimbursement basis may also suffer, since such costs are passed through to the prime (and likely to the government) and create a greater risk of budget overrun.

Regardless of whether government contractors support or dislike the idea of increasing the minimum wage, the President’s Executive Order is imminent.  While many details remain unknown at this time, contractors should be proactive in assessing the potential impacts of the wage increase on their respective business operations, pricing practices, and current government contracts.  If it appears that current contracts will be impacted, contractors should begin a dialogue as soon as possible with their government contracting officers and internal suppliers to discuss how the impacts of the minimum wage change can be amicably resolved.
 

Latest Bid Protest Stats Suggest Contractors Are Seeking to Fight Only the Good Fights

This post was written by Lorraine M. Campos and Joelle E.K. Laszlo.

On January 2, the Government Accountability Office ("GAO") provided its annual report to Congress of bid-protest activity for fiscal year ("FY") 2013.  The primary purpose of these reports is to meet the Comptroller General's requirement under the Competition in Contracting Act to inform Congress of each instance in which a federal agency declined to implement the GAO's recommended course of action to resolve a bid protest.  But since the early 2000s, the GAO has also presented a collection of statistics in these reports, comparing bid-protest activity for the fiscal year at issue with data from prior years.

At first glance, it can be difficult to discern any meaningful conclusions from this data, except that contractors file a lot of cases with the GAO these days – on average more than 200 per month in FY 2013.  A closer look, however, gives rise to some interesting trends, including the potential that – contrary to popular belief – competition for shrinking federal dollars has not prompted a steady increase in bid protests.  Instead, after a burst of protest activity in the late 2000s, contractors today may be choosing their battles more carefully.

The most obvious sign that a protest is not today's default course of action is the fact that contractors filed 2 percent fewer cases in FY 2013 than in FY 2012.  This is the first time since FYs 2005 and 2006 that contractors filed fewer cases in a subsequent fiscal year than in the previous one.  And compared with the double-digit growth in the GAO's case load from FYs 2008 through 2010, the modest increases in filings in FY 2011 and 2012, suggest that contractors of late have been more cautiously optimistic about their chances for success through protests.  Finally, for the first time since FY 2000, the GAO closed more cases than it received in FYs 2012 and 2013.  This may be a sign that fewer knee-jerk protests are being filed at the very end of a fiscal year, and protest decisions are made more judicially during the course of the year.

The GAO's statistics also show that cautious optimism on the part of contractors is a prudent choice.  In both FY 2013 and 2009, sustain decisions accounted for only 3 percent of all of the cases closed by the GAO (and in the intervening fiscal years, this rate never exceeded 4 percent).  Additionally, in FY 2013, protest denials and withdrawals collectively accounted for close to 60 percent of all cases closed by the GAO.  This is not to say, however, that a protest is not a viable option for pursuing a desired contract.  The remaining 40 percent of cases closed by the GAO in FY 2013 were the result of agency corrective action.  But ending up in this 40 percent, or the exclusive 3 percent of contractors whose protest actions are, to borrow the GAO's designation, "effective," is both a science and an art.  Given these statistics, contractors should work with attorneys who understand the science and art of bid protests to help them determine which actions are worth the fight.
 

 

Department of Labor Increases Affirmative Action Requirements for Federal Contractors

This post was written by Gregory S. Jacobs and Carlos A. Valdivia.

Last month, the Department of Labor (“DOL”) issued two regulations that require federal contractors to employ more veterans and individuals with disabilities, updating long-existing federal laws. For over 40 years, the Vietnam Era Veterans’ Readjustment Assistance Act (“VEVRA”) and Section 503 of the Rehabilitation Act (“Section 503”) have required federal contractors and subcontractors to affirmatively recruit and hire veterans and disabled individuals. The DOL’s Office of Federal Contract Compliance Programs (“OFCCP”) has updated its implementation of both laws, changing benchmarks for veteran recruiting and employment, and increasing hiring goals for federal contractors and subcontractors.

Here’s a summary of the VEVRA Rule:

  • Rescinds old law. The outdated 41 CFR 60-250 is rescinded entirely, but protects veterans under 41 CFR Part 60-300.
  • Sets hiring benchmarks. Contractors must establish annual hiring benchmarks for protected veterans, choosing between (1) “a benchmark equal to the national percentage of veterans in the civilian labor force,” or (2) “[establishing] their own benchmarks using certain data from the Bureau of Labor Statistics and [OFCCP’s VETS/ETA].”
  • Record-keeping. Contractors must document the number of veterans that apply and the number they hire. These records must be kept for three years.
  • Self-identification. Contractors must invite applicants to self-identify as protected veterans (the rule gives sample invitations that contractors may use).
  • Incorporate equal opportunity clause. Specific language must be incorporated into a subcontract by reference, which will flow-down the requirements to federal subcontractors.
  • Provide job listings. Contractors must provide information about job openings in the format permitted by the relevant State or local job service.
  • Give OFCCP access to records. Contractors must give OFCCP access to review documents and check for compliance.

And a summary of the Section 503 Rule:

  • 7% goal. Contractors must apply a 7% utilization goal for qualified disabled individuals. The goal applies to each job group (or the entire workforce for contractors with 100 or less employees) and contractors must conduct annual utilization reviews.
  • Record-keeping. Contractors must document the number of disabled individuals that apply for jobs and the number of those they hire. These records must be kept for three years.
  • Self-identification. Contractors must invite applicants to self-identify as an individual with a disability (the rule prescribes the language that contractors must use). Employees must be invited to self-identify every five years.
  • Incorporate equal opportunity clause. Specific language must be incorporated into a subcontract by reference, which will flow-down the requirements to federal subcontractors.
  • Give OFCCP access to Records. Contractors must give OFCCP access to review documents and check for compliance.
  • ADA Amendments Act. The rule revises the definition of “disability” and certain nondiscrimination provisions.

You can read the full language of the VEVRA Rule here and the Section 503 Rule here.

Contractors need to be aware of these changes and the requirements they impose. Further, contractors should anticipate increased administrative costs as they begin to implement these new compliance measures.

These final rules are expected to be published in the Federal Register later this month and will take effect 180 days after publication. Accordingly, contractors will need to be ready to implement these requirements by the spring of 2014.

Small Businesses: You Left $3.8 Billion on the Table

This post was written by Carlos Aksel Valdivia.

Give small businesses a piece of the pie. That is the thrust of the U.S. federal statutory goal of awarding 23 percent of prime contract dollars to small businesses. Unfortunately, the Small Business Administration (SBA) reported earlier this month that the federal government missed its goal again in FY 2012, earning a “B” for its efforts.

By achieving 22.25 percent, the 0.75 percent shortfall appears inconsequential at first. However, when one considers the massive scale of federal contracting in America, coming up a little short means small companies losing big. In FY 2012, the U.S. federal government spent $517 billion on contracts. That is a $3.8 billion piece of pie that was left sitting on the counter.

Here is a simplified version of the SBA’s report card:

Strong Small Business
2012 Goal: 23.00%
Achieved: 22.25%

Women-Owned Small Business
2012 Goal: 5.00%
Achieved: 4.00%

Small Disadvantaged Business
2012 Goal: 5.00%
Achieved: 8.00%

Service Disabled-Veteran-Owned Small Business
2012 Goal: 3.00%
Achieved: 3.03%

HUBZone:
2012 Goal: 3.00%
Achieved: 2.01%

As you can see, the federal government met some goals but not others. The numbers on the report card alone do not reveal whether this is a failure of government or something symptomatic of government contractors. It is probably some combination of the two.

Some agencies underperform and have greater difficulty meeting these goals. The same agencies complain there is a dearth of women-owned or small business contractors operating in their field. However, this May, the SBA announced in an interim final rule (PDF) that it would implement section 1697 of the National Defense Authorization Act for FY 2013, which removes the statutory limitation on the contract award size for which women-owned and economically disadvantaged women-owned small businesses could compete. With removal of the caps limiting the size of the contracts available to WOSB and EDWOSB companies, there should be more agency spending on that front. Nevertheless, federal contractors would do well to educate themselves on these set-aside programs and ensure that they are not leaving money on the table.

Going Once, Going Twice...Sold to the Lowest Bidder

This post was written by Lorraine M. Campos and Leslie A. Monahan.

Earlier this month, the General Services Administration (GSA) launched its new reverse auction tool for commonly purchased products on certain Federal Supply Schedules (FSS). GSA’s Reverse Auction Platform — reverseauctions.gsa.gov — is designed to drive down procurement prices and increase taxpayer savings. Specifically, reverse auctions are intended to make the buying of non-complex commodities and simple IT services more efficient and effective by having sellers undercut each other and drive down the total costs of acquisitions.

Treatment of reverse auctions for FSS contracts has been varied in the past. For example, in March 2012, the Department of Veterans Affairs (VA) issued a memorandum ordering its contracting officials to suspend the use of reverse auctions as a procurement method. However, a month later, the VA lifted its ban on reverse auctions with an internal memorandum that set forth new guidelines for this method of procurement. A little over a year later, 12 GSA Schedules and 6 VA Schedules have been approved to be operated through the new reverse auction platform.

GSA reverse auctions are offered to federal agencies free of charge through GSA’s National Information Technology Commodity Program (NITCP). These auctions can be used to facilitate the request for and submission of quotes, offers or proposals for products, services, and solutions through GSA Multiple Award Schedules (MAS) and Blanket Purchase Agreements (BPAs). In addition, certain auctions may be set aside for small businesses.

According to GSA, federal agencies have saved as much as 17% through the use of reverse auctions. GSA also stresses the fact that these types of procurement vehicles provide greater transparency into government negotiations and pricing. With statistics like this, we advise that contractors get acquainted with reverse auctions because this type of procurement is here to stay.

Trying to Put a Cap on It - Yet Again: Another Attempt to Limit Government Reimbursement of Contractor Executive Compensation

This post was written by Lorraine M. Campos, Christopher L. Rissetto and Leslie A. Monahan.  

Back in February 2012, the Obama Administration asked Congress to reform the current reimbursement formula for federal government contractor executives. Specifically, President Obama sought to cap the executive reimbursement at the same level as what the government pays its own executives – $200,000 per executive. Although last year’s request may have fallen on deaf ears, more than a year later, debate over reimbursement for executive compensation remains a hot topic.

The White House is once again pushing for lower contractor compensation caps. According to the Office of Management and Budget's newest blog post, the Obama Administration will ask Congress to tie the federal government contractor executive reimbursement limit to the president's annual salary, which is currently $400,000. OMB stated that this proposal “provides a reasonable level compensation for high value Federal contractors while ensuring taxpayers are not saddled with paying excessive compensation costs."

The Obama Administration understands that while the proposed limit saves taxpayers’ money, all contractor skills are not created equal and there may be appropriate reasons for exceeding the limit. Accordingly, the proposed new plan provides an exemption for allowing additional reimbursement when specialized skills must be utilized to support missions. Further, there would be no cap on what federal contractors could pay their own executives. Rather, the only restriction would be on what the government could reimburse federal government contractor executives.

Although the prior proposal failed to be made into law, there is still support for this issue in Congress – especially given the government’s current financial constraints. However, critics of the proposal remain on both sides. On one hand, organizations like the American Federation of Government Employees argue that this proposed cap does not do enough. Others, like the Professional Services Council, argue that if implemented, federal contractors will lose their ability to attract top talent and the government will ultimately suffer as a result. Only time will tell if the White House can claim success on this issue or if it will need to try yet again to put a cap on this reimbursement issue.

A Brave New World? The "French Sunshine Act" imposes online disclosure of contracts with HCPs, as well as of payments of "advantages" to HCPs, dating back to 01 January 2012

This post was written by Daniel Kadar.

In probably one the longest-awaited decrees in recent French regulation, the French Ministry of Health published on 22 May 2013, the application decree to the French Sunshine Act (dated 29 December 2011) implementing the specific ways and means that health care companies must disclose agreements with health care practitioners (“HCPs”), a term that includes medical students, as well as so-called “advantages” paid to HCPs. Under French Public Health Law, the term “advantage” encompasses any form of payment or hospitality, including payment of a contractual fee.

The Decree sets forth the threshold for disclosure at 10 euros (VAT included), but also seems to make a distinction between contractual remunerations and any other form of payment to HCPs. For agreements with HCPs, whereby the health care company enters into a consultancy/research agreement or into a contract to finance the HCP to participate in medical congresses/trainings, the Decree does not seem to require the health care company to disclose the amount it is paying.

However, for other payments – including hospitality and meals – every amount at or above 10 euros, rounded up to the nearest euro, must be disclosed.

The industry has shown surprise that the Decree requires disclosure of the amount of an invitation for lunch, but does not require disclosure of a contractual remuneration. It is foreseeable that the French Ministry of Health, given this interpretation, may shortly take position on that point.

A particularly severe measure is that this disclosure obligation applies to every payment and contract issued from 01 January 2012 onward. This seems to mean that health care companies look back into 18 months of activity to comply.

Disclosure is to be made to a unique website that has yet to be implemented. Nonetheless, the decree foresees an eventual transition to this unique website. For now, the French National Medical Association is to receive the relevant data, and the disclosures will also mandatorily have to be posted on the health care company’s website, or a joint website where different health care companies are involved.

Even though it took 18 months for the successive governments to get the application decree published and the unique portal is still not set up, the regulator seems to have concluded that health care companies should be able to comply within … a week. The Decree sets forth that the complete set of information be available to the French National Medical Association by 01 June 2013.

However, as this date is not realistic and different Health Care Industry associations have raised its impracticability, a second date, 01 October 2013, has been recommended for the publication of these disclosures on the National Medical Association and companies’ websites.

Going forward, disclosure of “advantages” to HCPs will have to be made on a semestrial basis, while the disclosure of contracts with HCPs will have to be made, at the latest, two weeks after the signature of the contract.

As mentioned in one of our previous blogs, and still remains true, the cosmetics industry, which is subject to these new disclosure requirements, is concerned by this disclosure obligation even though in a slightly reduced scope.

Last but not least, the Decree recognizes that the disclosure obligation implicates the processing and publishing of HCP personal data, and health care companies have expressed concern about posting this information on their websites. For those reasons, the Decree mandates that the disclosures must be done through appropriate notification to the French Data Protection Authority, the CNIL, and by providing each HCP with adequate information about their access, modification and removal rights.

No doubt that implementation of this regulation will raise a lot of questions and will require further clarification.

High-Profile Fraud Reinforces Need for Adequate Compliance Programs

This post was written by Gunjan Talati.

On April 1, 2013, the Federal Times covered the story of how an Army Corps of Engineers contracting officer committed fraud to the tune of $30 million. The fraud was simple: contractors submitted fake invoices and the Army Corps—through the contracting officer—paid those invoices. In turn, the contractors paid kickbacks to the contracting officer through various businesses. This story highlights the need for contractors to have controls in place to prevent employees from participating in such schemes, and detecting them when they occur.

Contractors can take a few basic steps to shore up their compliance programs. Contractors should foster a culture of ethics and compliance within their organization. This requires a top-down approach with a firm commitment by management. Building on this commitment should be a code of conduct tailored to the size and specifics of the contractor. Additionally, ethics and compliance training should be a regular staple of overall training programs. Further, employees should be aware of resources available to them if they encounter questionable situations.

While contractors should focus on preventing issues, they should also ensure that internal controls are in place to detect fraud. Internal controls should be company-specific to and focus on high-risk areas.

Taking these precautions can help prevent contractors from being news fodder.

Playing On Uncle Sam's Time: Federal Grant Sanctions Triggered By Game Playing Employees

This post was written by Christopher L. Rissetto, Robert Helland and Stephanie E. Giese.

In the Age of Solyndra, adherence to Federal grant requirements is a necessity like never before. Concerns with transparency, misuse of Federal money, program failures, and political embarrassment, all combine to maximize the need for a thorough understanding of grant terms and requirements, and what to do when compliance looks difficult. Careful planning, and pursuit of appropriate grant remedies, can avoid significant grant repayment demands, or worse, from the Federal Government.

On February 8, 2013, the U.S. Department of Energy Office of Inspector General issued a Special Report, (OAS-RA-13-10) detailing the mismanagement behind the award of some $150 million in DOE grant funds, under the Vehicle Technologies Program, to help construct a $304 million lithium ion battery manufacturing plant in Holland, Michigan. The intended result of the project was to create a minimum of 440 jobs, and produce batteries annually to equip some 60,000 electric vehicles by the end of 2013.

No batteries but time for game playing. The DOE IG found that, despite the award of some $142 million, the grantee had yet to manufacture any commercially available battery cells that could be sold for use in electric vehicles. In fact, only 60% of the required production capacity was constructed, and the grantee said another $22 million in grant funds was needed to complete the work. Instead, due to higher than expected labor costs, a lower than expected marketplace for batteries, and the ability of available supply to meet available demand, many employees “spent time volunteering at local non-profit organizations, playing games and watching movies during regular working hours.” The net result – so far – is repayment of some $842,000 in unallowable costs by the grantee back to the DOE.

Ignorance of the law is no defense. The principal mistake the grantee said that it made was not being familiar with DOE grant requirements (contained in 10 C.F.R. Part 600). Specifically, the grantee said that it did not know that Davis-Bacon wage rates applied to subcontractors. Such rates were a major reason for the cost escalations for this project. Further, as project performance deteriorated, the grantee scheduled furloughs and other things for the trained workers to do so that its skilled work force would not be lost. The DOE IG said that these management type decisions, while understandable from a business perspective, did not confer a public benefit and should not have been reimbursed.

And the granting agency shared in the blame. Finally, the DOE IG pointed to significant mismanagement by the DOE National Energy Technology Laboratory (“NETL”). NETL failed to monitor work progress and the financial impact of compliance with imposed labor standards.

“Grantee beware”. The message to be taken from this difficult case is that a grantee must be aware of the scope of Federal requirements that attach to its grants (and contract, cooperative agreements and the like), and their cost and performance impacts. A careful grantee needs to begin being careful when it reviews the actual grant agreement that will bind its performance. Some additional conditions and protections might be negotiated, for example. And, when difficulties begin to arise, seeking grant amendment, or other remedies early in the process can save much damage later. Finally, even in the worst of circumstances, a number of options might be available to non-performing grantees, including through administrative actions, legislation relief, and, ultimately, other venues. It is important to always recall that Inspector Generals are not always correct in their understanding of the law, and, among other things, might create their own “new rules” to achieve what amounts to a quasi-policy outcome. The watch-words when dealing with Federal grants are be careful.

Sequestration 2013: Contractors, Beware the Kalends of March

This post was written by Christopher L. Rissetto, Carlos Aksel Valdivia, and Robert Helland.

As many inside the Beltway know, the Budget Control Act of 2011 imposes automatic and wide-reaching cuts if the U.S. government fails to reach an agreement on fiscal policy (commonly known as sequestration). Unless Congress acts, the President is required to order cuts of approximately $85 billion from the federal budget on March 1, 2013. But it is not just statesmen who are feeling the pressure; agencies, too, have to decide how to interpret and implement cuts. In a memo to agency heads, OMB Deputy Director for Management Jeff Zients outlined some principles to guide agency preparation for sequestration, including hiring freezes, releasing temporary workers, creating separation incentives, and implementing furloughs.

The risk of terminations and furloughs raises the possibility that contracting officers may feel the pressure to terminate certain government contracts. The Pentagon recently issued a memo instructing DOD agencies that they are authorized to plan for furloughs and must clear with the Undersecretary of Defense for Acquisition, Technology and Logistics, all R&D and production contracts that are worth more than $500 million. Adding to the pressure to terminate contracts and contractors are calls from the unions that want agency furloughs to affect contractors before reaching federal workers. We will know in the coming days how other agencies will handle sequestration, but in the meantime, federal contractors should beware the Kalends of March.

Read our previous post on this matter here.
 

FAR Councils to Inverted Domestic Corporations: Don't Call Us, We Won't Call You

This post was written by Joelle E.K. Laszlo.

In a move that should surprise no one, the Councils responsible for the Federal Acquisition Regulation (“FAR”) have adopted a final rule prohibiting the award of a government contract using 2012 appropriated funds to an inverted domestic corporation or a subsidiary of one. First published in May 2012, the rule extends a de facto ban on direct contracting with inverted domestic corporations that first appeared in the 2008 Appropriations Act, and has been in each subsequent Appropriations Act, except the one from 2011.

For the purposes of the rule, the term “inverted domestic corporation” is a corporation that “used to be incorporated in the United States, or used to be a partnership in the United States, but now is incorporated in a foreign country, or is a subsidiary whose parent corporation is incorporated in a foreign country, that meets the criteria specified in 6 U.S.C. 395(b).” (The Internal Revenue Code defines the term differently.) As noted above, the ban extends only to direct contract awards; inverted domestic corporations and their subsidiaries are still eligible for subcontracts, and may be suppliers to government contractors and subcontractors. The ban may only be waived by an agency head in the interest of national security, and the waiver must be documented and reported to Congress.

Though fiscal year 2012 is long over, the presence of the Continuing Appropriations Act keeps the government’s use of 2012 funds relevant (at least until that Act expires March 27). When seeking a prime contract, a contractor must represent that it is not an inverted domestic corporation or subsidiary of one. If a contractor reorganizes as an inverted domestic corporation while performing a contract, it may be required to complete performance without payment. Thus any contractor in the midst of performance on a 2012 contract and thinking about relocating to Bermuda or the Caymans should consider itself duly warned.
 

After Kingdomware, an FSS Contract May Be a Key to the VA's Procurement Castle

This post was written by Joelle E.K. Laszlo and Gunjan Talati.

Two bid protest decisions issued late last year have upheld the Department of Veterans Affairs’ practice of purchasing from Federal Supply Schedule contractors without the need to consider setting aside such purchases for veteran-owned small businesses, or service-disabled veteran-owned small businesses. As a result, businesses of all shapes and sizes may wish to consider getting “on the schedule” so as to benefit from its competitive advantage, while it lasts.

Please click here to read the issued Client Alert.

Defense Contractors Are Now Subject to Notice Requirements for Hacked Systems

This post was written by Gunjan Talati and Timothy Nagle.

The 2013 National Defense Authorization Act (“NDAA”) became the law of the land in early January. This NDAA contains a notice requirement that follows the government trend of the past few years of being required to tattle on yourself. Specifically, the NDAA directs the Department of Defense (“DoD”) to create notice requirements that mandate notification by “cleared” defense contractors to the government if covered networks are successfully penetrated.

A lot of uncertainty surrounds how the DoD will implement these notice requirements and exactly what they will cover. The NDAA explains that the Under Secretary of Defense for Intelligence (in conjunction with other enumerated officials) “shall establish the criteria for designating the cleared defense contractors’ networks or information systems that contain or process information created by or for the [DoD] to be subject to the reporting [requirements].” Thus, the NDAA gives the DoD significant discretion in determining what networks and systems will be covered, and whether unclassified networks and systems will be included.

The NDAA also gives the DoD broad discretion with the procedure for reporting, requiring only that the reporting be “rapid.” The NDAA does, however, outline certain elements a report must have, such as how the system was penetrated, and a sample of the malicious code if available.

The law also requires the DoD to establish a process that gives DoD personnel the authority to access “equipment or information of a contractor necessary to conduct a forensic analysis” to determine if any DoD information was “exfiltrated” by the hack. While the language of the statute appears to limit the access of the DoD to simply determining if information was “exfiltrated,” the actual procedures proposed by the DoD may be a different story. If the DoD drafts procedures that go beyond just determining what was “exfiltrated,” companies will have to grapple with a number of issues, such as the inadvertent release of trade secrets, DoD access to privileged records, and attorney/client communications. As is almost always the case, the true devil will be in the details.

D.C. Circuit: Rule Capping Drug Rates Upheld, and Drug Manufacturers are Paying

This post was written by Lorraine M. CamposCarlos A. Valdivia and Joseph W. Metro.

On January 4, 2013, the D.C. Circuit upheld a Department of Defense rule that probably has drug manufacturers feeling like they’re going to pay for drinks they didn’t order—but not literally, of course. In reality, the decision puts them on the hook for the partial refund of thousands of prescription drugs dating back to 2008. See Coalition for Common Sense in Gov’t Procurement v. United States, No. 11-5350 (D.C. Cir. 2013).

The DOD provides pharmaceutical drug benefits through TRICARE, its health care program for current and retired service members. The disputed rule caps the retail price of drugs by having drug manufacturers refund the difference between the retail price and the discounted price offered through DOD channels. And this without the drug manufacturers’ agreement. And applied retroactively to any prescription filled after January 28, 2008. Keep the tab open, bartender.

Why retroactively? It boils down to section 703 of the 2008 National Defense Authorization Act (now 10 U.S.C. § 1074g(f)), which sought to close the price gap. The law specifies that “any prescription filled after January 28, 2008 . . . shall be treated” like drugs purchased through DOD channels. Why are drug manufacturers on the hook? Because the statute expressly delegates rulemaking authority to the Secretary of Defense, and the Secretary found it easier to recover rebates at that level of the drug supply chain.

And that’s where last week’s decision takes up the question: whether the Secretary of Defense reasonably implemented section 703. Simply put, the D.C. Circuit’s examination was limited to two well-established questions under the Chevron doctrine: (1) did Congress directly address the question in the statute; and (2) if not, did the agency render a permissible interpretation of the statute? The D.C. Circuit held that section 703 did not unambiguously address capping prices through procurement-type contracts, so the question became whether the Secretary’s regulation was a permissible construction of section 703. The court held that it was permissible, explaining that the Secretary’s rule (1) created a universal requirement on all drug manufacturers, (2) imposed the statutory pricing standards, and (3) “capitalize[d] on the logistical convenience of imposing refund liability on manufacturers.”

But the D.C. Circuit also noted that the final regulation allows pharmaceutical manufacturers to seek the Secretary’s waiver of refund liability. So the glass may be half full yet.

You can read more about the opinion here, peruse the decision here, and marvel at the complexity of the TRICARE Retail Pharmacy Program as depicted in this handy chart.

Growing Trend Among States Threatens Debarment for Contractors with Iran Ties

This post was written by Gunjan Talati, Joelle E.K. Laszlo and Michael A. Grant.

Guilt by association seems to be a growing trend in government contracts. Under this trend, states are starting to use their contracting authority to promote U.S. foreign policy and impose mandatory debarment for policy violators. In the latest example, companies doing business with Michigan must now be sure to stay away from business dealings with Iran, or they could find themselves debarred from state contracts for three years.

Please click here to read the issued Client Alert.

If you Enjoyed the Fiscal Cliff, then You will Love the Sequel(s)

This post was written by Christopher L. Rissetto, Robert Helland and Gunjan Talati.

Congress and the Obama Administration have driven the economy from the “Fiscal Cliff,” with the last-minute tax and spending deal that is expected to be signed into law. But it’s a Pyrrhic victory: the battle over taxes and spending will go on (and on) into 2013, with decisions needed to be made again on raising the debt limit and how to spend the federal dollar.

Here are highlights as to what was agreed to:

  • Income tax rates will rise, for families with income of more than $450,000 and individuals making more than $400,000. Those with taxable income in excess of these thresholds will now pay tax on the excess at 39.6%, instead of 35%. President Obama had wanted rates to rise for those making more than $250,000 ($200,000 for individuals) while House Speaker Boehner (R-OH-8) proposed rates to rise for those all earning more than $1 million.
  • Capital gains tax rates will rise from 15% to 20%, also for families with income of more than $450,000 and individuals making more than $400,000.
  • The estate tax rate will be 40% for those at the $450,000/$400,000 threshold, with a $5 million exemption that is indexed to inflation.
  • The $109 billion in sequestration cuts expected to take effect January 1 will now be delayed two months.
  • The Alternative Minimum Tax will be permanently adjusted to avoid raising taxes on middle class taxpayers.
  • All “tax extender” measures – from those promoting alternative energy development to those promoting research and development efforts by businesses – are extended for one year.
  • Medicare rates will be adjusted so that a 27% cut in physician reimbursement would not occur (the so-called Medicare “doc fix”).
  • Benefits for the long-term unemployed will be continued.
  • The 2% decrease in the payroll tax will expire.

But the delay in sequestration is just that. In two months, Congress and the President will have to again decide whether to allow the $1.2 trillion in cuts to domestic and defense spending to begin. And the pressure to cut additional funds from the budget – or raise additional revenue – will intensify, given that come the end of February, the federal government will have to again raise the federal debt ceiling. Thus, it is still prudent for contractors to continue making preparations for sequestration.

So this is a deal that avoids some of the pain, but leaves a lot of it to be decided by the next Congress, which will be sworn in January 3 at noon.

With many new members arriving, the 113th Congress will likely have different ideas on the debt limit and budget issues, and will no doubt take different steps to address them.

All of which will make 2013 as eventful as 2012.

Sequestration: From Remote Possibility to Inevitable

This post was written by Gunjan Talati, Christopher L. Rissetto and Robert Helland.

While the world did not end Friday, December 21, 2012, as some had feared, last Friday still struck terror in the hearts of many government contractors. That’s because last Friday, lawmakers and the president embarked on their recesses, leaving the budget talks unresolved, and sequestration—which mandates substantial reductions in government spending—intact. As we previously reported and given sequestration’s effective date of January 3, 2013, what was once thought of as a remote possibility now seems inevitable.

Government contractors that have previously ignored the hype about sequestration can no longer put off preparation in lieu of wishful thinking. A few key areas contractors should consider addressing now include:

  • Terminations for Convenience. Contractors, particularly defense contractors, should know and become familiar with the termination clauses in all government contracts. If a contract is terminated, contractors will have to follow the procedures of the relevant clauses, and prepare and submit detailed termination cost claims.
  • Subcontracts and Other Agreements. Cuts that impact prime contracts are inevitably going to impact subcontracts, joint ventures, etc. Contractors should review their agreements to see what their rights and duties are, as well as if modifications are necessary. For example, contractors with subcontracts that do not have termination for convenience rights should consider negotiating such a modification to the subcontract.
  • Bid Protests. As federal dollars dry up, contractors are likely going to fight more for the remaining amounts. Thus, contractors should be prepared to bring challenges on contracts lost, as another opportunity may not be around the corner. Additionally, given the strain budget cuts will have on agencies, winning contractors should consider intervening to assist an agency in defending its award.
  • Labor Issues. Drastic revenue drops as a result of sequestration may force contractors to lay off employees or shut down facilities all together. Contractors must ensure that they follow all relevant state and federal requirements, such as the Worker Adjustment and Retraining Notification (WARN) Act, which requires advance notice to workers.

With a little preparation, contractors can reduce some of the fear associated with sequestration.

 

Government Sanctioned in False Claims Act Case for Failing to Preserve Documents

This post was written by Andrew Bernasconi and Nathan Fennessy.

As we noted previously, there has been increasing attention in False Claims Act (“FCA”) cases to whistleblowers who fail to preserve relevant evidence. Now, in a recent decision in the United States District Court for the District of New Mexico, the government has been sanctioned for its failure to preserve relevant evidence from key officials at the Centers for Medicaid & Medicare (“CMS”). See United States of America, ex rel. Baker v. Community Health Systems, Inc., No. 05-279 WJ/ACT (Oct. 3, 2012).

The court overruled the objections raised by the government to the magistrate’s Report and Recommendation (“R&R”) granting defendants’ motion for sanctions, and agreed with the magistrate’s conclusions that the government had belatedly issued a litigation hold, and that “the ESI and documents which were lost by virtue of the belated litigation hold are critical to one of the Defendants’ theories of defense” – that the government’s knowledge of defendants’ activities negated the scienter requirement of the FCA. The government argued that the missing documents were irrelevant or cumulative, and thus would have no impact on defendants’ ability to defend themselves. The court did not agree and stated that “[w]ithout knowing what is missing, it is impossible to take the Government at its word that the missing or destroyed documents are either irrelevant or cumulative.”

Although the court agreed that the government did not engage in bad faith or intentional conduct, it still found that sanctions were appropriate “to prevent the Government to benefit from its apathetic conduct in preserving documents that were clearly meant to be preserved, when it had ample reason to believe the documents and ESI should have been preserved for some time prior to the litigation hold.” Thus, the court imposed the following sanctions:

  • The government must produce all documents being withheld under a claim of work product immunity, attorney client privilege, or deliberative process privilege from or to the two key CMS officials, or discussing the withholding of government reports that purportedly supported the defendants’ government knowledge defense
  • The defendants’ reasonable attorneys’ fees and costs associated with the motion for sanctions
  • The government must show cause why it should not conduct an additional forensic search for documents of the two key CMS officials

This decision reinforces the often-overlooked notion that discovery is a two-way street in FCA cases, and that the government has its own duties to preserve potentially relevant documents even though they support potential defenses to the government’s cause of action. This decision should embolden companies to explore whether the government is complying with its discovery obligations, but it should also serve as a reminder to companies about the importance of issuing their own document hold notices at the earliest stages of a government investigation to ensure that the company’s documents and ESI are being properly preserved and maintained.

Second Circuit Holds that Proper Measure of FCA Damages for Grant Recipient is the Full Amount of the Grant

This post was written by Christopher L. Rissetto, Andrew C. Bernasconi and Nathan R. Fennessy.

In a troubling decision that could have significant implications for grant recipients, the Second Circuit recently held that the proper measure of damages in a False Claims Act (“FCA”) case against a grant recipient is the full amount of the grant, regardless of any benefit that the government may have received. United States ex rel. Feldman v. van Gorp, --- F.3d ----, 2012 WL 3832087 (2d Cir. Sept. 5, 2012). In reaching its decision, the Second Circuit joined the Fifth, Seventh, Ninth, and D.C. Circuits in finding that the proper measure of damages in cases of FCA violations by federal grant recipients is the full amount of the grant because “the government receives nothing of measurable value when the third-party to whom the benefits of a governmental grant flow uses the grant for activities other than those for which funding was approved.”

In Feldman, the relator, a former student in the fellowship grant program at Cornell University, brought the action against Cornell and the psychiatry professor that applied for the grant from the National Institute of Health (“NIH”) for the fellowship research and training program in the neuropsychology of HIV/AIDS. The government declined to intervene and the relator pursued the case. The relator presented evidence at trial that the actual fellowship program deviated in material respects from how it was described in the grant application to NIH, including that faculty identified as “Key personnel” did not participate in the program; core courses identified in the application were not regularly conducted; and much of the research that was performed under the grant program had no relation to HIV or AIDS at all. A jury found the defendants not liable for false statements in the initial grant application and the first renewal application, but found liability based on the renewal applications for the third, fourth and fifth years of the grant. Pursuant to the FCA statute, the district court, in calculating damages, trebled the amounts NIH paid for the last three renewal years of the grant to a total of $855,714, and added attorneys’ fees, costs, and expenses to bring the total damage award to more than $1.5 million.

The defendants argued the court should have applied a “benefit of the bargain” calculation to determine the difference between the value of the training promised and that actually delivered. The court, however, concluded the full amount of the grant was the proper measure of damages because “the government has entirely lost its opportunity to award the grant money to a recipient who would have used the money as the government intended.”

This result should put grant recipients on notice that a failure to deliver the services as promised may result in liability for the full amount of the grant, trebled in accordance with the FCA. Although the government declined to intervene in this case, grant recipients should be aware that the government may use this outcome as a means to enforce grant requirements in the future.

U.S. Army Renewable Energy Program - RFP Amendment

This post was written by Amy S. Koch and Lorraine Campos.

As discussed on Reed Smith’s Environmental Law Resource blog, the U.S. Army's Engineering and Support Center’s (USACE) issued a request for proposals for large-scale renewable projects related to $7 billion in renewable energy contracts over the next 10 years. The USACE recently issued its fifth amendment to the request for proposals for the Army Energy Initiatives Task Force Multiple Award Task Order Contract (MATOC) solicitation. In this Reed Smith Client Alert, we discuss the amendment, including the revised pricing criteria, the clarification of some aspects of small business participation and several changes to the bid preparation requirements.

 

Whistle While You Work: The Non-Federal Employee Whistleblower Protection Act of 2012

This post was written by Christopher L. Rissetto and Leslie A. Monahan

On September 13, 2012, Rep. Jackie Speier (D-CA), along with Rep. Todd Platts (R-PA), introduced the Non-Federal Employee Whistleblower Protection Act of 2012 (H.R. 6406). This legislation is designed to reduce fraud within the government and save taxpayer dollars by expanding the whistleblower-protections covering to federal contractors, subcontractors and grantees.

In its final report issued to Congress, the Commission on Wartime Contracting in Iraq and Afghanistan estimated that by 2011, as much as $60 billion had been lost to contractor fraud and waste in America’s operations in Iraq and Afghanistan. The sponsors of the bill believe that in order to prevent such gross waste from continuing, federal contractors and grantees need to report such wrongdoing with federal funds.

According to Rep. Platts, the proposed legislation would provide "meaningful protections for contract workers who have the courage to blow the whistle, at the risk of their own careers, on waste, fraud, and abuse within the government."

The bill is designed to help facilitate these types of disclosures by providing non-federal employees protection against forms of retaliation, including demotion, discrimination and discharge. Specifically, the legislation sets up a procedure for investigating claims of persons who reported wrongdoing and were subjected to reprisal. Under the proposed procedure, such individuals may submit a complaint regarding the reprisal to the appropriate agency inspector general ("IG"). The IG generally has 180 days to investigate and make a determination on the complaint, and must provide the person alleging the reprisal access to the investigation file. If the IG determines that evidence supports a prohibited reprisal, the claimant’s employer must abate the reprisal, reinstate the employee, or pay the employee the costs incurred in bringing the complaint. In cases where the reprisal was found to be willful or malicious, the employee may receive 10 times the amount of his or her lost wages and other compensatory damages.

The proposed bill has companion legislation (S. 241) in the Senate cosponsored by Sens. Claire McCaskill (D-MO), Jim Webb (D-VA), and Jon Tester (D-MT). The House hopes that its version will receive bipartisan support and will be passed sooner rather than later.

 

Suspensions & Debarment at an All-Time High With No End in Sight

This post was written by Gunjan Talati.

Suspension and debarment has long been a remedy available to the government to ensure that it only does business with currently responsible contractors. When a company is suspended or debarred, it is subject to a number of restrictions, primarily not being able to do business with the government as a prime contractor or subcontractor. For a company that does nothing but government contracts, this can be a substantial blow to business.

A new report from the Interagency Suspension and Debarment Committee reveals that the government has been using this powerful weapon in the war against contractor fraud. The report reveals that the number of suspensions and debarments is up from more than 1,900 in fiscal year 2009 to more than 3,000 in 2011. The Office of Federal Procurement Policy Administrator, Joe Jordan, is touting this as “significant progress in cracking down on bad actors.”

All government contractors should take notice of these increased numbers. They reveal a willingness of the government to employ suspension and debarment more routinely than in the past. This means that non-compliance with government contract terms or conditions that would have once been minor, could now be problematic. In one recent case, we represented a client that faced debarment because the company defaulted on a $20,000 task order. The government was concerned that this was the beginning of a pattern, even though the company had been successfully performing government contracts for a number of years without any issues.

In addition to taking notice, contractors should take a proactive approach to compliance. Contractors should routinely evaluate their compliance programs and make sure they are tailored to the company’s risk profile. Contractors should also make all required disclosures, including mandatory disclosures under the government’s mandatory disclosure regime. Finally, contractors should always consider approaching suspension/debarment officials first if there is any doubt about their current responsibility as a contractor. This could help prevent any formal action, and demonstrates to the government that the company does not want to be considered a “bad actor.”

FCA Qui Tam Relator Sanctioned for Failing to Produce Documents

This post was written by Andrew C. Bernasconi and Nathan Fennessy.

Continuing the recent trend of decisions sanctioning whistleblowers for failing to comply with their discovery obligations (see our previous posts “Whistleblower Precluded from Relying Upon Stolen Records for False Claims Act Case” and “FCA Qui Tam Relator Sanctioned for Destroying Evidence on Company-Issued Laptop”), the United States District Court for the Middle District of Florida recently granted a motion to compel and awarded “reasonable attorneys’ fees” against a qui tam relator for failing to produce a variety of documents requested by defendants, including documents pertaining to the book the relator was purportedly writing about the case, video diaries, and tax returns. See United States ex rel. King v. DSE, Inc., No. 8:08-CV-2416-T-23EAJ, (M.D. Fla. Sept. 10, 2012).

The relator claimed that nondisclosure was justified because, among other reasons, (1) he had recently obtained new counsel, and (2) defendants filed the motions before attempting in good faith to resolve the dispute. The relator also asserted that the requested video diaries had been “tampered with, destroyed, and/or corrupted due to a burglary of his residence.” The court concluded that the relator had failed to provide a “satisfactory explanation for not providing these items” and ordered the production of the requested information. The court further awarded monetary sanctions in the form of defendants’ reasonable attorneys’ fees in filing the motion to compel, but deferred ruling as to the amount of the award and whether to apportion the award between counsel and client. In justifying the award, the court noted that it had previously warned the relator about his obstruction of discovery, and granted defendants’ prior motions compelling the relator to appear for a deposition, and to respond to interrogatories and document requests.

This decision once again reiterates that discovery in FCA or whistleblower actions is a two-way street, and relators may not shirk their discovery obligations. Importantly, the court’s decision contemplates sanctions against relator’s counsel for the client’s failure to comply with discovery obligations. This should embolden companies defending against FCA or whistleblower actions to vigorously pursue discovery from relators who appear to be holding back relevant information, and likewise should encourage relators’ counsel to ensure that their clients are complying with their discovery obligations.

Keeping It In the Family: Extending Small Business Set-Asides to Surviving Families

This post was written by Leslie A. Monahan.

On July 19, 2012, Sen. Dean Heller (R-Nev.), along with Sen. Richard Burr (R-N.C.), introduced the Veterans Small Business Protection Act of 2012. The legislation would allow veteran small business contracting privileges to be extended to spouses and dependents of soldiers killed in the line of duty.

Under current regulations, surviving spouses who inherit veteran and service-disabled-veteran small businesses after the death of the veteran-owner may continue to receive veteran-owned small business preferences. However, the current regulations do nothing for the families of persons who owned small businesses and were killed in combat prior to receiving veteran or service-disabled status. The Veterans Small Business Protection Act of 2012 aims to fill that gap in federal law. If the proposed legislation is passed, preferential treatment will be extended to spouses and dependents of service members killed in combat if the service member, prior to death, owned at least 51 percent of a small business concern.

The senators hope that the bill will support the families of those who owned businesses before activation and were killed in action. The bill is expected to
receive bipartisan support and pass, whether on its own or as am amendment to another piece of legislation.

The legislation specifically provides that the surviving spouse or dependent would be treated as a veteran with a service-connected disability for purposes of contracting goals and preferences for a limited time. These privileges would begin on the date on which the small business servicemember-owner dies, and will end on the earliest of the following dates: (i) the date when the surviving spouse remarries; (ii) the date when the surviving spouse/dependent no longer owns at least 51 percent of the small business; or (iii) the date that is 10 years after the death of the servicemember-owner.

 

Out with the CCR and ORCA; in with the SAM

This post was written by Leslie A. Monahan.

On July 30, 2012, the new System for Award Management (“SAM”) spread its wings and launched online at SAM.gov. This new database is intended to combine numerous federal procurement systems into one new, streamlined system. Specifically, the procurement systems that will be transferred to SAM include the following:

  • Central Contractor Registration (CCR)/ Federal Agency Registration (FedReg)
  • Online Representations and Certifications Application (ORCA)
  • Federal Business Opportunities (FBO)
  • Federal Procurement Data System - Next Generation (FPDS-NG)
  • Electronic Subcontracting Reporting System (eSRS)
  • Federal Funding Accountability and Transparency Act (FFATA) Sub-award Reporting System (FSRS)
  • Wage Determinations Online (WDOL)
  • Past Performance Information Retrieval System (PPIRS), Contractor Performance Assessment Reporting System (CPARS), and Federal Awardee Performance and Integrity Information System (FAPIIS)
  • Excluded Parties List System (EPLS)
  • Catalog of Federal Domestic Assistance (CFDA)

SAM was established to create a single-stop-shop for contractors required to use the various federal procurement systems. It aims to integrate processes, eliminate data redundancies, and provide improved capability of the systems while reducing costs.

The transition to SAM is scheduled to take place in two phases. The first phase focuses on streamlining CCR/FedReg, ORCA, and EPLS. Any changes to these systems after July 30, 2012, must be made through SAM. Contractors will need to register in SAM in order to access their migrated data. The second phase of the process will involve the migration of the remaining procurement systems at a date to be announced.

While the first phase of the SAM transfer has been set in motion, the results have been anything but smooth. SAM is still experiencing some performance issues that may prevent contractors from accessing their data. Only time will tell whether this transaction provides the value to contractors and contracting officers that was intended.

New Proposed Rules Require Government Contractors to Safeguard Information Systems, but What do They Really Change?

This post was written by Timothy J. Nagle and Gunjan Talati.

On Friday, August 24, the Federal Acquisition Regulation (“FAR”) Council issued a proposed rule that adds a subpart and contract clause to the FAR that would force government contractors to implement basic information-systems safeguards for any non-public information that is provided by or generated for the government. While the proposed rule is intended to plug a hole in the FAR that does not currently require such safeguards, the draft of the rule is so broad that it is not clear what holes it will actually plug. Rather, what we do know is that it adds yet another FAR clause in government contracts to an already long list that companies will have to monitor for compliance. Comments to the proposed rule are due no later than October 23, 2012.

At the outset, we note that the proposed rule does not appear to change security standards. Rather, it appears to expand (without being sufficiently precise) the applicability of the standards. Specifically, the Federal Information Security Management Act (FISMA) of 2002, 44 U.S.C. 3544, states:

(a) In General.— The head of each agency shall— 
(1) be responsible for— 
(A) providing information security protections commensurate with the risk and magnitude of  the harm resulting from unauthorized access, use, disclosure, disruption, modification, or destruction of—
(i) information collected or maintained by or on behalf of the agency; and
(ii) information systems used or operated by an agency or by a contractor of an agency or other organization on behalf of an agency;  [emphasis added].

Thus, agencies already have a duty to identify possible security holes and mitigate risks.

The proposed rule does not change the FISMA requirements. Rather, the proposed rule seeks to “apply the following basic safeguarding requirements to protect information provided by or generated for the Government (other than public information) which resides on or transits through its information systems from unauthorized access and disclosure.”

While there is a definition for “information system” in the proposed rule, it is broad and encompasses just about any information that is not already public. The definition also fails to identify what a “Contractor” information system really is under the rule. There is no clear delineation in the proposed rule between an information system operated by a contractor on behalf of an agency and one operated by just a contractor.

Also, the rule does not supersede any specific safeguards spelled out in a contract. A government contract or statement of work will usually describe the technical requirements and boundaries of an information system required to provide the specified services, and a contractor can price the equipment, technical support and policy development into its bid. And most government contracts will require the contractor to maintain the system to government (FISMA) security standards and be subject to certification and accreditation with subsequent audits. This does not change, and therefore the rule may be of little practical value to contractors that already have such safeguards spelled out in their contracts.

One concern is that the proposed rule might be interpreted to mean that the corporate network of the contractor, which does not directly support any government contract work, is now subject to government standards, inspection and audit if it processes or stores any government information. This could potentially include contract invoices, reports, pricing information or any other documents and data required for contract administration. Without more clarity, no program manager or CIO will know the extent of potential government supervision of their corporate network. Such an interpretation would unnecessarily extend the reach of FISMA. The risk of such interpretations makes it likely this proposed rule will be challenged on several fronts.

If the rule is not challenged and implemented as drafted, contractors will need to ensure that their systems comply. Exactly what constitutes the appropriate basic safeguards would surely vary from company to company with few bright lines. Additionally, the government could take the position that a contractor’s safeguards do not meet the requirements of the rule and use it as a basis for claims, termination for default, and possibly even suspension and debarment (for failing to have adequate internal controls).

DOD Renewable Energy Programs Moving Forward

This post was written by Amy S. Koch, Lorraine M. Campos, Stephanie E. Giese and Leslie A. Monahan.

While August is generally quiet in Washington, D.C., so far this month, the U.S. Department of Defense (DOD) has made progress on two on-going efforts to secure power from renewable energy facilities, and has initiated a third.

Please click here to continue reading.

Contractor Reaction to Proposed FAR Clause on Nondisplacement of Qualified Workers Under Service Contracts

This post was written by Leslie A. Monahan.

Back in August 2011, the Department of Labor (DOL) issued a final rule providing regulations to implement Executive Order (E.O.) 13495, Nondisplacement of Qualified Workers Under Service Contracts. In May 2012, the Department of Defense (DOD), the General Services Administration (GSA), and the National Aeronautics and Space Administration (NASA) issued a proposed rule to amend the Federal Acquisition Regulation (FAR) to implement the DOL’s regulations, which provided qualified employees who worked under a preceding contract the opportunity to work under a successor contract if they so choose.

The proposed rule would add a subpart to the FAR requiring successor service contractors and their subcontractors to offer qualified employees, who were employed under the prior contract and would otherwise be terminated at the award of the successor contract, a right of first refusal of employment under the successor contract. This right of first refusal would extend to both long-term and short-term workers on contracts in excess of $150,000.

Comments submitted to DOD, GSA and NASA demonstrate contractor dissatisfaction with the proposed rule. These comments came from individuals, businesses and associations. For example, the Professional Services Council (PSC) expressed its concerns about potential contradictions between the proposed rule and the regulations finalized by DOL. Issues for which PCS requested consistency and clarification included limitations on the use of suspension and debarment, and flexibility by department and agency heads to apply waivers in whole and in part. In addition, PCS reasoned that the proposed FAR subpart should narrow the scope of employees subject to the policy. PCS proposed only offering employment to employees who worked for the previous contractor for at least six months.

DOD, GSA, and NASA are currently reviewing these and other comments received. Whether any of the comments submitted by the July 2, 2012, deadline will alter the proposed rule remains to be determined.

Putting Contractors on Notice: The New Public-Private Partnership Joins DOJ, HHS, and Private Sector Partners to Combat Health Care Fraud

This post was written by Mel Beras.

As part of the Obama administration’s ongoing effort to combat health care fraud, Health and Human Services (“HHS”) Secretary Kathleen Sebelius and Attorney General Eric Holder announced a new public-private partnership designed to share information and best practices in order to improve detection and prevent payment of fraudulent health care billings. Launched July 25, 2012, the voluntary, collaborative venture brings together the federal government, state officials, several private health insurance organizations, and other health care anti-fraud groups in an effort to expose deceptive schemes that cut across a number of public and private payers. According to a Department of Justice press release, “the partnership will enable those on the front lines of industry anti-fraud efforts to share their insights more easily with investigators, prosecutors, policymakers and other stakeholders.” Further, the new partnership is aimed to “help law enforcement officials to more effectively identify and prevent suspicious activities, better protect patients’ confidential information and use the full range of tools and authorities provided by the Affordable Care Act and other essential statutes to combat and prosecute illegal actions.”

Since November 2009, when Executive Order 13520 was issued, the White House has made reducing improper payments and eliminating waste in federal programs a priority, which has resulted in approximately $10.7 billion in recoveries of health care fraud over the past three years. The administration hopes this new partnership will allow for the sharing of information on specific scams, including utilized billing codes and geographical fraud hotspots, so that preventive action can be taken before additional losses related to the scams occur. One specific objective of the partnership is to ensure that payments billed to different insurers for care delivered to the same patient on the same day in two different cities are spotted and stopped.

The partnership’s Executive Board, Data Analysis and Review Committee, and Information Sharing Committee plan to hold their first meeting in September 2012. In the meantime, HHS and DOJ claim that several public-private working groups will finalize the operational structure of the partnership and develop its draft initial work plan.

The following organizations and government agencies are among the first to join the partnership:

  • America’s Health Insurance Plans
  • Amerigroup Corporation
  • Blue Cross and Blue Shield Association
  • Blue Cross and Blue Shield of Louisiana
  • Centers for Medicare & Medicaid Services
  • Coalition Against Insurance Fraud
  • Federal Bureau of Investigations
  • Health and Human Services Office of Inspector General
  • Humana Inc.
  • Independence Blue Cross
  • National Association of Insurance Commissioners
  • National Association of Medicaid Fraud Control Units
  • National Health Care Anti-Fraud Association
  • National Insurance Crime Bureau
  • New York Office of Medicaid Inspector General
  • Travelers
  • United Health Group
  • U.S. Department of Health and Human Services
  • U.S. Department of Justice
  • WellPoint, Inc.

Fifth Circuit Upholds Ability of Government Employee Whose Job is to Investigate Fraud to Bring Qui Tam False Claims Actions

This post was written by Scot T. Hasselman, Andrew C. Bernasconi, Nathan Fennessy, and Gunjan Talati.

In a case of first impression in the United States Court of Appeals for the Fifth Circuit, the court held in United States ex rel. Little v. Shell Exploration & Production Co., No. 11-20320 (5th Cir. July 31, 2012) that government employees are entitled to bring qui tam actions under the False Claims Act (“FCA”) – even if their federal job function is to investigate fraud on behalf of the government. Relying primarily on its interpretation of the statutory language of the FCA, the court determined that there was no express exception within the statute prohibiting federal employees from maintaining FCA actions. The Fifth Circuit rejected arguments put forth by the federal government, as amicus curiae, that conflict of interest statutes and regulations prohibit federal government employees from serving as qui tam relators.

The relators in Little were auditors for the Minerals Management Service, an agency within the Department of Interior. As part of their official duties, they obtained and reported information to their superiors regarding allegedly fraudulent conduct by Shell. After reporting this information – and in the absence of any action by MMS or any other federal agency – the relators took it upon themselves to file a qui tam action against Shell. After the Justice Department declined to intervene, the district court granted Shell’s motion for summary judgment on the basis that federal employees were prohibited from maintaining qui tam actions and that the action was barred by the FCA’s public disclosure bar.

While the court’s decision may send a signal to government employees that they are free to proceed with FCA actions, there are some important limitations identified in the decision. First, the appellate court remanded to the district court to re-consider whether there had been a public disclosure in audits or civil proceedings of the allegations contained in the Complaint, which could potentially result in dismissal of the action. Second, the court concluded that if the district court holds that there has been a public disclosure of the Complaint’s allegations, within the meaning of the FCA, the suit will have to be dismissed because the relators would not qualify as original sources.

This case was brought prior to the three recent amendments to the FCA. In the 2009 FERA amendments, Congress eliminated the public disclosure bar as a jurisdictional defense. This means that the dismissal of an action based upon a public disclosure is entirely permissive to the United States. That the Department of Justice will move courts to dismiss cases with government relators that violate the public disclosure bar is not a “sure thing.” In fact, during oral argument in ex rel. Little, the government candidly conceded that it might be “unwilling to incur the political costs associated with dismissing potentially meritorious suits” where the government relator is using information derived from illicit conduct.

In other words, if there is money in it, the federal government may allow a federal employee to personally profit from information derived from his or her employment as a fraud auditor, investigator, or agent.

Navy Renewable Opportunity and Update on the Army TF Forthcoming RFP

This post was written by Amy S. Koch and Lorraine M. Campos.

Department of the Navy

On July 26, 2012, the Department of the Navy (DoN) issued a request for information seeking to identify interest and sources for a potential large scale renewable energy generation facility at Naval Air Weapons Station (NAWS) China Lake compatible with the station’s operational mission. This project will be in support of the President’s 1 GW renewable energy goal for the DoN. The purpose of this solicitation is to help the DoN formulate a concise acquisition process for possible future requests for proposals.

The DoN will consider opportunities to host the private development of a large scale renewable energy generation facility potentially with a capacity of 20 MW to 200 MW, in accordance with 10 USC 2667 (Leases: non-excess property of military departments and Defense Agencies), 10 USC 2916 (sale of electricity from alternate energy and cogeneration production facilities), and/or 10 USC 2922a (contracts for energy or fuel for military installations).

It is seeking information on a development that would generate energy for sale to the electric grid and/or for potential consumption at other DoN installations in the Southwest. The DoN has an Interagency Agreement with Western Area Power Administration (WAPA) and fulfills most of its electric demand in California through "direct access" power, so there is a potential for other DoN facilities to consume energy from this development through this arrangement.

It should be noted that, as part of the request for information, the DoN is seeking information, inter alia, about energy technologies that would maximize the land opportunity, market opportunities for power sales to non-DOD facilities, risks related to participating in a competitive electricity environment, financing issues, interconnection issues, transmission constraints in Southern California Edison Company's "North of Kramer" system, renewable energy incentives, RPS issues, and leasing costs for similar BLM or privately-owned land. It is also seeking information and new conceptual ideas for alternatives for the sale of power and for the "taking of power," such as energy storage.

All information submitted will be considered proprietary and confidential.

Click here for a link to the FedBizOpps announcement.

U.S. Army Energy Initiatives Task Force

On July 26, 2012, the U.S. Army Corps of Engineers Huntsville office issued a notice that the request for proposals will be issued in the next 15 days.

Click here for a link to the FedBizOpps July 26 notice.

European Court of Justice Mandates Broader Use of Competitive Tendering in Defense Procurement

This post was written by Peter Teare, Alexandra A. Nelson, and Lorraine M. Campos.

A landmark ruling of the European Court of Justice last month has significantly restricted the ability of EU governments to use sole-source or negotiated procedures with selected suppliers for purchases of defense and security equipment. In a case concerning the purchase by the Finnish Defence Forces Technical Research Centre of electromagnetic testing equipment for use in simulated combat situations, the ECJ ruled that procurement agencies must use the competitive tendering procedures laid out in the EU public procurement directives unless (1) the supplies have been specially designed and developed, or substantially modified, for military use, and (2) the procurement involves an essential national security interest that cannot be addressed within a competitive tendering procedure. The case has also reconfirmed the basis on which an aggrieved bidder and prospective bidder may now challenge the award of a contract for defense supplies through use of the "bid-protest" remedies available for the first time under the new EU Defense Procurement Directive.

For a more detailed analysis, please click here to read the issued Client Alert.
 

Montana's Lesson of the Day: Corporations Are People, Too

This post was written by Christopher L. Rissetto, Lorraine M. Campos and Leslie A. Monahan.

By refusing to hear arguments over whether a state can limit campaign spending by corporations, the Supreme Court refused to reconsider its decision in Citizens United v. Federal Election Commission on Monday. In a 5-4 ruling, the court struck down a century-old Montana ban on corporate political money. By doing so, the high court held that there is no exception to Citizens United at the state and local level.

Since the Citizens United decision in 2010, a new dawn on corporate political spending has been playing out in federal election campaigns. Citizens United held that prohibiting corporations and labor unions from making independent expenditures on electioneering communications violated the First Amendment’s free-speech protections. Accordingly, Citizens United reversed decades of statutory and case law that prohibited corporations from using their general treasuries to fund “express advocacy,” which is direct political advertising against candidates for federal office. However, until Monday, the impact of the decision was only seen at the federal level.

With the high court’s decision in American Tradition Partnership Inc. v. Bullock, the Court has erased any ambiguity as to whether Citizens United applies to state and local laws. In American Tradition Partnership Inc., three corporations challenged the legality of Montana’s long-standing state prohibition that barred corporations from making political expenditures in connection with candidates in the wake of Citizens United. This prohibition was upheld by the Montana Supreme Court on the basis that it was justified by the state’s interest in preventing corporate influence in state elections. The three corporations appealed and emerged victorious with the high court’s summarily reversal of the Montana court’s ruling.

This latest Supreme Court decision illustrates that in the post-Citizens United world, campaign finance reform continues to evolve and stretch its reach. Those attempting to navigate this new realm of election law should anticipate further endorsements for campaign finance deregulation in federal, state and local elections.

An End to Offsets in European Defense Trade?

This post was written by Lorraine M. Campos, Alexandra A. Nelson and Peter Teare.

Governments inside and outside Europe routinely require industrial compensation or “offsets” as a condition of granting contracts for their defense and security supplies. But the days of widespread use of offsets in European defense trade appear limited. As a part of its program to promote greater international competition and transparency in defense procurement, the European Commission has signaled a willingness to challenge the imposition of offset obligations which violate the principle of non‐discrimination under EU competition law. Suppliers now have a sound legal basis to challenge offset commitments that are not directly related to the performance of the supply contract and are necessary for the protection of an essential national security interest.

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SBA Proposes New Rule to Permit SBIR and STTR Program Participation by Businesses Owned by Investment Firms

This post was written by Lorraine M. Campos and Gunjan R. Talati.

Investment firms and small technology companies should be aware of a rule recently proposed by the U.S. Small Business Administration (SBA) that may impact small business participation in two programs. The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) Programs create funding opportunities for innovative small business concerns. The amendments in the proposed rule, which was issued May 15, 2012, relate to the programs’ eligibility standards. If the proposed rule is adopted, the pool of program participants would increase to include businesses that are majority-owned by multiple domestic venture capital operating companies (VCOCs), private equity firms or hedge funds. Prior to the proposed rule, small businesses that wanted to participate in the SBIR and STTR programs often could not obtain funding from VCOCs, private equity firms or hedge funds because such funding could impact the small business’ ability to remain “small” by the programs’ definition.

Some of the proposed changes warrant a closer look by companies owned by such investment firms or investment firms buying a portfolio company that benefits (or might benefit) from participation in these programs. To be eligible for program participation, an SBIR and STTR applicant must have 500 or fewer employees and be:

  • More than 50 percent owned and controlled by U.S. citizens, permanent resident aliens, or domestic business concerns (the proposed definition of domestic business concern is explained above); or
  • Majority-owned by multiple domestic VCOCs, hedge funds or private equity firms.

In addition, an applicant’s business affiliations may count toward the size determination, depending on the degree of control one business exercises over another. Thus, the number of employees in the affiliated businesses would count toward the size determination. While the SBA has identified eight situations where it may find affiliation, it has also carved an exception for investment firms that are minority investors in an SBIR/STTR applicant. However, that exception does not apply if:

  • The venture capital operating company, hedge fund, or private equity firm owns a majority of the portfolio company; or
  • The venture capital operating company, hedge fund, or private equity firm holds a majority of the seats of the board of directors of the portfolio company.

Comments to the amendments in the proposed rule can be submitted on or before July 16, 2012.
 

 

Enforcing Teaming Agreements in Virginia

This post was written by Alexander Y. Thomas, Lorraine M. Campos, Brent R. Gary, and Gregory S. Jacobs.

Contractors routinely sign teaming agreements to evidence collaboration in pursuit of government business. But, what’s the value of a teaming agreement if you can’t enforce it? The United States Court of Appeals for the Fourth Circuit’s recent ruling in CBX Technologies, Inc. v. GCC Technologies, LLC illustrates that courts will closely scrutinize the enforceability of teaming agreement terms when at issue. In CBX Technologies, the Fourth Circuit vacated the lower court’s ruling and found that the parties’ intent to enforce and be bound by the terms of a teaming agreement was a critical issue to be determined after a trial on the merits.1

Virginia courts analyze and balance a number of factors in determining whether a teaming agreement is a binding contract, or simply an unenforceable agreement to agree. Below are key points that every contractor should consider when entering into, negotiating, or drafting a teaming agreement to be enforced under Virginia law.

To continue reading, please click here.

1 2011 U.S. App. LEXIS 24641 at *9.

Expansion of Whistleblower Protections on Horizon Once Again: The Whistleblower Protection Enhancement Act Clears the Senate

This post was written by Mel Beras.

The U.S. Senate unanimously passed the Whistleblower Protection Enhancement Act (S. 743) (“WPEA”) last week, a bill that builds on the Whistleblower Protection Act of 1989 (“WPA”). The WPA currently prohibits executive branch departments and agencies from taking retaliatory action against any employee who reports waste, fraud, abuse, or other wrongdoing at an agency. If approved by the U.S. House of Representatives, the legislation, introduced by Sen. Daniel Akaka (D Hawaii), would significantly expand whistleblower protections throughout the federal government.

In particular, the measure broadens whistleblower protections afforded to major intelligence agencies, including the Central Intelligence Agency (“CIA”), the Defense Intelligence Agency (“DIA”), and the National Security Agency (“NSA”), as well as the Transportation Security Administration (“TSA”). The measure also establishes a review process within the executive branch if a security clearance or access determination is allegedly denied or revoked as the result of a protected whistleblower's disclosure. Furthermore, the bill makes clear that whistleblowers may disclose evidence of censorship of scientific or technical information under the same standards that apply to disclosures of other kinds of waste, fraud, and abuse.

Additionally, the bill:

  • Suspends the Federal Circuit’s sole jurisdiction over federal employee whistleblower cases for a period of five years, and permits jury trials in certain cases during the same period
  • Calls for the creation of a Whistleblower Protection Ombudsman to educate agency personnel about whistleblower rights
  • Strengthens review of agency personnel actions by the Merit Systems Protection Board by expanding its summary judgment authority in WPA cases
  • Provides the Office of Special Counsel with the independent right to file amicus briefs with federal courts in federal employee whistleblower cases
  • Clarifies that any disclosure of “gross waste or mismanagement, fraud, abuse or illegal activity” may fall under its protection, while disagreements over legitimate policy decisions do not

Although a similar measure, the Platts-Van Hollen Whistleblower Protection Enhancement Act (H.R. 3289), cleared the House Oversight and Government Reform Committee in November 2011, the future of the WPEA remains uncertain. Similar measures have failed to make the leap from legislation to law, going back as far as 2001. This has generally been attributed to concerns that such expanded whistleblower protections could compromise national security. For instance, an implied connection with 2010’s WikiLeaks controversy, which implicated a Department of Defense employee who leaked hundreds of classified government documents, sunk a nearly identical piece of legislation on the last day of the 111th Congress.

 

AEITF Announces Second Renewable Energy Industry Day

This post was written by Amy S. Koch and Lorraine M. Campos.

On June 12, 2012, The Army Energy Initiatives Task Force (AEITF) will hold its second renewable energy industry day at the Crystal City Marriot in Crystal City, Virginia.

Prior to the release of its draft request for proposals, which set out the processes by which it intends to procure up to $7 billion in renewable energy, The AEITF held its first industry day in early 2012.

Please click here to continue reading.

Even Small Suspensions Can Have Big Costs: How Two Weeks Cost a Company 43% of Revenue

This post was written by Gunjan Talati.

In October 2010, the Small Business Administration suspended government contractor GTSI Corp. for alleged improper contracting relationships with small business contractors. The suspension lasted for two weeks and was only lifted when GTSI entered into an administrative agreement with the SBA. The damage, however, was done, and according to GTSI, the damage amounted to 43 percent of revenues.

Specifically, last week GTSI announced that its fourth quarter results for 2011 dropped 43 percent compared with the fourth quarter for 2010. GTSI’s CFO was quoted in a Law360 article explaining that “[t]he primary driver of the revenue decline is the adverse consequences of the SBA’s actions.”

While the damage has already been done to GTSI, there are some key takeaways for all government contractors:

1.  Be Proactive in Matters of Compliance. When the suspension was imposed on GTSI, GTSI said that it had no idea it was coming. Had GTSI been more proactive in managing its relationships, it would have noticed that, at the very least, its contracting arrangements gave the appearance of impropriety.

Remember, the government can suspend or debar companies if there is any reason to doubt the company’s present responsibility. It’s not just a criminal conviction that will lead to the suspension/debarring official’s doorstep. If you think there is any issue that weighs negatively on your company’s present responsibility, call the government before it calls you.

 2.  Large Companies Have to Take Particular Caution When Contracting with Small Companies. The government’s socioeconomic programs for small businesses are for the benefit of small businesses. Large companies that think they may have found a workaround to access small business dollars must tread very lightly. While subcontracting with small business prime contractors is okay, all parties have to realize that many regulations limit the scope of work that a large business can perform on certain types of contracts. Small businesses cannot just be “fronts” for large businesses, and companies that think otherwise may share a fate similar to GTSI.

3.  Have a Game Plan. GTSI was caught off-guard by the suspension, as are many other contractors when they are suspended or proposed for debarment. Do you know what you would do if you got such a notice? In such circumstances, time is not on your side. You will need to respond to the charges levied by the government in an effective manner to demonstrate your present responsibility. Thinking about who would work the problem internally, identifying outside counsel to help, and how you would communicate with customers in advance may soften what can be a debilitating blow.

What's the Best Approach to MAS Competition? Strategery.

This post was written by Joelle E.K. Laszlo.

Late last summer, we blogged on an interim rule designed to increase competition for multiple-award schedule (“MAS”) contracts issued by civilian government agencies. The interim rule took effect even as the implementing agencies sought comments on its provisions. One year and just seven comments later, the final rule, tweaked only slightly from its predecessor, is set for launch. While its potential impact is difficult to predict, snarky blog titles aside, the best approach is one that includes both caution and optimism.

The two most significant changes in the final rule: (1) correct, to $103 million, the threshold amount above which single-award blanket purchase agreements (“BPAs”) are precluded (except under very limited circumstances); and (2) remove the requirement that an ordering activity’s competition advocate approve the exercise of an option under a single-award BPA. A third change requires an ordering activity to evaluate the reasonableness of the total price for the staffing proposed, when a BPA includes the provision of services on an hourly basis. The final rule takes effect April 2.

As reported in our earlier blog, the rule change will likely permit thrifty contracting officers (“COs”) to more easily shop the market, especially when placing orders under BPAs. In fact, the final rule requires a CO to seek a price reduction whenever an order or BPA exceeds the simplified acquisition threshold. One commenter to the interim rule argued that this requirement may cause future offerors to significantly inflate their starting prices in anticipation of multiple rounds of price reduction (either as a result of competition or direct request). The irony of that prospect is that if a competition is not so competitive, the government may not wind up getting the lowest possible price.

As we have before, we recommend a calm and rational approach to future MAS contracting. An overly clever strategy will probably be just that – overly clever, and not necessarily winning. The wise contractor will also be careful, however, not to misunderestimate its competitors.
 

Investing in the Home Team: Continued Effort to Strengthen American Infrastructure and Manufacturing

This post was written by Melissa E. Beras.

On March 13, 2012, the Senate (by voice vote) unanimously passed an amendment to the $109 billion Senate Transportation bill designed to strengthen “Buy America” preferences. The legislation, introduced by Sens. Sherrod Brown (D-Ohio) and Jeff Merkley (D-Ore.), improves transparency and reporting of proposed “Buy America” waivers by requiring the Department of Transportation to provide notification on a public website and a 15-day comment period before such waivers are granted. The measure also ensures an annual accounting of federal funds used to purchase foreign-produced iron and steel, and explicitly requires that “Buy America” preferences be carried out in “a manner consistent with United States obligations under relevant international agreements.”

In addition, the measure ensures that public works projects receiving federal aid cannot be “segmented” to evade “Buy America” preferences. According to a press release from Sen. Brown’s office, “segmentation” has been one of the “most egregious examples” of practices used to circumvent “Buy America” preferences. Segmentation occurs when an infrastructure project is split into various contracts so that contracts under the project that plan to use foreign iron, steel, and manufactured goods do not receive federal funding. The press release states that segmentation allowed for Chinese-made steel to be used during the construction of the new Oakland, California Bay Bridge.

Furthermore, on Friday, March 16, Sens. Brown, Debbie Stabenow (D-Mich.), and Bob Casey (D-Pa.) led 188 members of Congress in an effort to urge President Obama to address China’s unfair practices in the auto parts sector. Members of both the House and Senate, including all the Democratic members of the House Ways and Means Committee, expressed their concerns in a letter that encourages President Obama to utilize the newly created Interagency Trade Enforcement Center (“ITEC”) to address such practices. President Obama established the ITEC February 28, 2012, to combat other nations’ violations of trade rules.

Referencing figures from a report released by the Economic Policy Institute (“EPI”) January 31, 2012, the lawmakers argue that 75 percent of jobs in the automotive sector are in auto parts, and that up to 1.6 million U.S. jobs could be at risk if China’s practices are not curtailed. The letter also claims that because of China’s practices, China has increased the number of auto parts it imports into the United States by 900 percent since 2000.

FCA Qui Tam Relator Sanctioned for Destroying Evidence on Company-Issued Laptop

This post was written by Andrew Bernasconi and Nathan Fennessy.

In yet another reminder about the importance of maintaining evidence on company-issued laptops, BlackBerrys, or other electronic devices, the United States District Court for the Northern District of California recently sanctioned a qui tam relator for destroying more than 10,000 documents on his company-issued laptop. Moore v. Gilead Sciences, Inc., No. C 07-03850 SI, 2012 WL 669531 (N.D. Cal. Feb. 29, 2012).

The relator admitted to “wiping” the hard drive of his laptop multiple times prior to the filing of his qui tam complaint against his former employer, a pharmaceutical company, alleging violations of the Federal False Claims Act, 31 U.S.C. § 3730 – including a week before the qui tam complaint was filed. The relator also admitted to “wiping” his hard drive again at least once after Gilead issued a document preservation/hold memo, and before he brought a retaliation and discrimination claim against his former employer.

The court held that the relator’s actions were “egregious” and constituted “willful and bad faith spoliation of evidence.” The court, however, declined to impose monetary sanctions and instead determined that an adverse inference instruction to the jury was an appropriate sanction.

This decision may assist companies defending against False Claims Act or whistleblower actions, particularly where the whistleblower ignores the company’s attempts to preserve information. Moreover, this decision is a reminder that all companies need to be vigilant with their own employees to ensure that documents are being preserved after the issuance of a document-hold notice.
 

Pressing on the Brakes and Shifting into Reverse: The Department of Veterans Affairs Halts the Use of Reverse Auctions

This post was written by Leslie A. Monahan.

Back in 2000, Professor David C. Wyld published an initial report on the potential of reverse auctions as a government cost-saving tool. Reverse auctions enable sellers to “bid down” prices for their goods and services, and have become an increasing method for federal procurement. In his second report on the topic, Professor Wyld estimated that use of these procurement techniques would result in as much as $8.9 billion in savings across the federal government. Aware of these potential savings, multiple federal agencies expanded their use of online reverse auctions, and the Department of Veterans Affairs (VA) was no exception. 

On June 9, 2003, the VA issued an information letter on reverse auctions. This document provided guidance on the procedures contracting officers must follow in order to acquire goods and services using this auctioning technique.  

On March 7, 2012, news broke that the VA has issued a memorandum ordering its contracting officials to suspend the use of reverse auctions as a procurement method. The memorandum, dated March 3, 2012, appears to be in response to numerous complaints by long-time VA suppliers about the application and oversight of this procurement technique. In addition to the memorandum, the VA is currently conducting a detailed examination of reverse auctions, and is drafting a report on how these techniques have been managed by the agency.

While the recent memorandum only applies to the VA, its impact may be far reaching.  Experts agree that the existence of the memorandum has put other agencies on notice of the potential problems with this procurement technique. Only time will tell whether other agencies put the brakes on their approaches toward reverse auctions, or increase competition through these techniques.

Regulatory Round Up 3. 13. 12

This post was written by Michael A. Grant.

 

 

Deadline Fast Approaching To Compete for $150 Million in U.S. Department of Energy Advanced Research Project Agency Awards

This post was written by Christopher L. Rissetto, Henry R. King and Stephanie E. Giese.

The first of several mandatory submission deadlines to compete for substantial funding under the recently announced Advanced Research Project Agency-Energy (“ARPA-E”) Open Funding Opportunity Announcement (the “Open FOA”) No. DE-FOA-0000670 is at the end of this month. The ARPA-E will fund up to $150 million in research for breakthrough energy technologies under the Open FOA. The value of individual awards will range from $250,000 up to $10 million, and the period of performance for an individual project will be up to three years. As an “Open” FOA, almost any U.S. person, U.S. entity, or foreign entity with operations in the United States may submit a research proposal. Further, any proposal topic that falls within one of ARPA-E’s broadly defined energy research goals will be considered.

Virtually No Restrictions on Research Topics. Offerors must propose research topics that fall within one of ARPA-E’s two broad Mission Areas. Those Mission Areas are:

  1. to enhance the economic and energy security of the United States; and
  2. to ensure that the United States maintains a technological lead in developing and deploying advanced energy technologies.

Near-Term Mandatory Submission Deadlines. In order to compete for this ARPA-E funding, an offeror is required to submit:

  • a Notice of Intent by March 30, 2012 (5 p.m. EDT);
  • a Concept Paper by April 12, 2012 (5 p.m. EDT); and
  • a Full Application by the date to be announced in June 2012 in a modification to the Open FOA.

Key Compliance Requirements for Offerors to be Aware Of. Some of the key compliance requirements an offeror should be aware of as it prepares its submissions are:

  • Individual and entity eligibility requirements
  • ARPA-E Selection process requirements
  • Cost share requirements
  • Types of funding agreements envisioned are Cooperative Agreements, Technology Investment Agreements, Work Authorizations, and Interagency Agreements (Note: ARPA-E does not typically award grants or contracts.)
  • Protection of proprietary or confidential information submitted to ARPA-E
  • Protection of rights in technical data or inventions developed in the performance of an award

 

Global Supply Chain: Human Trafficking, Sourcing, and Transparency - Do Your Suppliers Know What You Expect From Them? Do You?

This post was written by James P. Gallatin, Jr.

Companies with global supply chains are rapidly imposing detailed standards for their suppliers that go way beyond the traditional performance and quality specifications. Until recently, the most obvious categories of concerns for global manufacturers were rules of origin for products and parts for purposes of customs valuations and treaties, heightened by protectionist legislation such as that recently introduced in the U.S. Congress regarding steel. Now come laws regarding the use of conflict minerals and the state of California (where else?) has gotten into the action to require the disclosure of how companies act to prevent human trafficking in their supply chain . And Apple is grappling publicly with allegations regarding its China-based manufacturing.

To minimize legal challenges and, more importantly, brand damage, companies with global supply chains are moving rapidly to address a broad range of issues with every level of those chains. They are imposing detailed and public supplier standards for workers' health and safety, wages and benefits, and the use of child labor, as well as prohibitions against the use of coercion and discipline to maintain a workforce, and prohibitions against forced sex. Two examples of companies that have imposed such standards are Hewlett Packard, the U.S.-based manufacturer of IT products, and LEGO, the Danish manufacturer of children's toys and games. Their standards and practices reflect the dramatic impact that recent laws and social norms are having on such diverse global enterprises. 

But standards are not enough. Companies with global supply chains are also moving rapidly to enforce these standards through unannounced audits and inspections, and by reviewing facilities, inspecting records, and interviewing current and former employees. They are using internal or third-party resources, and are cooperating with local governments, NGOs, and international standards organization. Where they find noncompliance, they are taking action under their agreements. Many companies are still trying to figure out where their products are actually being made this month. They are falling behind of today's norms.

Senators Believe that Steel for DOD Should be 'Made in America'

This post was written by Melissa E. Beras.

On Thursday, February 9, Sen. Sherrod Brown (D-Ohio) introduced the United States Steel and Security Act, along with Sens. Chuck Schumer (D-N.Y.), Kirsten Gillibrand (D-N.Y.), Amy Klobuchar (D Minn.), Robert P. Casey Jr. (D-Pa.), and Al Franken (D-Minn.). The legislation would reinstate the requirement that armor steel plate purchased by the U.S. military be 100 percent both melted and finished in the United States, reversing a 2009 decision by the U.S. Department of Defense (DOD) that allowed the military to purchase steel that had been melted in foreign countries. Armor steel plate is used by the military in vehicles, tanks, and other equipment.

The DOD’s 2009 decision was made in the midst of the wars in Iraq and Afghanistan, when the demand for steel was especially high. The final rule, published by DOD July 29, 2009, defined the word "produced" as it applied to armor steel plate under the Special Metals Amendment to include simple finishing processes. This change in definition allowed armor steel plate melted in foreign countries, including Russia and China, to be deemed "produced domestically" if it was subsequently subject to simple finishing processes in the United States. The decision reversed more than 35 years of legal interpretation and administrative practice.

After inquiries questioning the DOD on its steel purchasing standards, the National Defense Authorization Act for fiscal year 2011 included a provision requiring a review of the existing regulation to ensure the definition was consistent with congressional intent. The review was required to be completed within 270 days of enactment of the law, or early October 2011. On July 25, 2011, DOD published its request for comment, and the deadline for public comment was September 8, 2011. DOD has still yet to finalize its review.

On September 28, 2011, Sen. Brown and others sent a letter to Defense Undersecretary Ashton Carter, urging him to revise the Department’s requirements on armor steel plate. During consideration of the National Defense Authorization Act in December 2011, Brown and Senate Armed Services Committee Chairman Carl Levin (D-Mich.) called for the DOD to expedite its review of this issue. The Senators hope that the change will create jobs by providing a boost to the domestic steel industry.
 

Government Contractor Successfully Defends Its Senior Executive Compensation Costs

This post was written by Stephanie E. Giese.

The issue of senior executive compensation limits continues to be a contentious one for the federal government and its contractors. This may explain why the limit has not been raised since 2010 from the current amount of $693,951. In fact, the Obama administration has proposed lowering senior executive compensation limits to $200,000, the level it caps salaries for its own executives. Given the administration’s focus, this is an area where we are likely to see more litigation. The Appeals of J.F. Taylor, Inc., ASBCA Nos. 56105, 56322 (January 18, 2012) (“JFT”) is an example of such litigation that was recently decided in favor of the contractor.

The JFT decision is relevant to contractors subject to Federal Acquisition Regulation (“FAR”) 31.205-6(p), the federal limitation on the allowability of compensation for senior executives. This benchmark limitation is the maximum amount a contractor may seek reimbursement for under its government contracts, but does not limit the compensation an executive may earn. Further, the limit that applies to small-to-midsize government contractors may actually be lower than the benchmark limitation. Regardless of the size of the contractor, a contractor subject to FAR 31.205-6(p) must show that the executive compensation costs it charged the government are reasonable in order for the government to reimburse those costs. To evaluate reasonableness, Defense Contract Audit Agency (“DCAA”) conducts a statistical analysis considering factors such as industry, company revenue relative to other companies in the same industry, geographic location, and the executive position being evaluated.

The JFT decision offers arguments that may allow a contractor to resolve disputes with DCAA in annual Executive Compensation Reviews (“ECRs”) and to avoid potential litigation. In its JFT decision, the Armed Services Board of Contract Appeals held that DCAA’s methodology was “fatally flawed statistically”:

(a) as a matter of basic statistical analysis,

(b) because the method market priced JFT’s executive compensation at the median without adequate consideration of the company’s superior performance,

(c) because DCAA failed to evaluate the compensation of the JFT vice presidents based on the revenues of the whole company even though each vice president had companywide responsibilities for the success of the company, and

(d) because the method used does not yield auditable and reliable results.
 

Thus, JFT was not required to repay the government approximately $600,000 in disallowed executive compensation costs. A contractor should consider the fatal flaws cited by the Board as potential arguments to defend its own executive compensation costs.

Are Government Contracts Executives Overpaid?

This post was written by Leslie A. Monahan.

Last week, the Office of Management and Budget (“OMB”) announced that President Obama is working to breathe life back into a proposal to end federal contractor executive overpayment. According to the OMB’s blog post, the Obama administration will be asking Congress to reform the current reimbursement formula for contractor executives. The proposal will not limit how much contractors can pay their top five executives. Rather, it aims to limit the amount the government can reimburse contractors for executive salaries. Specifically, the proposal seeks to cap the government’s reimbursement at the same level as what it pays its own executives – $200,000 per.

Back in the 1990s, Congress tied the levels of pay given to contractor executives to the salaries of the nation’s top private executives, as opposed to government executives. As private sector salaries soared, so did those of contractor executives, something that did not go unnoticed. Receiving support from senators on both sides of the political spectrum, an amendment to the 2012 Defense Authorization Bill capped the reimbursement of salaries for some contracts with the Department of Defense. The Obama administration now seeks to extend the provisions across all government agencies as part of its Campaign to Cut Waste.

While the Obama administration believes that ending executive overpayment will benefit all taxpayers, certain taxpayers disagree. On the same day OMB made its announcement, the Professional Services Council (“PSC”) publicly opposed the measure. PSC stated that the proposal would negatively impact small businesses and inhibit the ability of the government and industry to attract top talent to work on federal contracts.
 

For Government Contractors, Will 2012 Be the Rise of the "Past Performance Primary POC"?

This post was written by Joelle E.K. Laszlo.

If you are a Federal government contractor, please take a moment to recall the name of your “Past Performance Primary POC,” or P4OC for short. [In the unlikely event that this acronym catches on, you saw it here first.] Don’t know who your P4OC is? Don’t have one? If not, remedy the situation promptly: starting this year, a good P4OC may be the only thing standing between you and unfavorable information posted by the government on the Internet for all to see.

P4OCs can attribute their recent surge in significance to the Final Rule on the Federal Awardee Performance and Integrity Information System (“FAPIIS”), which was published in the Federal Register just after the new year. Followers of this ’blog will be well-acquainted with FAPIIS by now [click here if not]. Mandated by the 2010 Supplemental Appropriations Act, FAPIIS is designed to be a one-stop-shop for information on Federal contractors – particularly information associated with contractor wrongdoing. Conceptually FAPIIS has been praised by advocates of transparency in government contracting, but it has not quite lived up to the hype in its initial months of existence.

Nevertheless, we and others have advised contractors to take FAPIIS seriously and proactively, something the new Final Rule more or less requires. The Final Rule creates a procedure under Federal Acquisition Regulation (“FAR”) clause 52.209-9 whereby a contractor’s P4OC will be notified whenever a Federal agency proposes to post new information about the contractor on FAPIIS. The contractor will have seven calendar days to review the information and object to the post under an exemption to the Freedom of Information Act (“FOIA”). If within the seven-day time frame the contractor asserts that any of the information proposed for posting is covered by a FOIA exemption, that information must be removed within another seven days and the issue must be resolved according to FOIA procedures. Importantly, and as clarified in a second Federal Register Notice, these new procedures for the review of information proposed for FAPIIS posting took effect on January 17, and apply to any government contract that contains FAR 52.209-9 (not just the January 2012 version of the clause).

Given these developments, the first step for any contractor is to ensure that its P4OC and other past performance contacts are included in the Central Contractor Registration database. Because of the short turn-around time for reviewing information proposed for posting to FAPIIS, every government contractor will want to make sure their P4OC is punctual. Even if information proposed for posting is not exempt from the FOIA, contractors will have the opportunity to comment on the data to be posted (in larger data fields than before). This means that a good P4OC will also be able to marshal the information needed to put unfavorable performance records into their proper context. So your P4OC could very well become an MVP.

Looking into the Defense Industry Glass Ball for 2013 ... and Beyond

This post was written by Lorraine Mullings Campos.

Last Thursday, Defense Secretary Leon Panetta outlined the Pentagon’s plan to change the priorities of the American military and implement budget cuts accordingly. This follows from last year’s Budget Control Act, which automatically cut $1.2 trillion of defense and non-defense spending when Congress did not pass legislation to reduce the budget. The Pentagon is now undertaking half a trillion dollars in cuts through its proposed budget. Although the budget is not final until February 13, Panetta’s remarks reveal two things: the pace of these cuts, and which industries will win and lose.

For FY2013, the pace is relatively slow—the Pentagon aims to cut $6 billion from its budget, down $531 billion to $525 billion. Over the long term, the Pentagon budget is expected to shrink by $487 billion over ten years, with $259 billion of cuts taking place in the next five years. However, commentators like former director of the Office of Management and Budget, Peter Orszag, note that the anticipated budget cuts are larger than what would likely be implemented.

If implemented, however, the Pentagon’s new priorities give some idea as to which industries will win and lose. On one hand, the proposed budget favors makers of unmanned aerial systems, along with cybersecurity, surveillance, and intelligence contractors. On the other hand, makers of certain weapons systems will likely feel some contraction. The proposed budget discards 108 to 144 fighter aircraft, reduces the number of littoral combat ships by two, and retires seven cruisers earlier than scheduled, affecting a number of well-established defense companies.

Although defense contractors have had an opportunity to prepare for the Pentagon’s budget cuts since August of 2011, this year’s reductions might give some indication of which companies and industries will successfully weather nine more years of increasingly aggressive cuts.

The EU's New Defense and Security Procurement Regime: Market Opportunity or Illusion?

This post was written by Peter Teare, Lorraine Mullings Campos and Alexandra A. Nelson.

In an effort to open up the European market for defense and sensitive security products to greater international competition and transparency in its contracting processes, the EU member states have recently adopted a series of measures including the EU Directive on Defense and Sensitive Security Procurement (Directive 2009/81).

The European market for defense and security products is currently worth more than $220 billion. But historically less than 25% of that value is awarded through a public tender process, and 75% of the defense spending of national governments within the EU goes to domestic suppliers. This new law aims to mandate the greater use of public tendering procedures in defense and security programs and reduce the ‘national preference’ that often prevails in Europe. The aim is also to introduce, for the first time, an effective system for bid protests in defense and security procurement. The legality of imposing off-sets and other discriminatory requirements as a condition of contract awards has also been placed into question.

The Defense and Sensitive Security Procurement Directive forms a part of a package of new legislative measures known as the “European Defense Package” which aims both to promote competition, eliminate discriminatory obligations such as off-sets, and to simplify the current national licensing systems for cross-border transfers of military equipment and technology. Each EU member state was required to transpose its terms into the national law by 21 August 2011.

Reed Smith is holding a roundtable seminar at its Washington DC office on Tuesday, February 7, 2012 from 3:00 pm to 5:30 pm to discuss these legislative developments.

Please click here for more information.

Equality for Women: Amending the Women-Owned Small Business Program to Ensure Consistency with the Other Small Business Administration Program

This post was written by Leslie A. Monahan.

On January 12, 2012, the Small Business Administration (“SBA”) issued an interim final rule amending certain regulations governing the Women-Owned Small Business (“WOSB”) Program. These amendments to threshold amounts and protest procedures make the WOSB Program more consistent with other SBA government contracting programs. Given the public benefit of consistency in small business programs, SBA found good cause to publish the changes in an interim final rule, as opposed to a proposed rule, and made the rule effective from the date of publication.

The WOSB Program, which was established by a final rule issued on October 7, 2010, authorizes contracting officers to set aside contracts for WOSBs and economically disadvantage women-owned small businesses (“EDWOSBs”) in certain industries where such concerns are shown to be underrepresented. To qualify as a WOSB, a business concern must be at least 51 percent unconditionally and directly owned by at least one woman who is a U.S. citizen. WOSB qualifications also require one or more women to control the management and daily business operations of the business concern. To qualify as an EDWOSB, a business concern must meet the same requirements as a WOSB and demonstrate that the owner or owners’ ability to compete in business has been impaired due to diminished capital and credit opportunities. Further, an EDWOSB owner’s personal net worth, adjusted gross yearly income averaged over the three years, and asset fair market value cannot exceed $750,000, $350,000, and $6 million, respectively.

Originally, under the WOSB Program, contracting officers could restrict competition for federal contracts not exceeding $5 million for manufacturing contracts and $3 million for all other contracts. The interim final rule changed those amounts to $6.5 million and $4 million, respectively, to be consistent with other SBA regulations. In addition, the interim final rule acknowledges the Federal Acquisition Regulation Council’s authority to adjust competitive thresholds for inflationary adjustments. These changes allow WOSBs and EDWSOBs to obtain larger contracts to grow their businesses.

In addition, under the interim final rule, contracting officers may now proceed with a contract award during the course of a protest, if necessary to protect the public interest, without having to make such a determination in writing. It also allows contracting officers to move forward with contract awards if the SBA does not respond concerning the status determination of the WOSB or EDWSOB filing the protest within 15 days from receipt of the protest. These changes allow contracting officers to award contracts more easily in protest situations.

Comments on the interim final rule are due by February 13, 2012.
 

One Strike and You're Out? Debating the Need for Instituting Mandatory Suspension and Debarment Procedures

This post was written by Leslie A. Monahan.

To mandate or not to mandate the use of suspension and debarment - that is the current question up for debate among federal agencies and government officials. As criticism of agencies for failure to utilize or enforce suspension and debarment procedures continues, the idea of mandating the use of these procedures as punishment for indictments and convictions related to federal contracts is gaining momentum. Interest in this idea reached a high point in recent weeks with issuance of a memorandum from the Office of Management and Budget (“OMB”) and agency testimony before the Senate on the matter.

The OMB memorandum identifies the use of suspension and debarment a “powerful tool” for protecting taxpayer resources and the integrity of federal government processes from government contractors who “lack business integrity because they have engaged in dishonest or illegal conduct or are otherwise unable to satisfactorily perform their responsibilities.” The memorandum, which was issued in response to an August 2011 Government Accountability Office (“GAO”) report, found that more than half of the ten agencies it reviewed lacked characteristics common among active and effective suspension and debarment programs. In particular, the GAO discovered that the agencies investigated did not have: (i) sufficient dedicated staff resources, (ii) well developed internal guidance, and (iii) processes for referring cases to officials.

To remedy the issues addressed in the GAO report, the OMB set forth a new set of directives that apply to agencies and departments subject to the Chief Financial Officers Act. These directives include the following: (1) appointing senior accountable officials to assess agency suspension and debarment programs; (2) reviewing internal policies and procedures to ensure effective use of suspension and debarment tools; and (3) checking federal databases to guarantee that only responsible contractors receive federal awards. The OMB tasked the Interagency Suspension and Debarment Committee (“ISDC”) to serve as support structure by helping agencies develop trainings and share best practices related to suspension and debarment tools.

The OMB issued its memorandum one day before the Senate Committee on Homeland Security and Government Affairs (“Committee”) held a hearing on the matter. The Committee obtained testimonies from agency heads and officials, including Daniel Gordon, outgoing OMB procurement chief, and Steven Shaw, deputy general counsel of the U.S. Air Force. While committee members, including Senators Susan Collins and Joseph Lieberman, support implementing mandatory suspension and debarment, agency officials advocated against mandating such procedures. Mr. Gordon stated that the current regulations provide the necessary authority and discretion to combat dishonest or incompetent federal contractors. Mr. Shaw argued against taking away agency discretion and stated that automatic suspensions and debarments would remove contractor incentive to work in creative ways to benefit the government.

Although the question concerning mandatory suspensions and debarments is still up for debate, contractors should use this time to ensure that they and their businesses would not fall prey to the proposed automatic measures if they became law. Accordingly, contractors need to take an internal look at their compliance policies and procedures to make certain they meet all federal contract requirements. By taking advantage of the opportunity to “clean house” concerning contract provisions and ethical regulations, contractors can obtain a clear conscience about their compliance and prevent any violations that could potentially lead to suspensions and debarments.
 

Small Businesses to Have Larger Role in Big Contracts

This post was written by Gunjan Talati.

Earlier this month, the government issued an interim rule amending the Federal Acquisition Regulation (FAR) to implement set-aside requirements of the Small Business Jobs Act of 2010. The Small Business Jobs Act amended the Small Business Act to require the government to set aside parts of a multiple-award contract for small businesses; set aside orders placed against multiple-award contracts for small businesses; and reserve one or more contract awards for small businesses under full and open multiple-award procurements.

The interim rule attempts to implement these requirements through additions and revisions to a number of FAR parts and subparts:

• FAR Subpart 8.4—Federal Supply Schedules: The interim rule revises this subpart to clarify that even though the set-aside requirements of FAR Part 19—Small Business Programs—are not mandatory for procurements under Federal Supply Schedules, the ordering activity is allowed, at its discretion, to set aside orders and Blanket Purchase Agreements, or BPAs, for small businesses

• FAR Subpart 12.2—Special Requirements for the Acquisition of Commercial items: The interim rule also clarifies that agencies can set aside orders under multiple-award contracts for the acquisition of commercial items

• FAR Subpart 16.5—Indefinite-Delivery Contracts: The interim rule revision acknowledges that set-asides can be used for orders under multiple-award contracts

• FAR Part 19—Small Business Programs: The interim rule adds a new section that allows agencies to use set-asides under multiple-award contracts and reserve one or more contract awards under multiple-award contracts for small businesses

• FAR Subpart 38.1—Federal Supply Schedule Program: The interim rule includes a reference to the changes in FAR Subpart 8.4, clarifying that set-asides can be used for orders and BPAs under Federal Supply Schedules

Even though many of these changes grant the agencies discretionary authority to use set-asides, whereas many of the existing set-aside requirements in the FAR are mandatory, they present additional avenues through which agencies can increase the credit they receive toward their small business goals.

With agencies under the spotlight for missing these goals, there will likely be a lot of activity under these changes. While the impact on small businesses is obvious—increased set-aside contracting opportunities, the impact on large businesses is not so clear. Certainly, there will be the loss of some opportunities, as large businesses cannot submit proposals on set-aside competitions. However, with careful planning, such as identifying potential subcontracting opportunities, large businesses may be able to soften any blow from the potential loss of work and perform a value service by supporting a small business.

The interim rule went into effect November 2, 2011, and companies or trade groups interested in submitting comments to be considered before a final rule is issued will have until January 3, 2012 to submit their comments.
 

Keeping the Band Together: Nondisplacement of Qualified Workers Under Service Contracts

This post was written by Leslie A. Monahan.

A final rule issued by the Department of Labor (“DOL”) August 29, 2011 provides final regulations to implement Executive Order (“E.O.”) 13495, Nondisplacement of Qualified Workers Under Service Contracts. E.O. 13495, which was signed by President Obama January 30, 2009, establishes a general policy for the federal government with regard to staffing successor service contracts where performance is for similar services at the same location as the prior contract. In particular, the policy provides qualified employees who worked under a preceding contract the opportunity to work under a successor contract if they so choose.

Under the new rule, it is now mandatory for service contracts to include a clause requiring successor contractors to offer qualified employees, who were employed under the prior contract and would otherwise be terminated at the award of the successor contract, a right of first refusal of employment under the successor contract. This requirement to include a right of first refusal extends to subcontractors as well.

Since E.O. 13495 does not establish wage or fringe benefit rates, the final rule does not mandate that a successor contractor offer jobs to employees at the same wage as the former contractor. However, the rates offered by successor contractors will have to meet the minimum wage and fringe benefit rates established under the Service Contract Act (“SCA”). Accordingly, successor contractors may base their bids on the minimum wage rates and fringe benefits required by the SCA.

The final rule clearly states that when a collective bargaining agreement governs the wage and fringe benefits on the predecessor contract, a provision of the SCA requires a successor contractor to pay no less than the predecessor’s collective bargaining agreement rates. However, many questions have been raised concerning whether the successor contractor would be required to accept all the terms and conditions of the predecessor’s collective bargaining agreement for National Labor Relations Act (“NLRA”) purposes.Unfortunately, the DOL has taken the position that the potential interplay between the nondisplacement provisions of the final rule and the NLRA exceeds its authority. Hopefully, additional guidance will be provided when regulations are issued that implement the final rule.

Although the final rule has been published, the effective date for this rule is still pending. Once the date has been determined, the DOL will publish a notice in the Federal Register announcing the date.
 

Proposed Rule Seeks To Prevent Future Contractor Leaks of Personally Identifiable Information - The WikiLeaks Response

This post was written by Melissa E. Beras.

On October 14, 2011, just one week after the release of the "WikiLeaks Order," the Department of Defense (DoD), the General Services Administration (GSA), and the National Aeronautics and Space Administration (NASA) proposed a rule that would require certain contractors to complete training that addresses the protection of privacy and the handling and safeguarding of personally identifiable information (PII). Specifically, the rule requires contractors who access government records, handle PII, or design, develop, maintain, or operate a system of government records on behalf of the government, to undergo training upon award of a contract and at least annually thereafter. Further, according to the rule, contractors would have recordkeeping requirements for documents indicating that employees have completed the mandatory training and would be required to produce those records upon government request.

In addition, the proposed Federal Acquisition Regulation (FAR) text provides that the required privacy training must, at a minimum, address seven mandatory elements. Those elements include training on privacy protection in accordance with the Privacy Act of 1974, restrictions on the use of personally owned equipment that implicates PII, breach notification procedures, and other “agency-specific” training requirements. The proposed FAR text also provides alternative language for instances where an agency would prefer that the contractor create the privacy training package, as opposed to attending an agency-developed privacy training. Additional alternative language is proposed for instances where the government determines it is in its best interest for the agency itself to conduct the training. Moreover, the clause requires that it be flowed down to any subcontractors who: (1) have access to government records; (2) handle PII; or (3) design, develop, maintain, or operate a system of records on behalf of the government.

The proposed rule is a part of a broader effort to enhance cyber security. It follows the “WikiLeaks Order,” an executive order issued October 7, 2011, and formally titled “Structural Reforms to Improve the Security of Classified Networks and the Responsible Sharing and Safeguarding of Classified Information,” which directs governmental change to ensure that classified information is shared responsibly and safeguarded on computer networks in a manner consistent with appropriate protections for privacy and civil liberties. The order expressly states that agencies bear “the primary responsibility for meeting these twin goals.” The proposed rule also comes shortly after the DoD requested the extension of a pilot program through November 2011, which helps protect the networks of its prime defense contractors by sharing intelligence about threats to their data with these contractors.

Contractors interested in sharing their views on the proposed rule have the opportunity to comment. Written comments are due by December 13, 2011.

Regulatory Round Up 10 .20. 11

This post was written by Michael A. Grant.

 

Regulatory Round Up 9.19.11.

 

Regulatory Round Up 8.16.11

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The Overseas Exemption to the Cost Accounting Standards Eliminated Without Ever Informing Government Contractors of the Correct Interpretation of the Exemption

This post was written by Christopher L. Rissetto and Stephanie E. Giese.

Those of us who have an interest in compliance with the federal Cost Accounting Standard (“CAS”) are not surprised that the CAS Board eliminated the Overseas Exemption effective October 11, 2011. See 76 Fed. Reg. 49365 (Aug. 10, 2011). What may be more surprising than the elimination of the exemption is that the CAS Board is eliminating the exemption that it first promulgated in 1973 without ever offering its interpretation of how the exemption should be applied. So, for contractors who have relied on this exemption or will rely on this exemption for contracts and subcontracts awarded prior to October 11, 2011, we will never know which federal agency’s interpretation of the exemption is correct. The CAS Board’s failure to interpret this exemption introduces some uncertainty for contractors who have relied on the exemption, particularly in the event of a CAS compliance audit.

Federal Agency Interpretations of the Overseas Exemption Differ. Some federal agencies such as the U.S. Agency for International Development (“USAID”) have interpreted the application of the exemption narrowly in acquisition policy guidance such that the vast majority of U.S. companies could not rely on the exemption (if any costs, direct or indirect, are incurred in the U.S. and charged to a USAID contract). Other federal agencies, including the U.S. Department of Defense (“DoD”), have stated in acquisition policy guidance that a U.S. company may rely on the Overseas Exemption if all direct costs incurred in connection with a government contract are incurred overseas.

The CAS Board’s Limited Jurisdiction was the Basis for the First Promulgation of the Overseas Exemption. You may ask why the Overseas Exemption was first promulgated in light of the fact that the federal agencies do not agree on its application. The Overseas Exemption was first promulgated in the Armed Services Procurement Regulation (“ASPR”) in 1973. The original basis for the exemption was that the CAS Board’s jurisdiction was limited to contracts awarded in the U.S., its territories and possessions pursuant to Section 2168 of the Defense Production Act (“DPA”). Thus, by default, contracts and subcontracts executed and performed entirely outside the U.S. were exempt from CAS. The CAS Board ceased to exist under the DPA in 1980, but was reestablished in 1988 under the Office of Federal Procurement Policy (“OFPP”) Act without the overseas limitation on the Board’s jurisdiction. In 1992 and again in 2008, during the time when its jurisdiction included contracts performed overseas, the Board reviewed its rules and chose to retain the Overseas Exemption without offering any further interpretation of the applicability of the exemption.

CAS Compliance May Depend on Your Agency’s Interpretation of the Overseas Exemption. This month the CAS Board again offered no further interpretation of the Overseas Exemption when it eliminated the exemption. So a government contractor may want to consider the federal agency that awarded the contract before relying on the Overseas Exemption to CAS -- while the exemption lasts!
 

Competition for the MASes...May Result in Messes

This post was written by Lorraine M. Campos and Joelle E.K. Laszlo.

Full and open competition is a bedrock principle in federal contracting, so government initiatives to expand competition, like the interim rule on multiple-award schedule (“MAS”) contracts that took effect this summer, should come as no surprise. But competition breeds a lot of different things, and enhanced competition for orders placed under MAS contracts could have a number of unintended consequences. Schedule contractors will do best to keep their heads about them in this brave new world.

The interim rule, issued on March 16th and effective two months later, applies only to MAS contracts with civilian agencies, including the General Services Administration’s and the Department of Veterans Affairs’ Federal Supply Schedule contracts. (Department of Defense agencies already follow competitive procedures similar to those set forth in the interim rule.) The interim rule amends the MAS ordering procedures in the Federal Acquisition Regulation (“FAR”) to require contracting agencies to take certain steps when placing MAS orders valued above $3,000 (the current micropurchase threshold). For example, for orders valued between the micropurchase threshold and the simplified acquisition threshold (“SAT,” currently $150,000), an agency must request quotes from at least three schedule contractors (or, for orders to be issued with a statement of work (“SOW”), provide the SOW to at least three schedule contractors), and must justify in writing any decision not to solicit its requirement so broadly. For any order above the SAT, an agency must post a request for quotations (“RFQ”) to GSA eBuy, or provide the RFQ to “as many schedule contractors as practicable.” As with orders under the SAT, an agency is only permitted in specified circumstances to limit competition, and must document its reasons for doing so.

The interim rule sets out similar competition requirements for placing orders under existing Blanket Purchase Agreements (“BPAs”), and for establishing new BPAs. In addition, where new BPAs are to be established the interim rule expresses a preference for multiple-award BPAs, and limits such awards to five years in duration. Except in limited circumstances single-award BPAs over $100 million are no longer permitted, and any new single-award BPA may only be awarded for a year (with up to four, one-year options).

The new competition requirements implement Section 863 of the 2009 National Defense Authorization Act, which was promulgated in part to respond to criticism that has continued to build over the insufficiency of competition under MAS contracts. In a September 2009 report on BPAs, the Government Accountability Office (“GAO”) essentially found that the lack of competition in MAS ordering was based on the absence of regulations and procedures requiring it, and the failure by contracting officers to follow existing regulations and procedures. It thus stands to reason that without at least better training of contracting officers, the new competition requirements won’t make the positive difference for which they are designed. At the same time, the increased competition may force schedule contractors into low-bidding wars, especially for BPAs which, with their new durational limits, may end before a contractor is able to break even (let alone make a profit). And with GAO’s recent determination that it has the authority to hear bid protests of task orders of any value (and Congress expected to pass a bill to this end), any order that doesn’t hue closely to the new competition requirements may be up for challenge. These factors together could make the future of MAS contracting a tempestuous one, even for the most seasoned offerors.
 

Those Seeking Dirty Laundry will be Disappointed - New Government Rules on Contractor Information Subject to Public Disclosure

This post was written by Steven D. Tibbets and Lorraine M. Campos.

 There is a long history of federal court cases distinguishing which items of information that contractors disclose to the Government may be obtained by the public and which items may not. Currently, there is much debate regarding how well the relatively new Federal Awardee Performance and Integrity Information System accomplishes the goal of providing public access to contractor responsibility information.

On a related front, on May 26, 2011, the Office of Governmentwide Policy in the U.S. General Services Administration (“GSA Office”) issued a notice explaining exactly which elements of the Government Central Contractor Registration (“CCR”) are subject to Freedom of Information Act (“FOIA”) requests and which are not. Virtually any person or company that sells any goods or services to, or receives financial assistance in the form of grants, from the federal Government provides information to the Government that is subject to FOIA. There are 260 distinct data fields that contractors may be required to complete – most data fields apply to all contractors, but a few fields apply only to contractors that perform contracts over certain dollar thresholds. Information submitted in completing these fields is presumptively subject to FOIA – as is all information submitted to the federal Government – but GSA has determined some fields are exempt.

Specifically, data fields 156 and 165 through 260 are exempt from FOIA. These fields cover information regarding contractors’ corporate parents, “Austin Tetra” and “Dun & Bradstreet Monitoring” information regarding contractors’ creditworthiness, information regarding security clearances, information regarding executive compensation, and information regarding proceedings involving poor contract performance, fraud, and similar matters. Examples of non-exempt data fields include: (1) average number of employees (field 144); (2) the identity of the owner(s) of the company (field 137); and (3) the company’s annual revenue (field 145).

It is currently not clear whether industry watchdogs, journalists, or contractors seeking information about a competition or an interesting contract award will challenge GSA’s determinations regarding which items of information are exempt from FOIA. In addition, it is not clear how GSA’s findings will apply to or influence determinations regarding the scope of information that is publicly-available via the FAPIIS database. What is clear is that, for now, a great deal of information contractors furnish to the Government via the CCR system will be kept from public view.
 

Sound and Fury: The Effectiveness, or Lack Thereof, of the Foreign Contractor Tax

This post was written by Steven D. Tibbets and Lorraine M. Campos.

In early 2011, Congress passed the James Zadroga 9/11 Health and Compensation Act of 2010 (“9/11 Act”). A last-minute amendment to the statute imposed a two-percent excise tax on foreign contractors to fund health benefits for 9/11 emergency responders. The tax has been much remarked-upon, but we want to highlight a fantastic bit of scholarship that helps to understand the context and fundraising effectiveness of the tax.

In her paper titled “The Revenue Impact of the 2% Excise Tax”, Nicole R. Best sets forth an economic analysis of the statute and concludes that the revenue-generating estimates of a Congressional Budget Office (“CBO”) report – concluding that the tax would be an effective revenue-generator – were incorrect. (The paper apparently was presented as part of an academic conference and copies are available only through a paid subscription service). The reason? CBO completely failed to account for the treatment of foreign contractors under U.S. procurement laws.

Under the 9/11 Act, any “foreign person that receives a specified Federal procurement payment” must pay a tax equal to 2 percent of the amount of a “specified Federal procurement payment.” However, the tax applies only to contracts for goods manufactured outside the United States and outside certain countries that are parties to “non-discrimination” trade treaties with the U.S. (i.e., “designated countries” under the Trade Agreements Act). Now, generally speaking, when the value of a procurement of tangible goods is under a particular dollar threshold, only U.S.-manufactured goods are eligible for the procurement. When the value is over the threshold, only U.S.- or designated country-manufactured goods are eligible. Products from non-designated countries – the only products that trigger the foreign contractor tax – are never eligible. As such, the foreign contractor tax applies to products that the U.S. government would not purchase anyway. Therefore, as a practical matter, contractors from outside the United States can take comfort in the fact that the tax probably does not apply to them.

Best’s paper goes on to point out additional mathematical and empirical errors that were inherent in the CBO’s estimates. From a policy perspective, Best’s arguments invite scrutiny of the flimsiness of the CBO’s calculations processes that led to their use. Why impose a tax that will not raise money? Does the tax serve a symbolic purpose of some sort? What drove CBO’s error – was it just ignorance of the Trade Agreements Act? Why single out foreign contractor’s for a tax in the first place, particularly one tied to September 11? To serve some sort of nationalistic impulse? Neither Best’s paper nor any other source of which we are aware answers these questions. Nevertheless, they are questions that get to the impetus for public policies affecting firms involved in cross-border government contracts work. Such firms would be well-advised to examine these forces that shape the policies with which they must live.
 

No Contractor Left Behind: The Proposed Standardization of Contractor Past-Performance Evaluations

This post was written by Leslie A. Monahan.

A proposed rule issued by the Department of Defense, the General Services Administration, and the National Aeronautics and Space Administration on June 28, 2011 proposes to amend the Federal Acquisition Regulation (“FAR”) to provide a single set of standards for contract officers reviewing contractor past performance. In 2010, agencies were required to transition their various information systems for storing performance reviews into the Contractor Performance Assessment Reporting System (“CPARS”), which would serve as a single performance feeder system governmentwide. Now, regulators seeks to continue implementing streamlining procedures by standardizing the evaluation factors and rating scales in past performance reviews.

The proposed changes stem from a 2009 Government Accountability Office report on the need for better performance information in making contract award decisions. The basis for the proposed rule also gained momentum with the issuance of an Office of Federal Procurement Policy memorandum concerning strategies for improving the assessment of contractor past performance.

Under the proposed rule, regulators plan to implement a five-point scale to standardize the contractor past performance evaluation process. In particular, contractors will be evaluated based on rating definitions found in CPARS guidance that range from exceptional to unsatisfactory. All evaluations are intended be tailored to the contract type, size, content, and complexity of contractual requirements.

According to regulators, while the proposed rule may be new, it only intends to codify in the FAR existing guidelines and practices, Further, the proposed language for the amended FAR provisions is language already used by Federal agencies. Contractors interested in commenting on the proposed rule must submit their comments by August 29, 2011.
 

Regulatory Round Up 6.24.11

 

More than a Pass-Through?: DCAA to Evaluate whether Contractors and Subcontractors "Add Value"

This post was written by Stephanie E. Giese.

Contractors for the U.S. Department of Defense, as well as the civilian agencies should expect to start seeing the Defense Contract Audit Agency (“DCAA”) recommend disallowance of certain contract costs on grounds that a contractor or subcontractor fails to “add value” when it subcontracts out more than 70% of its work under a federal government contract. As a result of new DCAA guidance, now such contractors and subcontractors may be required to provide evidence of “adding value” to DCAA during forward pricing rate proposal audits, incurred cost audits, and audits of final vouchers.

In February 2011, DCAA published guidance regarding auditing compliance with FAR 52.215-23, Limitations on Pass-Through Charges. FAR 52.215-23 is a clause that applies to prime contractors and subcontractors at all tiers with cost reimbursement contracts that exceed the simplified acquisition threshold. For DoD contractors and subcontractors FAR 52.215-23 applies not only to cost reimbursement contracts, but also fixed-price contracts, except those for commercial items or those awarded with adequate price competition. For example, DCAA may disallow a contractor's indirect costs and fee on work performed by a subcontractor if the subcontractor is performing 70% of the total cost of the work under the contractor's prime contract. In this case, DCAA may disallow the prime contractor's indirect costs and fee related to the subcontract if the prime contractor is not successful in proving its subcontract management functions "add value" to the performance of its government contract. The same rule applies to a subcontractor who subcontracts 70% of the work under its subcontracts to lower-tier subcontractors. In other words, the federal government does not want to pay a government contractor for indirect costs and fee associated with managing a subcontractor (in addition to the subcontractor’s indirect costs and fee) if the subcontractor is actually doing most (more than 70%) of the work, unless such a contractor can show it “adds value”.

Determining whether a contractor complies with the FAR 52.215-23 clause is going to be very subjective based on the definition of “added value” in the clause. “Added value” means “that the Contractor performs subcontract management functions that the Contracting Officer determines are a benefit to the Government (e.g., processing orders of parts or services, maintaining inventory, reducing delivery lead times, managing multiple sources for contract requirements, coordinating deliveries, performing quality assurance functions).”

Contractors and subcontractors should look for this FAR 52.215-23 clause in their solicitations and contracts with the government and be prepared to comply with it. Compliance includes, but is not limited to preparing evidence for DCAA to show that its subcontract management function "adds value", as well as flowing the same requirements down to suppliers.
 

FAPIIS Flap-is: Transparency Advocates Hate It Now, Contractors Likely to Hate It Later

This post was written by Lorraine M. Campos, Melissa E. Beras and Joelle E.K. Laszlo.

t has been called “a steaming pile,” posited as “the worst government website . . . ever seen,” and emblazoned with two giant red thumbs pointed downward. And those were the reviews of its proponents. Just a handful of weeks after much of its content it became publicly available, the Federal Awardee Performance and Integrity Information System (“FAPIIS”) looks like a database only a mother could love. That is not to say, however, that FAPIIS can be ignored. As its content and its navigability improve, FAPIIS could become a formidable obstacle for contractors seeking to demonstrate their responsibility to do business with the Federal government. Contractors should become familiar with FAPIIS now, to be positioned, if necessary, to mount a good defense later.

As a quick recap, FAPIIS consolidates information from existing Federal databases, including the Excluded Parties List System, the Past Performance Information Retrieval System (“PPIRS”), and the Contractor Performance Assessment Reporting System (“CPARS”), and also accepts inputs from contracting officers and contractors (via the Central Contractor Registration database) on an ongoing basis. In the latter category, as of April 22, any contractor with more than $10 million in active contracts and grants that is bidding on a Federal contract over $500,000 is required to report any finding or admission of its fault in a criminal, civil, or administrative proceeding in the preceding five years. The contractor is further required to certify that the information provided is “current, accurate, and complete as of the date of the submission,” and to provide updates on a semi-annual basis. These details, along with Government-supplied data posted since April 15 about contractor terminations for default; suspension, debarment, and other penalties; non-responsibility determinations; defective pricing determinations; and contract-related criminal, civil, and administrative proceedings and their outcomes are now publicly available through FAPIIS.

The recency of the information available through FAPIIS is responsible for some of the criticism about its usefulness, and this should only improve with time. But at a recent open colloquium about FAPIIS, certain other downsides to the database emerged, without similarly clear solutions. For example, currently when past performance information is posted by a Government official to a contractor’s record in CPARS, the contractor is notified and receives thirty days to review and comment on the information before it is transferred to PPIRS. (A contractor that wishes to comment on a past performance review after the thirty-day period must do so through PPIRS.) The contractor’s comments are ultimately to be posted in FAPIIS along with the Government’s review, though it appears uncertainties remain about how much space (in characters) a contractor will have for its defense, how easily contractor comments may be located in FAPIIS, and even how quickly and thoroughly a contractor must comment in order to preserve the ability to protest the loss of a contract because of its negative reviews in FAPIIS. What is clear, however, is that FAPIIS imposes a duty on every contractor to pay close attention to its past performance reviews, and to have a plan for commenting on those that may be detrimental to future contracting opportunities.

What that duty is exactly and the advisable dimensions of a response plan will probably take shape as FAPIIS does. In the interest of providing greater structure to the database, the Office of Management and Budget will soon publish a final rule setting forth standardized past performance evaluation factors and procedures for their reporting. Governmentwide training for contracting officers in the entry and use of FAPIIS data is also reportedly in the works. And for now, anyone who conducts a search in FAPIIS is presented with a pop-up window meant to remind contracting officers that “use of the information in [FAPIIS] should not result in de facto debarment.” … On further thought, one can only hope that the FAPIIS training comes sooner rather than later.
 

Decision Do-Over? Future Uncertain for Virginia Decision Expanding Reach of Citizens United

This post was written by Lorraine M. Campos, Christopher L. Rissetto, and Melissa E. Beras.

Just as the 2012 political races are heating up and taking shape, Judge James Cacheris of the District Court for the Eastern District of Virginia expanded the reach of Citizens United v. FEC, 130 U.S. 876 (2010), by rendering unconstitutional limits on corporate contributions to federal candidates. In the opinion, filed May 26, 2011, Judge Cacheris dismissed one of seven charges filed against Virginia businessmen William P. Danielczyk, Jr. and Eugene R. Biagi (together “Defendants”).

Mr. Danielczyk, Chairman of Galen Capital Group, LLC, and Galen Capital Corporation (together “Galen”) and Mr. Biagi, an executive at Galen, are accused of illegally soliciting and reimbursing contributions to Hillary Clinton’s 2006 Senate Campaign and 2008 Presidential Campaign. Specifically, federal prosecutors contend that Mr. Danielczyk and Mr. Biagi subverted federal campaign contribution limits by soliciting employees of their financial firm to make campaign donations to two fund-raisers hosted by Mr. Danielczyk and then reimbursing the employees with company money. According to the Wall Street Journal, Mr. Danielczyk and approximately a dozen of his employees and their spouses, some of whom were Republicans, allegedly gave about $100,000 to Mrs. Clinton’s 2008 Presidential Campaign alone.

Federal prosecutors argued the Defendants’ actions violated, among other laws, section 441b(a) of the Federal Election Campaign Act (FECA), which bans direct corporate contributions to campaigns for federal office. Alternatively, Defendants maintained that under Citizens United, such a ban violated the First Amendment and thus the count should be dismissed.  In Citizens United, the Supreme Court found another provision of the FECA, the independent expenditure ban, was unconstitutional as the Court held there was no distinction between an individual and a corporation with respect to political speech and thus the First Amendment did not allow political speech restrictions based on a speaker’s corporate identity.

Ruling that the logic employed in Citizens United was “inescapable” in the case before it, the Danielczyk court reasoned if an individual can make direct contributions within FECA’s limits, a corporation cannot be banned from doing the same.

Nevertheless, the trajectory of the Danielczyk decision seems uncertain. The Danielczyk court acknowledged that the U.S. District Court for the District of Minnesota disagreed with this outcome in Minnesota Citizens Concerned for Life, Inc. v. Swanson, 741 F. Supp. 2d 1115 (D. Minn. 2010), where that court found the Citizens United holding was limited to corporate independent expenditures and was not a repudiation of the limitation on direct contributions to candidates. The case has already been criticized for ignoring another Supreme Court decision, Federal Election Commission v. Beaumont, 539 U.S. 146 (2003), which upheld the ban on direct corporation contributions to federal candidates and was not specifically overturned in Citizens United. Furthermore, on Tuesday, May 31, 2011, Judge Cacheris ordered prosecutors and defense lawyers to submit additional briefs by Wednesday, June 1, 2011 on whether he should reconsider his ruling. A hearing is scheduled for Friday, June 3, 2011.
 

The FCA and the TAA: Sounds like an Alphabet Soup BUT All the More Reason to Ensure You Provide End Products Under Government Contracts from Designated Countries

This post was written by Andrew C. Bernasconi.

As many government contractors are aware, the Trade Agreements Act (“TAA”) and its implementing regulations generally provide that the government may only acquire end products made in the United States or other “designated countries.” Government contracts frequently incorporate TAA regulations and require contractors to certify that products sold to the government derive from the U.S. or designated countries.

Liability under the False Claims Act (“FCA”) can arise when contractors sell and supply products to the government from non-designated countries like China and Malaysia, despite their certifications to the contrary. The FCA’s treble damages, civil penalties, and unique qui tam provisions – which allow private whistleblowers to bring claims of fraud against the government and receive a percentage of any recovery – make the FCA a powerful and popular vehicle for current and former employees of contractors, competitors, the Department of Justice, and others to assert claims of fraud under the FCA against government contractors.

The FCA has been used with increasing frequency and financial force to prosecute claims of TAA violations. There are currently several FCA cases involving alleged violations of the TAA pending throughout the country, and there have been substantial settlements of FCA/TAA allegations in recent years. The Bottom Line: Government contractors should examine their contracts to determine whether they incorporate the TAA requirements and certifications, and if so, take steps to verify that their supply chain of products sold to the government satisfies all applicable requirements.
 

Regulatory Round Up 5.23.11

Regulatory Round Up 5.9.11

 

Are additional restrictions on political spending by government contractors coming from the Obama Administration?

This post was written by Christoper L. Rissetto and Robert Helland.

The Internet has been ablaze over the past 24 hours with reports that the Obama Administration is considering requiring "all entities submitting offers for federal contracts to disclose certain political contributions and expenditures that they have made within two years prior to the submission of their offer". This was first disclosed by Hans A. von Spakovsky, a former Federal Election Commissioner and scholar with the Heritage Foundation. The Public Policy and Infrastructure and Government Contracts Groups offer this analysis of the Administration’s proposal, as it is known so far, and will monitor efforts to implement it as well.

The proposed order requires the following to be disclosed:

(a) All contributions or expenditures to or on behalf of federal candidates, parties or party committees made by the bidding entity, its directors or officers, or any affiliates or subsidiaries within its control; and
(b) Any contributions made to third party entities with the intention or reasonable expectation that parties would use those contributions to make independent expenditure or electioneering communications.

The Impact of these Rules on the Contracting Community Will be Significant. If implemented, these disclosure requirements would have a broad impact both in terms of what needs to be disclosed and who needs to disclose it They would apply, for example, to any entity seeking to do business with the federal government. So those seeking to contract with the federal government would have to put a compliance system in place – as part of putting together its bid – in order to keep track of the contributions and expenditures made. Also, the proposed disclosure requirements would reach far into the bidding entity, to include affiliates or subsidiaries under its control. For an entity with many subsidies, this would not only mean creating an effective compliance system but enabling the coordination within that system among many pieces and players, in order for effective disclosure. Finally, they would apply not only to political contributions to candidates and political parties but also to contributions made to a third party that spends money for advertisements advocating the election or defeat of a candidate for federal office. So, for example, if an officer of a bidding entity also belongs to an organization that runs ads calling for the defeat of a candidate, then he or she must disclose dues any other payments made to that organization, in the context of the bidding entity seeking the federal contract. That goes beyond any requirement in place today and in real terms means that those entities which run these advertisements could see the disclosure of those behind them.

Many legal issues are likely raised by an Executive Order that would be issued with this content. Among these issues are: (1) constitutional, third party, and other statutory rights that might be disturbed by compliance with the requirements of the Executive Order; (2) whether such an Executive Order exceeds the President's authority; and, (3) potential third party liability that might be incurred by implementation activities of covered entities (e.g., employment disputes), among others.

This proposed executive order is clearly a response to the Supreme Court’s decision in Citizens United v. FEC, which reverses decades of statutory and case law that prohibit corporations from using their general treasuries to fund independent political advertising supporting or opposing candidates for local, state or federal office.  And those on the right clearly consider it to be drafted in favor of organizations favoring the Democratic Party. van Spakovsky, for example, notes “federal employee unions that negotiate contracts for their members worth many times the value of some government contracts are not affected by this order. Neither are the recipients of hundreds of millions of dollars of federal grants”. We would note that this is a proposal only and the final details of the Executive Order are still not in place.

At the 11th hour, an agreement was reached on the US Fiscal Year 2011 budget. That was the "easy" part.

This post was written by Christoper L. Rissetto and Robert Helland.

Late Friday evening, with only minutes remaining before a partial shutdown of the federal government, the White House, Senate Democrats and House Republicans came to an agreement on spending and policy decisions necessary to fund the federal government for the remaining six months of Fiscal Year 2011. In the end, $38.5 billion was cut from the discretionary side of the budget, i.e. spending for programs whose spending levels are not mandated by federal law such as Social Security and Medicare. While more detail will be made available in the next days and weeks about where the budget knife will fall, we know that programs at the Departments of Labor, Education and Health and Human services will be cut by $13 billion. $18 billion will come from cuts in programs considered to be "unnecessary" by the Department of Defense. The remainder will be spread across agencies ranging from State to Housing and Urban Development. In addition, some, but not all of the policy riders sought by Republicans were included, such as restrictions on the District of Columbia spending its own funds to provide abortions and requirements and the reauthorization of a program to continue a school voucher program in the District.

The compromise agreement took a lot of effort, however the work on this agreement will seem slight in comparison to the decisions needed to be made 1) on the next federal budget, for Fiscal Year 2012; and 2) on the upcoming increase needed on the federal debt ceiling. A more grueling battle in both areas is expected, with cuts in both discretionary and mandatory spending to be under consideration. We will see more detail on the President's plan when the Obama Administration makes its own budget request of Congress this week, in response to a plan already put out by House Republicans that will cut $5 trillion over ten years.

Companies would be advised to at least monitor the budget activities, and to lobby for needed clarifications and amendment. Significant budget policies, possibly including the structuring of the tax code and other key program directions, are certain to be debated and revised.

 

The Protest is in the Mail: GAO and COFC Differences Regarding Treatment of Late Bid Proposals

This post was written by Leslie A. Monahan.

What happens when a bid proposal is sent via e-mail prior to the submission deadline but not by the proper party until after the submission deadline has passed? Turns out, the answer depends on whether the Government Accountability Office (“GAO”) or the Court of Federal Claims (“COFC”) is reviewing the matter.

A government contractor dealing with a late bid may still have its bid considered by the contracting officer, even if not received on the submission deadline, if it meets one of the three exceptions listed under FAR 52.215-4(c)(3)(ii)(A). The “Electronic Commerce” exception applies if the proposal was submitted electronically and “received at the initial point of entry to the Government infrastructure” by 5:00 pm the day prior to the submission deadline. The “Government Control” exception applies when there is “acceptable evidence” to establish that the offeror’s e-mail proposal “was received at the Government installation designated for receipt of offers and was under the Government's control prior to the time set for receipt of offers.” The “Only Proposal” exception applies if the late bid is the only proposal received.

When determining bid protest for late submissions, GAO has consistently held that the “Government Control” exception does not apply to e-mail proposals. In Matter of: Sea Box, Inc. (PDF), a government contractor submitted its proposal by e-mail 11 minutes before the deadline. However, it took several minutes for the proposal to be transmitted from the original point of entry to the final electronic destination. When the email finally reached the intended recipient, it was past the deadline. GAO states since electronic delivery methods already had the “Electronic Commerce” exception, it would not make the “Government Control” exception broad enough to include electronic transmittals and provide two alternative means to determine whether late electronic transmitted proposals may be accepted.

However, the Court of Federal Claim recently reached an explicitly different result than GAO. In Watterson Construction Company V. United States (PDF), a bidder’s proposal arrived four minutes late to the Contracting Officer’s email inbox due to an unexplained "mail storm" at the Army Corps of Engineers e-mail server. When notified that its bid was deemed “ineligible for award” due because it was late, the bidder filed a protest. Unlike the GAO, the COFC held that the “Government Control” exception applies to electronic deliveries. So, if a contractor previously thought it was out-of-luck under GAO precedent, it may still be able to save its proposal at the COFC.

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Regulatory Round Up 3.24.11

Hey, Government Contractor: Don't Fret About the Next Federal Budget Stumbling Block; Prepare For It

This post was written by Lorraine M. Campos and Joelle E.K. Laszlo.

When prevention of an event is impossible, preparation is the best defense. This is certainly the case for federal contractors facing an impending Government shutdown. By the time this ‘blog entry is posted, the likelihood of such a shutdown should be clearer, as the House of Representatives votes today on the latest federal funding continuing resolution (“CR”). If the new CR is passed, federal operations will continue for another three weeks under its temporary spending provisions, while Democrats and Republicans continue to hammer each other, as they hammer out the 2011 federal budget.

If a new CR isn’t passed, and no budget miraculously materializes, the CR currently funding federal operations will expire this Friday, March 18th. At that point, federal agencies will be required to cease all but the most crucial operations. Such a federal shutdown will mean different things to different contractors, but even those who don’t stand to be severely or even marginally impacted in the short term would be well advised to take the time to consider the shutdown’s potentially broader implications. Reed Smith offers six recommendations to federal contractors preparing to weather the potential federal shutdown and emerge on solid ground – to read them, click here.

Regulatory Roundup 3.4.11

 

If It Walks Like a Sole-Source Award and Quacks Like a Sole-Source Award, Then It's Probably a Sole-Source Award

This post was written by Steven D. Tibbets and Lawrence S. Sher.

A recent U.S. Court of Federal Claims bid protest decision illustrates how one agency’s apparent attempt to award a sole-source contract without making the findings to justify the award was unlawful, though, ultimately, the protest challenging award was not successful. The Court’s decision in Mobile Medical International Corp. v. United States, demonstrates a situation in which a sole-source award was mis-handled by the agency and subsequently set aside following a protest. In our experience, there are times when contractors suspect that their competitors have been “pre-selected” or just seem to have the inside track for certain contract awards even when those awards are not, technically, sole source. This case may serve as helpful authority in challenging such awards.

In Mobile Medical, the Government engaged in sole source pre-award negotiations with a contractor for a particular type of mobile medical trailer. At the time of the negotiations, neither the contractor, nor any other vendor offered the specific type of trailer the Government needed via an FSS contract. The Government then issued an FSS request seeking quotes for those trailers. After the closing date for the receipt of quotes, the Government permitted the contractor to add the trailers of the type the Government needed to the contractor's FSS contract. At that point, the Government awarded the order to the contractor. The Court determined that this procedure was improper and amounted to "targeted pre-selection of contractors outside the FSS system, which is inconsistent with the FSS system, as well as the general goals of fair and open competition espoused in" Government procurement laws. The Court ultimately denied the protest, however, because the protester had failed to establish that it would have been in line for award if the Government had handled the procurement properly.

This case illustrates why it is generally better for Government procurement personnel to conduct competitive procurements even where the agency has a particular vendor it believes will be the best or only vendor to respond to a solicitation. In this case, even though the Government issued an RFQ on which anyone, ostensibly, could compete, the Court criticized this procedure as a de facto sole-source award in light of the surrounding circumstances. 

Coming in April: Transparency, by FAPIIS

This post was written by Joelle E.K. Laszlo.

Though April 15 will not be tax day this year, it may still be scary for some. According to an interim rule published last week in the Federal Register, April 15 is the day that information in the Federal Awardee Performance and Integrity Information System (“FAPIIS”) will be made available to the public, pursuant to the 2010 Supplemental Appropriations Act. While the interim rule assures that contractor past performance reviews will not be among the information available on FAPIIS, and that certain documents may require redaction before they are posted for public access, contractors wanting a say in what the public ultimately gets to see on FAPIIS are advised to speak now (or at least by the end of March).

Aside from announcing the date that FAPIIS will go live, the interim rule establishes a new Federal Acquisition Regulation (“FAR”) contract clause to provide notice of the public availability of certain data in FAPIIS. The new FAR clause is to have been included in all solicitations and contracts issued on or after January 24, 2011. The interim rule also instructs contracting officers to bilaterally modify any existing contracts to include the new FAR clause. Finally, the interim rule notes that the public must use the procedures under the Freedom of Information Act (“FOIA”) to request access to information posted to FAPIIS before April 15, 2011 (though under the new FAR clause some that information must be re-posted, and will thus become publicly available).

As we previously reported, FAPIIS brings together the information from a number of Federal databases and records on contractor performance. Specific details that will be publicly available through FAPIIS include: contract terminations for default; contractor suspension, debarment, and other penalties; contract-related criminal, civil, and administrative proceedings and their outcomes; and contractor non-responsibility determinations. A provision in the 2011 Defense Authorization Act requires contracting officers to report contractor violations of bribery laws in FAPIIS, which may also be among the publicly available details. (Contrary to some reports, however, the 2011 Act does not appear to require FAPIIS reporting of any reduction in contractor profits due to reckless or negligent behavior.)

To the chagrin of transparency advocates, the interim rule advises contracting officers to ensure that no information is posted to FAPIIS “that would create a harm protected by a disclosure exemption under FOIA,” and invites comments on regulatory or other guidance required as the data on FAPIIS becomes publicly available. In order to be considered in the formulation of the final FAPIIS rule, all comments are due on or before March 25th.

Taking Another Crack At It: DoD Proposes Regulation To Tighten Controls on Contractor Business Systems

This post was written by Lorraine M. Campos and Steven D. Tibbets.

On December 3, 2010, the U.S. Department of Defense (“DoD”), issued a proposed rule that, if finalized, will increase the DoD Federal Acquisition Regulation Supplement’s (“DFARS”) requirements for contractors’ business systems. The proposed rule defines what constitutes a deficient business system and provides for withholding of payments when deficiencies are identified. Generally, the proposed rule would apply to contractors performing DoD contracts that either: (a) are worth $50 million or more; or (b) are awarded on the basis of cost and pricing data and meet certain dollar value thresholds.

We first reported on this effort approximately a year ago, when the DoD published its initial draft of the proposed rule. We noted that the rule’s definitions regarding what constituted a deficient business system seemed vague and that the DoD’s application of those definitions could be unpredictable. In its revised proposed rule, DoD removed “phrases such as ‘including but not limited to’ and ‘as applicable’” from a list of compliance criteria, but otherwise did not find that the definitions in the proposed rule presented a risk of subjective and inconsistent application of criteria in determining whether business systems are deficient.

Otherwise, the proposed rule provides for a system under which Government auditors will review contractor business systems for DoD contracts over certain dollar thresholds – different thresholds apply to different business systems. Where the Government makes a preliminary finding that deficiency exists, the proposed rule allows the contractor 30 days to respond, after which the Government will review the responses and make a final determination regarding whether a business system is deficient. The consequence for a deficiency under the proposed rule is that a contracting officer is to withhold 5% of payment under a contract until the Government receives a corrective action plan. Upon receipt of a plan, the contracting officer may, but is not required to, reduce the withholding to 2%. The contracting officer may not terminate the withholding until the contractor has implemented its corrective action plan. Thus, the proposed rule’s penalty provisions can harm a contractor’s cash flow position until any deficiencies are corrected.
 

Regulatory Round Up 1.24.11

 

Regulatory Round Up 1.7.11

Regulatory Round Up 12.02.10

The Ten Commandments of Federal Supply Schedule Contracting

This post was written by James P. Gallatin, Jr. and Lorraine M. Campos.

With more than 50 years of combined experience in Federal Supply Schedule (“FSS”) contracting, we have negotiated, administered, reviewed, investigated, litigated, and testified as experts about FSS contracts. Today’s FSS contracts can last up to 20 years. It’s difficult enough to look back over the prior 10 years of a contract life and try to determine what the parties meant and understood when it all began. But a 20-year lookback is a challenge of biblical proportions given the “virtually unintelligible” requirements of the Commercial Sales Practices (“CSP”) and Price Reductions Clause (“PRC”) provisions.

Having seen the same issues over and over, we realized that to practice in this area, one needs a set of moral imperatives, perhaps even a set of commandments, to guide them. And while we haven’t seen Moses, we have spent much more than 40 days and nights with GSA and VA Contracting Officers, Administrators, Auditors, and IGs. With that experience and a handy set of stone tools, we offer these commandments as a “moral foundation” for others venturing into the desert to contract by.

Thus, we present our Ten Commandments of FSS Contracting.
 

Disclose it all. Disclose it in narrative form. Disclose all of the company’s commercial pricing, including discounts, concessions and rebates. Disclose Black Friday, blue-light, end-of-year, buy-one-get-one, and just-because-it’s-Tuesday specials. We don’t care what the deal is called – just disclose it.

 

Explain how the company’s current commercial sales and pricing models work. This is especially true if the current models do not fit the solicitation requirements. Do not try to make the company’s pricing “fit” the CSP chart. Rather, draft your own CSP to paint an accurate portrayal of the company’s pricing practices. Remember, the CSP solicitation asks for a discount off of a price list. If your company’s pricing uses a gross margin build-up off of a factor of cost, then explain that and base your proposed pricing on that model.

 

Every exchange of data, in any form, including supporting data, should be contemporaneously and fully documented.

 

Keep copies of everything in Commandment III – Everything. Forever. Period.

 

An FSS contract requires contractors to negotiate a Customer of Comparability (“CoC”), also known as Tracking Customer or Basis of Award Customer. Generally speaking, “all commercial customers” is not a sound CoC. Keep in mind that while you are required to disclose all your commercial pricing, you are not required to provide the government with the best pricing you offer to any customer – just the best pricing offered to any comparable customer.

 

We have seen award letters that contain incomplete sentences, random extra punctuation, differences from page to page in the description, and contradictions in attached charts – in short, incomprehensible award letters. Read the award letter and all documents incorporated by reference out loud and ask someone unfamiliar with the negotiations to read the letter. If the letter doesn’t make sense to you, and especially to the other reader, clarify the ambiguities.

 

Things change – pricing, commercial sales practices, place of manufacturer, administrators, company headquarters can easily fluctuate. Nothing is worse than receiving a subpoena for not responding to three audit notices because they were sent to and sitting on the empty desk of the contract administrator who left the company seven years ago.

 

Assigning administration of the FSS contract to a salesperson as a penalty for not closing a deal (yes, we’ve seen that), to a finance person temporarily in between audits (been there), or to another distracted and temporary resource (uh huh), is certainly a tried-and-true formula for disaster.

 

The Trade Agreements Act (“TAA”) is applicable to all FSS contracts. In accordance with the TAA, only U.S.-made or designated country end-products shall be offered and sold under FSS contracts. Manufacturers change manufacturing locations regularly. So does the list of designated countries change, parts are added and removed from the FSS contract. For those reasons, someone in the company needs to understand not only these requirements, but also the sourcing of your company’s products under the FSS Contract to ensure TAA compliance.

 

There are special requirements for invoicing the government. Is there a negotiated discount if invoices are promptly paid by the government? Are open-market associated items offered as part of the FSS order? If so, you better notify the purchaser via your invoice.

 

And thus we impart our Ten Commandments of FSS contracting. Since we also want to impart our exhaustive knowledge of each of them, in the coming 10 weeks we will tackle each revelation in depth and provide guidance to live by (or at least to contract by). After all, at Reed Smith, we don’t just give you fish – we teach you how to fish.

Regulatory Round Up 11.04.10

I bet you think pretty highly of yourself. I know I do … come on, I’m a lawyer! (Please insert stereotypical lawyer joke here – put a good one in the comments if you dare). From time to time, I’m “gently” reminded that not all of my accomplishments are oh-so noteworthy. As my brother used to say after I would regale him with some of my more humdrum endeavors: “what do you want, a cookie?” It looks like I’m not the one in search of a cookie.

As the great state of Wisconsin bids farewell to Russ Feingold, the rest of us begin to say goodbye to the legislation he is most known for.

When I think of auditors, the first thing I think of (after the Grim Reaper) is efficiency. So why then is the Defense Contract Audit Agency amending its procedures in a way that “could expose the government to massive overcharges by prime contractors?”

Interested in potentially saving millions of dollars? Yep, I thought so. Now lets play: Follow the Blogosphere Link Machine. This post is my reference to the FCPA Blog’s reference to an article written by Andrew Weissmann and Alixandra Smith discussing the potential for substantive FCPA revision.

No More Wavering on Waivers: Proposed FAR Amendments Seek to Standardize Sudan Waiver Process

This post was written by Joelle E.K. Laszlo.

“Efficiency” and “transparency” are on the lips of many government regulatory types these days. Along these lines, the FAR Council has proposed a process for determining whether the President may waive in a particular circumstance the standing prohibition in FAR section 25.702 on doing business with entities that conduct certain types of business in Sudan. That section prohibits Federal contracting with entities that engage in “restricted business operations” as defined in the Sudan Accountability and Divestment Act of 2007, including activities related to power production, mineral extraction, oil, and the production of military equipment. While the section permits the President to waive the prohibition on a case-by-case basis, the FAR contains no criteria to govern the section 25.702 waiver process. The FAR Council’s recently-proposed amendments aim to change this situation, by establishing greater consistency in the process.

To bring about this consistency, the amendments would make two specific changes: first, they would establish the particular information an agency must provide when requesting a section 25.702 waiver; second, they would institute a formal process for reviewing agency waiver requests. In addition to requiring pieces of data one would expect (i.e., the agency’s and contracting entity’s names, complete addresses, and points of contact), the proposed amendments would require an agency seeking a waiver to provide market research-supported justification for contracting with the proposed entity, assurances that is it “in the national interest” to grant the waiver, and details on “humanitarian efforts engaged in by the [entity], the human rights impact of doing business with the [entity] for which the waiver is requested, and the extent of the [entity’s] business operations in Sudan,” including its relationship to other entitles that conduct prohibited business operations in the country. Under the proposed amendments, after being reviewed and cleared by the head of the requesting agency, these details would be forwarded to the Administrator of the Office of Federal Procurement Policy, which would consult with the President’s National Security Council, Office of African Affairs, and the Department of State Sudan Office and Sanctions Office, in reviewing the waiver request.

The Sudan Accountability and Divestment Act of 2007 is one of a composite of regulations and statutes addressing the activities of U.S. persons and business in Sudan and/or with Sudanese nationals. Importantly, the “restricted business operations” designated in the Act, and the actions prohibited under the Sudanese Sanctions Regulations, at 31 C.F.R. Part 538, will remain just as restricted and prohibited as they currently are, even if the proposed FAR amendments are adopted as drafted. Parties interested in commenting on the proposed FAR amendments may do so until December 6.

Forget What You Know About Acquisition Thresholds (Unless You Know Some of Them Changed Recently)

This post was written by Joelle E. K. Laszlo.

Inflation is good for some things, including increasing the acquisition-related thresholds in the Federal Acquisition Regulation (“FAR”). Inflation-pegged adjustments to the FAR thresholds were initiated by the Ronald W. Reagan National Defense Authorization Act of 2005, and are required every five years thereafter. The most recent adjustments, which took effect on October 1st, increase a number of thresholds, including the following “heavily used” figures:

  • The simplified acquisition threshold, which sets the bar below which the simplified acquisition procedures in FAR Part 13 may be used, is now $150,000.
  • The ceiling for the commercial items test program (described in FAR Subpart 13.5), under which simplified acquisition procedures may be used if a contracting officer reasonably expects offers to include only commercial items, is now $6.5 million.
  • The cost or pricing data threshold is now $700,000, meaning that a contracting officer must obtain cost or pricing data before awarding any negotiated contract or subcontract, or modifying a contract, unless one of the exceptions in FAR § 15.403-1(b) applies.
  • The prime contractor subcontracting plan floor described in FAR § 19.702 is now $650,000, meaning that the bidder in a sealed-bid acquisition selected for award of a contract (or contract modification) expected to exceed this amount must submit a subcontracting plan to the contracting officer within a specified time, or risk being found ineligible for the award.
  • The threshold in FAR § 19.702 applicable to construction contracts is now $1.5 million.

The micro-purchase threshold, which sets the bar at and below which commercial purchase cards and other less restrictive procedures described in FAR Subpart 13.3 may be used, remains unchanged at $3,000. Also unchanged is the requirement under FAR Part 5 that notice of contract actions above $25,000 must be posted on FedBizOpps.gov.

Regulatory Round Up 10.28.10

After the roaring success of the first Round-up (remember when I gave it the cool nickname) we are back for round two. Here is a quick jog around the regulated legal world.

  • Have you ever known a professor who didn't love golf? I didn't think so. Have you ever been able to get a lawyer to stop talking about the law? Don't lie to me, its rude. It was going to happen sooner or later, but I'm hoping this one sticks around -- ladies and gentlemen, for your tee time banter: The FCPA Mulligan Rule.
  • I hope you got all of your "Congress never does anything" jokes out of your system. These Lame Ducks could cost you a fortune.
  • 10 years ago the thought of having two employers would have meant that I had: 1) two small paychecks, 2) a couple of lousy jobs, and 3) at least one terrible middle manager to report to. I'd much rather be a federal contractor in this day and age, where having joint employers means there are more people to sue.
  • If you sit real still, watch closely, and are willing to have less fun than bird watching, you can witness the birth of the proxy advisor industry.

Glass Ceiling or Sticky Floor? Obama Attempts to Clean the Mess Through Implementation of the Women-Owned Small Business Federal Contract Program.

This post was written by Leslie A. Peterson.

The government contracts community has long debated what steps, if any, the federal government should take to help women-owned small businesses break through the glass ceiling (or get off the sticky floor). Taking one of the last steps in a process that began in 2000, on October 7, 2010, the Small Business Administration (“SBA”) filed a final rule creating the Women’s Contracting Rule. The final rule establishes a procurement program for women-owned small businesses (“WOSBs”) in 83 industries where they are underrepresented. Under the WOSB Federal Contract Program (“WOSDFCP”), qualified WOSBs will be eligible for set-asides with respect to federal contracts of less than $5 million for manufacturing and less than $3 million for other goods and services.

Launching the overdue womens’ procurement program was a top priority for the Obama Administration.  In March of this year, taking into consideration various market analyses, draft rules, and public comments, SBA “started from scratch” and crafted a completely new rule. The end result is a program designed to achieve the statutory goal of awarding 5 percent of federal contracts to WOSBs.

To qualify for an award under the WOSBFCP, a small business must be 51 percent owned, controlled, and primarily managed by one or more women who are U.S. citizens. Further, WOSBs must self-certify their status or be certified by a qualified third-party.

Although the final rule is not scheduled to take effect until February 4, 2011, SBA and the Federal Acquisition Regulation Council have prepared for its success by implementing the rule in the Federal Acquisition Regulation and other federal procurement rules. Those interested in learning more about the WOSBFCP should visit the SBA’s website, www.sba.gov, for more details on the final rule and guidance on compliance with its provisions.

Regulatory Round-up

This post was written by Michael A. Grant.

Hello good-looking regulatory attorneys. Welcome to the first installment of the Regulatory Round-up (catchy, I know). If you are reading this post, odds are someone in an office larger than yours is wondering why you aren't working -- but I'm glad you stopped by. The goal of this weekly installment will be to connect you to stories from around the blogosphere that impact those of us practicing in regulated industries. While the primary focus of the Round-up (look, I already gave it a trendy nickname) will be the 7 topics to the left, I'll be sure to mix in other stories that catch the eye. Here's hoping you see something new, have a laugh, or at least get some legitimate "professional reading" time.

 

BREAKING NEWS! THE FINAL RULE FOR TRICARE WAS PUBLISHED OCTOBER 15TH. BE SURE TO REGISTER FOR THIS WEBINAR WHERE CHANGES WILL BE ADDRESSED.

On October 15, 2010, the Department of Defense ("DoD") issued a final rule implementing Section 703 of the National Defense Authorization Act ("NDAA"). In this rule DoD takes the position that the NDAA requires pharmaceutical manufacturers to provide discounted drug prices based on the Veterans Health Care Act’s ("VHCA’s") Federal Ceiling Price ("FCP"), for covered drugs sold by retail pharmacies to TRICARE beneficiaries on or after Jan. 28, 2008 (the date of enactment of the NDAA).
 
If you are concerned about how this may affect the TRICARE Healthcare Program and Federal Supply Schedules, we invite you to join the government programs experts at Compliance Implementation Services (CIS) for the following complimentary webinar.  The speakers, including Reed Smith partner Lorraine M. Campos, will provide information on the following topics:
  • TRICARE Final Rule for the inclusion of the TRICARE Retail Pharmacy Program in the Federal Procurement of Pharmaceuticals
  • Integrating TRRx utilization in the FCP calculation
     

DATE: Thursday, October 21st, 2010
TIME: 2:00 - 3:15 PM EDT
REGISTRATION: https://www1.gotomeeting.com/register/292046224

Finally, Some Good News For FCA Defendants

This post was written by Andrew C. Bernasconi and Nathan R. Fennessy.

After Congress and the courts have spent the past few years making it easier for private citizens acting in the name of the government (also known as "qui tam relators") and the government to maintain False Claims Act ("FCA") cases, and eliminating many of the defenses for FCA defendants to dismiss frivolous claims, a recent appellate decision provides a level of comfort to parties defending against allegations of FCA violations that are initiated by qui tam relators. The decision from a three-judge panel of the United States Court of Appeals for the Sixth Circuit, in the matter of United States ex rel. Summers v. LHC Group, No. 09-5883 (October 4, 2010), provides additional support for defendants seeking dismissal of FCA allegations where qui tam relators fail to comply with the FCA's statutory requirements (which include filing the initial qui tam complaint in camera and under seal, see 31 U.S.C. § 3730(b)(2)).

The Sixth Circuit panel held that violations of the FCA’s unique procedural requirements can preclude relators from maintaining actions on behalf of the government. Specifically, the Sixth Circuit panel affirmed dismissal of a relator’s FCA allegations because the relator failed to file the complaint in camera and under seal, as required by the FCA. While several courts across the country (including the U.S. Court of Appeals for the Ninth Circuit) previously have limited the opportunities for defendants to obtain dismissal in such circumstances, the Sixth Circuit expressly declined to follow the clumsy balancing tests employed by these courts. Instead, the Sixth Circuit concluded that the statutory procedures governing qui tam complaints are clear, and that Congress did not intend to allow exceptions to the procedures except as expressly set forth in the statute.

This decision provides strong support for FCA defendants to seek dismissal of qui tam complaints where the relator failed to follow the statutory requirements of filing the initial complaint under seal, or otherwise disclosed the complaint’s allegations while the matter remained under seal and subject to the government's investigation. Although the government can still pursue FCA allegations against a defendant in its own right, the Summers decision serves as a strong basis for defendants to support dismissal where the relator has ignored the statute's plain requirements, and where the government declines to pursue the case.  

Got Grants? Got Subgrantees? Soon You May Have to Report Them.

This post was written by Lorraine M. Campos and Joelle E.K. Laszlo.

Federal grant awardees are about to join contractors in the transparent government revolution. Beginning in November, awardees of prime grants valued at $25,000 or more may be required to report certain executive compensation information about themselves and their subgrantees. The new reporting requirements, established under the Federal Funding Accountability and Transparency Act (“FFATA”), were greeted with open hostility at a recent Office of Management and Budget (“OMB”) Town Hall meeting. Not enough hostility to prevent them from taking effect, however, so prospective grant recipients should take note.

The new grantee reporting requirements are similar to those placed on contractors by the FFATA, about which we reported in August. Unlike the contractor reporting requirements, however, the grantee requirements will not be “phased in” over time. Rather, any new grant of $25,000 or more awarded as of October 1, 2010 will require reporting two types of information. First, the name and total compensation of each of the prime grantee’s five top executives must be reported if the prime grantee (A) receives more than 80 percent of its annual gross revenues from the federal government, which revenues exceed $25 million annually, and (B) does not already report its executive compensation through the Securities and Exchange Commission. Second, without exception, a prime grantee must report specific data about all first-tier subgrants it awards that are valued at $25,000 or more. That data includes the name of the subgrantee and the amount and purpose of the award, the subgrantee’s location and the place of grant performance (including the congressional district), and the award’s Catalog of Federal Domestic Assistance program number and program source. Additionally, if a first-tier subgrantee meets the conditions for reporting executive compensation of grantees (items (A) and (B) above), the grantee must report the name and total compensation of each of the subgrantee’s five top executives.
Possibly in an effort to take some of the sting out of the reporting requirement, OMB officials presenting at the Town Hall stressed that grant reporting under the FFATA only needs to happen once – there is no continuing reporting requirement. A prime grantee will have until the end of the month following the month of obligation of a grant or first-tier subgrant subject to the reporting requirements, to report related executive compensation and/or subgrant information. Thus, for example, reporting related to a grant awarded October 1, 2010 and subject to the FFATA requirements must be completed by November 30, 2010.

As with contractor reporting under the FFATA, grantee reporting will take place though the FFATA Subaward Reporting System (“FSRS”), at www.fsrs.gov. While FSRS is currently open for contractor reporting, the site’s grant reporting functionality will not be available until October 29. FSRS has been programmed to receive data through the Central Contractor Registration database, www.ccr.gov, in which all prime contractors and grantees (but not subcontractors or subawardees) are required to register.

On October 7, OMB held the first of two planned webinars for grantees on how to use FSRS. Those wishing to receive updates on training and other developments related to FFATA reporting are encouraged to register at USASpending.gov. Those wishing the reporting requirements will go away are advised to keep wishing (and learn how to use FSRS in the meantime).  

Not a HUBZone Business? No Longer a Problem: Equal Footing for Small Business Set-Asides

This post was written by Leslie A. Peterson.

The Small Business Jobs Act of 2010 (“the Act”), signed by President Obama on September 27, 2010, quashed the argument that Historically Underutilized Business Zone (“HUBZone”) small businesses are entitled to absolute contracting priority. Section 1347 of the Act establishes parity among the Small Business Administration’s (“SBA”) various small business contracting programs. Passage of the Act eliminates the requirement that contracting officers must first check for eligible HUBZone companies to perform work before looking to other types of small businesses.

Contracting officer discretion to treat the SBA’s programs equally when awarding set-asides had been heavily debated after recent decisions from the Government Accountability Office and the U.S. Court of Federal Claims established a preference for HUBZone small businesses. In Mission Critical Solutions v. U.S., the Court of Federal Claims held that the Small Business Act requires contract opportunities to be set aside for HUBZone firms whenever two HUBZone firms are available to perform the contract. The court based its decision on the use of the word “shall” to describe contracting officer requirements with regard to awarding HUBZone set-asides. Under the court’s interpretation of the language, HUBZone small businesses were to get first preference over other categories of small business programs, such as minority-owned businesses and veteran-owned businesses.

The new Act eliminates preferential treatment for the HUBZone program by changing the language of the Small Business Act from "shall" to "may," to mirror the language used to describe contracting officer requirements with regard to other SBA programs. As a result, contracting officers are no longer required to give preference to HUBZone firms and are able choose which small business contracting program to utilize when making set-asides.

The attorneys at Reed Smith will continue to monitor any developments associated with the Small Business Jobs Act of 2010.
 

Vote for this and we will support you! How the new definition of coordinated communications affects political speech in the wake of Citizens United.

This post was written by Christopher L. Rissetto, Lorraine M. Campos and Robert Helland.

The Public Policy and Infrastructure Practice continues to monitor the changes in the campaign finance world since the Supreme Court's landmark decision in Citizens United v. Federal Election Commission. Citizens United reverses decades of statutory and case law that prohibit corporations from using their general treasuries to fund independent political advertising supporting or opposing candidates for local, state or federal office, or what it is termed "express advocacy". 558 U.S. 50 (2010). It also removes restrictions on independent advertising released within close proximity to either a primary or general election and which refer to a clearly identified candidate for federal office (known as “electioneering”). This decision has been the equivalent of an earthquake in the campaign finance world, however, it does not provide corporations and labor unions with unlimited leeway when it comes to funding political advertisements. The attached alert from the Public Policy and Infrastructure Practice discusses one limitation that remains in place, post-Citizens United, which affects "coordinated communications" i.e. those coordinated with a federal candidate, campaign, or political party. Contributions that are coordinated with a federal candidate, campaign or political party are considered a direct, in-kind contribution and remain illegal in the case of corporations or labor unions, even with the Court's decision in Citizens United. 2 U.S.C. § 441b (a).

The Federal Election Commission has issued revised regulations as to what constitutes a "coordinated communication". These rules will take effect on December 1, 2010. The alert discusses these rules and what steps can be taken to ensure that a communication is truly independent.
 

To view the entire alert click here.

Support Your Contracting Officer!

This post is written by James P. Gallatin, Jr. and Lorraine M. Campos

Being a Contracting Officer may be the most thankless job in government. Let’s just say it, it IS the most thankless job, period.

Unfortunately, the government acquisition personnel are often overworked and understaffed. Earlier this year, Peter Orzag, the former OMB Director, stated that while there is more than $500 billion in federal contracts, and while those contracts have doubled in size over the past eight to nine years, the acquisition workforce has generally remained constant. So there is an ever-increasing workload; responsibility for billions of dollars in purchases from sophisticated and highly aggressive commercial vendors across a staggering variety of industries; compensation far below private sector peers; constant scrutiny by their agency personnel, auditors, and Inspectors General; regular second-guessing or simple overruling by senior management; mocking by congressional representatives and senators as incompetent – what’s not to like?

But wait . . . there’s more. The thanklessness of being a Contracting Officer is further highlighted by the erosion of independence definitively described in "The Incredible Shrinking Contracting Officer" by John S. Pachter in the Public Contract Law Journal, Vo. 39, No. 4 Summer 2010. Every government acquisition professional should read this piece – and be prepared to be depressed. (It’s not pretty reading for the contractor community either.) And we haven’t even talked about the emerging and disturbing trend toward OIG investigations of Contracting Officers when an auditor cannot locate the acquisition file, even though the contract file may be a decade old and may have been transferred to other procurement personnel.

We are not addressing the “nonprofessionals” we have encountered who have never read the $400 million contract they administered for 10 years; nor are we talking to those who have made no attempt to understand what they are signing, leaving the rest of us to clean up the resulting messes years in the future. They are a lost cause. We are talking about the “professionals” – people intent on doing a professional job, with all the authority, few of the proper tools, and a whole lot of negative reinforcement. No wonder so many talented professionals forthrightly head to private industry at the first opportunity.

But the simple fact is that those of us in the private sector who work with Contracting Officers share the challenges they face. It does us no good to abuse the pressure or lack of resources to strike a tough deal or ram through a poorly crafted contract. Both sides will address the consequences at some point in the future, and the government has unlimited money, time, and lawyers. This challenge has only one professional and productive response, a response that furthers private industry and the taxpayers’ interests: Support Contracting Offices and their fellow acquisition professionals in their work.

It isn’t rocket science, people. It’s the basics. Make sure your Contracting Officer understands what you are selling and how you sell it. Don’t hide the ball. When in doubt disclose – disclose in writing. Document everything and keep the documents for at least the term of the audit-rights under the contract. Make sure the contract is clearly written, reflects the business deal, makes sense in your industry, and includes all the relevant documents. Read what you sign before you sign it. Read it again. Explain it to someone else. Then sign it. And save a copy of the awarded contract and all pertinent correspondence.

Where and when ethically permitted, get to know your key acquisition professionals. Understand their workloads and priorities. Understand the outside pressures they have to deal with, whether meddling management, hyper-aggressive auditors, or the wonderful benefits of congressional oversight. Make sure they understand not only your workload and priorities, but also your industry and issues. Go to their industry days and make sure they have other ethically appropriate but effective means to how your business sector works.

Contracting Officers’ roles will likely remain a frustrating mix of critical importance, limited support, and lots of intervention by third parties. Private industry has no choice but to do a better job on its end of supporting Contracting Officers in creating reasonable, defensible contracts. So yes, we end with this plea – Support your Contracting Officer.

Government Contracts Federal Forecaster, Vol. VI, No. 3

Articles In This Issue:

  • Protest, Claim, or Both? Taking Advantage of Dual Jurisdiction in the U.S. Court of Federal Claims
  • Cloud Computing – The Risks and Rewards for Federal Government Contractors
  • New Government Contractor Reporting Requirements on Subcontracts and Compensation
  • U.S.–Canada Trade Agreement Suggests Increased Cross-Border Opportunities with Regard to Public Projects

Click here to download the full issue.

 

More Politicizing of the Debarment Rules as House Passes Legislation to Debar Contractors Who Violate FCPA

This post was written by Lorraine M. Camposand Keith D. Coleman.

On September 15, 2010, the House unanimously passed H.R. 5366, referred to as the “Overseas Contractor Reform Act (the “Act”)”. The Act would amend federal law to require that any individual, partnership, or corporation found to be in violation of the Foreign Corrupt Practices Act of 1977 (“FCPA”) be proposed for debarment from any federal contract or grant within 30 days after final judgment of such violation. The FCPA is a law that prohibits bribery of foreign officials by U.S. or related companies. The Act declares that it is the policy of the U.S. Government that no contract or grant should be awarded to individuals or companies that violate the FCPA. Promulgation of the Act is said to be in reaction to media reports last year that a private security contractor allegedly authorized illegal payments to Iraqi officials to prevent Iraq from revoking the company’s license to operate in the country.

In analyzing the Act, one must first consider whether the provisions of the Act are necessary. The current regulations provide that conviction of a criminal offense, like the FCPA, is cause for debarment. See FAR 9.406-2(a)(1). Moreover, a separate cause for debarment exists for firms and individuals who are convicted of committing bribery. See FAR 9.406-2(a)(3). Therefore, the Act does not grant the Government with any additional authority. However, because FCPA actions are oftentimes resolved by execution of a non-prosecution agreement (“NPA”) or deferred prosecution agreement (“DPA”), contractors must be aware of the consequences of the Act when negotiating such agreements. Specifically, contractors must ensure that the negotiated NPA or DPA does not expressly required the company to admit to violating the FCPA or committing bribery.

The Act is currently being considered by the Senate. Reed Smith will continue to keep you posted on the progress of this legislation.

Public Availability Requirement Has Contractors Wondering: 'Will FAPIIS Trap Us?'

This post was written by Joelle Laszlo.

In a twist lauded by proponents of government transparency, the 2010 Supplemental Appropriations Act (“Act”) signed by President Obama July 29, 2010, requires that nearly all of the information contained in the Federal Awardee Performance and Integrity Information System (“FAPIIS”) be made available on the Internet. Specifically, the Act amends the Clean Contracting Act of 2008 to provide that the General Services Administration (“GSA”) will post to the Web all FAPIIS data except contractor past performance reviews. The Act provides no deadline for GSA action in this regard, but the Office of Management and Budget, which oversees GSA’s administration of FAPIIS, is reportedly hard at work on the logistics of posting FAPIIS information on the Internet.

In May, Reed Smith provided details on the FAPIIS reporting requirements promulgated in the spring by the Federal Acquisition Regulation Council. Essentially, FAPIIS is to contain a comprehensive set of information regarding contractor performance, including contract terminations for default; contractor suspension, debarment, and other penalties; and contract-related criminal, civil, and administrative proceedings and their outcomes. Though contractors have the opportunity to comment on any of the information about them in FAPIIS, the public disclosure of nearly all FAPIIS data may leave some ill at ease. It is yet another reason contractors would be well advised to ensure their houses (and reports) are in order, before competitors, watchdogs, and the media come knocking.

The 2011 National Defense Authorization Act - the "Unauthorized" Story on More Proposed DoD Contracting Reforms

This post was written by Stephanie Giese.

The passage of the Weapon Systems Acquisition Reform Act of 2009 (“WSARA”) signed into Public Law 111-23 on May 22, 2009, and most notably the Organizational Conflict of Interest (“OCI”) provisions of the WSARA, arguably marks the start of the Congress' tear to reform Department of Defense (“DoD”) contracting.  The reforms required by the WSARA OCI provisions alone have kicked off a restructuring of the defense industry, beginning with major weapon system developers like Northrop Grumman and Lockheed Martin selling their Systems Engineering and Technical Assistance business units – even before DoD promulgates the new OCI regulations implementing the WSARA, which are expected in the fourth quarter of 2010.

Congress’ reform theme is now being carried over to other aspects of DoD contracting in the 2011 National Defense Authorization Act (“2011 NDAA”).  Given the potential dramatic effect of past reforms mandated by the WSARA, defense contractors should understand the impacts of both the House (H.R. 5136) and Senate (S. 3454) versions of the 2011 NDAA, as well as plan to participate in the DoD rulemaking process that will ultimately implement many of the 2011 NDAA reforms.
Here are some of Congress’ latest proposed reforms for defense contractors to watch in the House and Senate versions of the 2011 NDAA:

  • Contractor’s beware—the government may obtain “unlimited rights” to certain contractor technical data developed a private expense.  Among other changes related to technical data, the Senate proposes granting the government unlimited rights in technical data developed “without significant contribution by a contractor or subcontractor”.  “Without significant contribution” is not defined in the bill, but this proposed change would certainly expand the government’s unlimited rights to certain data funded, in part, at the contractor’s expense.
  • Reform regarding government review of contractor business systems may increase compliance costs and delay payments to contractors.  For contractors subject to the Cost Accounting Standards, the Senate proposes that a “significant defect” in a contractor’s business system, which is one that undermines the reliability of the data produced by that system, is grounds for the DoD to withhold up to 10% of payments due to a contractor.  Business systems that may be reviewed by DoD include accounting systems, estimating systems, purchasing systems, earned value management systems, material management and accounting systems, and property management systems.
  • DoD evaluation of contractor proposals may be limited to “best cost” to the government rather than “best value” to the government in the future.  The House proposes modifying current law to require DoD to weight cost or price at least equal to or greater than all other evaluation criteria in a government competitive source selection.  This would severely limit the DoD’s ability to conduct a best value evaluation of contractor proposals, including for procurements where contractor innovation is required such as in research and development contracts, and would essentially require the DoD to award to the lowest priced offeror for all its procurements.
  • Due process lacking for defense contractors and subcontractors that supply cybersecurity products and services, information technology, and national security systems to the DoD.  Such DoD contractors should be aware that, in the name of reducing supply chain risk, the Senate intends to grant the head of a procuring agency, on the basis of a joint recommendation by the Director of the Defense Intelligence Agency and the Assistant Secretary of Defense for Networks and Information Integration, the authority to exclude a particular source from competing for a DoD contract on grounds that the supplier presents an unacceptable supply chain risk.  The bill does not require the DoD to allow the supplier to mitigate the risk before excluding the supplier.  For additional discussion of current cybersecurity issues facing DoD, please see the Reed Smith article, “Cloud Computing—The Key Risks and Rewards for Federal Government Contractors.”
  • The U.S. space industrial base may get a boost from additional federal government investment.  The Senate proposes requiring the Secretary of Defense, in consultation with the National Aeronautics and Space Administration (“NASA”), to take steps to preserve the industrial base for liquid rocket propulsion systems and solid rocket motors. I n addition, the House proposes directing the Secretary of Defense and the Director of National Intelligence to jointly establish a national security space architecture to guide and coordinate each agency’s long-term investment in the space industrial base.
  • Reminder that defense contractors, with the exception of weapon system developers, may soon be required to go “green” to compete for DoD contracts.  As currently drafted, the Senate bill requires DoD to report its progress to Congress in complying with Executive Order 13514 of October 5, 2009 which requires the head of a procuring agency to “advance sustainable acquisition to ensure that 95 percent of new contract actions including task and delivery orders, for products and services with the exception of acquisition of weapon systems, are energy-efficient (Energy Star or Federal Energy Management Program (FEMP) designated), water-efficient, biobased, environmentally preferable (e.g., Electronic Product Environmental Assessment Tool (EPEAT) certified), non-ozone depleting, contain recycled content, or are non-toxic or less toxic alternatives, where such products and services meet agency performance requirements.”

Industry’s Acquisition Reform Working Group provided its recommendations and concerns regarding the 2011 NDAA to the House and Senate Armed Services Committees on July 28, 2010.

UK Health Care Overhaul

This alert was written by Edward Miller, Eugene Tillman, Cynthia O’Donoghue, and Leon Stephenson.

The arrival of the new UK Coalition Government has brought with it proposals to reform the health care system in the UK over the next four years, detailed in its much publicized White Paper “Equity and excellence: Liberating the NHS”.

The stated objectives are ambitious and if instituted will have a far reaching effect on both the way the British public access the health system and the role of the private sector in UK health care. Although the White Paper does not go so far as to indicate that privatization of the NHS as such is being considered, the Government’s tone is bold in as much as it advocates public choice and recognizes that resultant competition must include third party private providers.

The key themes of the White Paper are based on choice for the patient, flexibility for the commissioning consortia, encouraging competition and social enterprise. This, within an ambitious four year timetable, indicates that there will be room for unprecedented private, for profit and non-profit and third sector involvement in the reform of the UK health care system.

To view the entire alert, please click here.

Is "Cradle-to-Grave" Government Contracting for Major Systems an Endangered Species?

This post was written by Lorraine Campos and Steve Tibbets.

“Major systems” are the lifeblood of large defense contractors.  The long-term development and implementation of big and expensive programs – think fighter jets – are the foundation of many contractors’ business plans.  Generally, contractors that design systems, buildings, or vehicles for the Government are not supposed to compete for follow-on contracts to build those items because they could skew specifications to favor themselves.  Current regulations permit OCI “mitigation” plans where the building or implementing parts of the company are isolated from the design parts.

On July 20, 2010, the American Bar Association (“ABA”) Section of Public Contract Law (“Section”) submitted its comments on a major proposed rule on Organizational Conflicts of Interest (“OCIs”) published by the U.S. Department of Defense (“DOD”) in April 2010.  The proposed rule would significantly curtail the ability of large defense contractors to handle procurements of major defense systems in a “cradle to grave” manner.  The proposed rule would, if finalized, place stricter limits on contractors’ ability to work on both the design or development phases of a large procurements and the implementation or manufacturing phases of the same procurement.

The proposed rule would reduce the extent to which contractors can rely on mitigation plans.  The Section argues that this will reduce competition because contractors will avoid certain portions of procurements so they are not “conflicted out of” other parts of those procurements.  As a practical matter, contractors for the DOD will have to plan their business strategies with greater care and make difficult decisions regarding which contracts to chase, considering when to trade off the prospect of current work for future contracts on which they may be dependent and cannot risk a conflict.

Ultimately, the reason OCIs strike policy-makers as worthy of further regulation is the conventional wisdom in the defense contracting space that any successful contractor will be bought by the “big boys” with deleterious effects on competition.  The Section seems to indicate that certain larger defense contractors are averse to “tough choices” regarding which parts of major procurements to pursue and prefer the existing rules, which permit them to pursue entire procurements as long as OCI mitigation is in place.  Whether this aversion will lead to any large-scale balkanization of the design and implementation parts of major contractors remains to be seen.  What is clear from the comments is that the community has “sat up and taken notice” that the proposed rule is a departure from business as usual on OCIs.
 

Central Contractor Registration? Nothing Central About It - New Government Contractor Reporting Requirements on Subcontracts and Compensation

This post was written by Lorraine Campos and Steve Tibbets.

Federal contractors can add yet another item to their lists of databases in which they register and disclose information. As of July 8, 2010, contracting officers are to modify certain federal contracts to include a Federal Acquisition Regulation (“FAR”) clause that requires certain contractors to register in two locations and potentially provide two new types of information: (1) information regarding subcontracts must be disclosed via the Federal Funding Accountability and Transparency Act Subaward Reporting System at www.fsrs.gov; and (2) information regarding executive compensation must be reported via the Central Contractor Registration database at www.ccr.gov. 75 F.R. 39414 (July 8, 2010).

The subcontract reporting requirement applies to all prime contracts worth $25,000 or more. The prime contractor must report a number of items for any first-tier subcontract worth $25,000 or more, including the name and address of the subcontractor, the amount of the subcontract, and the nature of the items or services being acquired. The requirement is being “phased in” so that, until September 30, 2010, the reporting requirement only applies to prime contracts worth at least $20 million and, until March 1, 2011, the reporting requirement only applies to prime contracts worth at least $550,000. After March 1, 2011, the subcontract reporting requirement applies to all contracts over $25,000 in value.

The compensation reporting requirement requires contractors to identify the five most highly-compensated executives and report the amount of their compensation. This requirement only applies to contractors that have both annual revenue of at least $25 million from federal contracts, grants, and/or loans and derive at least 80% of their annual revenue from federal contracts, grants, and/or loans.

These reporting requirements have had the force of law since their promulgation on July 8, 2010. The regulatory body that issued the requirements, the FAR Council, is accepting comments on this interim rule until September 7, 2010. Therefore, companies that wish to persuade the FAR Council to abandon or modify the rule have a little over a month to do so.

Cloud Computing - The Key Risks and Rewards for Federal Government Contractors

This post was written by Lorraine Campos, Stephanie Giese, and Joelle Laszlo.

Whether or not you believe cloud computing represents a revolutionary change in the provision of software and data processing services, the cloud and its lexicon have become firm fixtures in corporate enterprise management and, more recently, in doing business with the federal government. As discussed further in the following link, contractors should recognize the legal risks and rewards of both assisting federal agencies in implementing clouds, and in employing cloud service providers to perform federal government contracts.

Government Contracts Federal Forecaster, Vol. VI, No. 2

Articles In This Issue:

  • Suspension and Debarment Is Not a Tool To Punish…Except When It Is
  • Don’t Forget About D&O Insurance When That Government Subpoena Arrives
  • New Service Contracting Regulations: Will Make Employees Smile and Impose Additional Requirements on Employers
  • Advancement and Indemnification of Directors and Officers of Delaware Corporations: What Government Contractors Need to Know
  • Deceptively Simple: The New FAPIIS Responsibility Reporting Rule
  • Health Reform Legislation Includes Significant Amendments to the False Claims Act
  • Gearing Up for the ‘High Road’
  • Supreme Court’s Interpretation of FCA’s ‘Public Disclosure’ Bar Is Blunted by Health Care Reform Provisions

Click here to download the full issue.

Comments Sought on China's New Proposed Regulations to Promote Indigenous Innovation

This post was written by Hugh Scogin, Mao Rong, and Zack Dong.

In November 2009, the Ministry of Science and Technology, the National Development and Reform Commission and the Ministry of Finance jointly issued Notice No. 618, requiring enterprises registered in China to apply for accreditation of indigenous innovation products. The program would have provided the Ministry of Science and Technology with authorization to prioritize accredited products for government procurement. Of particular interest to foreign enterprises were requirements that an applicant's use, disposal and improvements to a relevant product's intellectual property (IP) must not be subject to foreign restrictions, while any trademark used would first require registration in China and would also need to be free of restrictions from any related foreign brands. Under this program, foreign-invested companies whose products are not locally developed would not be able to participate equally with their Chinese competitors in government procurement unless they agreed to take the risk of removing licensing restrictions from their IP. In response to the notice, foreign associations and business leaders expressed concern that the system promoted domestic favoritism and would potentially result in discriminatory requirements for companies looking to take part in the government procurement market, while also restricting the capacity for innovation and development in China.

To view the entire alert, please click here.

Government Contracts Federal Forecaseter, Vol. VI, No. 1

Articles In This Issue:

  • A Whistleblower in Your Organization
  • New Rules Regarding Manufactured Product ‘Components’ in Defense Procurement
  • Corporate Political Spending After Citizens United v. Federal Election Commission…or, as P.T. Barnum put it, “You Ain’t Seen Nothing Yet!”
  • New DoD Rules on Business Controls May Foreshadow More Thorough and Severe Audits
  • New Law Restricts Employment Arbitration for Defense Contractors and Subcontractors

Click here to download the full newsletter.