Department of Defense issues interim rule proposing to restrict acquisition of personal protective equipment from non-allied foreign nations

By Elizabeth Leavy, William Kirkwood and Ozra Ajizadeh on 14 February 2023 Posted in Government Contracts & Grants

The U.S. Department of Defense (DoD) has recently issued an interim rule that proposes to amend the Defense Federal Acquisition Regulation Supplement (DFARS) to limit, with some exceptions, the acquisition of personal protective equipment (PPE) and certain other products from non-allied foreign nations, including the Democratic People’s Republic of North Korea, the People’s Republic of China, the Russian Federation, and the Islamic Republic of Iran. Some of the covered items include surgical masks, face shields and protective eyewear, vinyl gloves, isolation gowns, and sanitizing and disinfecting wipes, test swabs, bandages, and gauze. This rule is intended to implement section 802 of the National Defense Authorization Act (NDAA) for fiscal year 2022 (Pub. L. 117–81) (10 U.S.C. 2533e) and section 881 of the NDAA for fiscal year 2023 (Pub. L. 117–263). Though broad in its objective, the rule only applies to a relatively narrow band of contracts that fall within $150,000 to $250,000 in value. The government has not yet proposed a similar limitation on contracts in excess of the simplified acquisition threshold (SAT), which is currently set at $250,000.

If enacted in its proposed form, the new rule will establish a new contract clause, DFARS 252.225-7061, Restriction on the Acquisition of Personal Protective Equipment and Certain Other Items from Non-Allied Foreign Nations. This clause will be applied to solicitations and contracts, including for the acquisition of commercial products, commercial services, and commercially available off-the-shelf items, with an estimated value in excess of $150,000 and below the SAT. The restriction would not apply to acquisitions for covered items to be used outside of the United States. In addition, the rule would leave open the option for the head of the contracting activity to waive the restriction if they determine that the agency cannot otherwise procure covered items of satisfactory quality and quantity at a reasonable price. As the rule is still in interim format, many questions remain regarding its implementation, for example, whether the rule would apply retroactively and/or allow contracting officers to amend existing contracts to add this supply chain restriction.

Takeaway:

The goal of this rule is to decrease the DoD’s dependence on PPE and other items identified in section 802 that originate from non-allied countries, while also promoting national security and public health, and aiming to decrease the number of counterfeit PPE within the U.S. supply chain. However, as a practical matter, the rule change may create hardships by increasing supply chain costs for government contractors that have contracts that exceed the $150,000 threshold and that presently acquire covered items from covered countries.

China, for example, is a major U.S. and global supplier of PPE. Accordingly, if the new DFARS clause is implemented as written, contracting officers will be burdened with the task of searching for, identifying, and securing PPE suppliers in the United States or other allied nations. Additional challenges and time-consuming efforts on the part of the contracting officers will also be required to ensure that any potential supplier can provide the PPE that meet the quality and quantity standards required by each respective contract. By eliminating China from the pool of potential suppliers, contracting officers will have limited options and must prepare for increased costs as demand rises.

The DoD has invited comments on the interim rule. Contractors that are currently supplying PPE from China to the United States via a government contract should consider providing a comment to the proposed rule. All comments on the interim rule must be submitted in writing on or before April 3, 2023, to be considered in the formation of the final rule. If you would like assistance in submitting a comment, please reach out to one of the Reed Smith attorneys named in this article.

Singapore High Court issues revised sentencing framework for private sector corruption

By Calvin Chan, Steven Li, Min Jian Chan and Ruiteng Liu on 3 November 2022 Posted in Government Investigations & White Collar Criminal Defense

The Singapore High Court recently issued a revised sentencing framework for private sector corruption offences involving agents in Singapore.

Singapore’s anti-corruption regime

The Prevention of Corruption Act 1960 (PCA) is the primary anti-corruption legislation in Singapore. The main offences can be found stated in sections 5 and 6 of the PCA, which prohibit:

individuals corruptly soliciting or receiving bribes (section 5(a));
individuals corruptly giving or offering bribes (section 5(b));
agents corruptly accepting or obtaining bribes in relation to their principals’ business (section 6(a)); and
individuals corruptly giving or offering bribes to agents in relation to their principals’ business (section 6(b)).

Sentencing framework for private sector corruption involving agents

In Goh Ngak Eng v. Public Prosecutor [2022] SGHC 254, Goh pleaded guilty under section 6(a) of the PCA to being part of a conspiracy to obtain bribes. Goh and another accused had referred vendors to a co-conspirator for jobs at a shipyard. The co-conspirator, who was an employee and agent of the shipyard, awarded jobs to the vendors referred by Goh. These vendors provided invoices to the shipyard that included commissions for securing jobs at the shipyard. Goh shared the commissions with his co-conspirators. Goh also pleaded guilty to giving bribes under section 6(b) of the PCA.

The High Court in Goh set out a two-stage, five-step sentencing framework for private sector corruption cases involving agents under sections 6(a) and 6(b) of the PCA. This sentencing framework was modelled after the two-stage, five-step framework in Logachev Vladislav v. Public Prosecutor [2018] 4 SLR 609, which was a case involving offences under the Casino Control Act 2006.

In the first stage, the court determines an indicative sentence as a starting point which reflects the intrinsic severity of the offending act. This involves the following three steps:

Step one: the court identifies, by reference to factors specific to the particular offence, (i) the level of harm caused by the offence; and (ii) the level of the offender’s culpability. Factors to consider in assessing the level of harm include actual loss caused to the principal, the benefit obtained by the bribe giver, and whether a strategic industry was involved. As regards culpability, factors include the sums given or received as bribes, the degree of planning, and the level of sophistication.

Step two: the court identifies the indicative sentencing range with reference to the level of harm caused by the offence and the level of the offender’s culpability. For offences under sections 6(a) and (b) of the PCA, sentences range from a fine at the lowest end (for offences where the levels of harm and culpability are low) to a maximum sentence of five years’ imprisonment (for offences where the levels of harm and culpability are significant).

Step three: the court identifies the appropriate starting point within the sentencing range identified in step two, by looking at the specific details of the case with reference to the same offence-specific factors considered in step one.

In the second stage, the court may revise the indicative sentence identified in the first stage to arrive at a sentence reflecting the individual circumstances of the offender. This involves the following two steps:

Step four: the court may revise the identified sentencing starting point to take into account aggravating and mitigating factors specific to the offender.

Step five: if the offender has been convicted of multiple charges, the court will consider whether to make further adjustments to the sentences for each charge. This to ensure that the overall sentence is “sufficient and proportionate to the offender’s overall criminality”.

Significance of this decision

The decision in Goh overrules the sentencing framework set out in the previous High Court decision of Takaaki Masui v. Public Prosecutor [2021] 4 SLR 16. The court in Masui used graphs and 3D models in a modified version of the Logachev sentencing framework. This sought to establish a single starting indicative sentencing point depending on specific levels of harm and culpability for each offence. However, the High Court in Goh found that the Masui approach was “excessively complex and technical”. Rather, arriving at an indicative starting sentence was not a mathematical exercise, and the court instead focused on the two-stage, five-step sentencing framework without considering the tools used in Matsui.

This decision brings the sentencing approach to private sector corruption cases involving agents in line with public sector corruption cases (with the Logachev framework having already been adopted in Public Prosecutor v. Wong Chee Meng [2020] 5 SLR 807).

Further, this decision underscores the Singapore judiciary’s commitment to deterring corruption in the private sector. The High Court significantly increased Goh’s sentence from 17 months and three weeks’ imprisonment to 37 months and three weeks’ imprisonment, even though the prosecution did not appeal the original sentence.

Reed Smith has extensive experience advising and conducting investigations in relation to corruption and fraud-related matters throughout the Asia-Pacific region. Reed Smith’s Singapore office provides Singapore law advice and handles Singapore court litigation through our formal alliance law firm, Resource Law LLC.

“We won’t accept business as usual”: DOJ cracks down on corporate misconduct

By Daniel Ahn, Mark Bini, Calvin Chan, Rosanne Kay, Michael J. Lowell, Rizzy Qureshi, Katherine Seikaly, Thomas Suddath, Justin Angotti, Min Jian Chan, Kaela Dahan, Ruiteng Liu, Steven Li and Anthony Todd on 25 October 2022 Posted in Government Investigations & White Collar Criminal Defense

What are the key changes to the DOJ’s corporate criminal enforcement program? We look at the updated guidance on individual and corporate accountability, independent compliance monitors, and corporate compensation in our latest alert.

Preserving business communications on employees’ personal devices

By Calvin Chan, Michael J. Lowell, Rizzy Qureshi, Mark Bini, Daniel Ahn, Rosanne Kay, Steven Li, Ruiteng Liu, Min Jian Chan and Stefanie Dai on 24 October 2022 Posted in Government Investigations & White Collar Criminal Defense

Why is it important to monitor and preserve business communications conducted through instant messaging platforms on employees’ personal devices? In our recent alert, we look at what is behind the SEC and CFTC’s nearly $2 billion fines on companies failing to monitor and retain business communications on messaging platforms, consider enforcement activity in the UK and APAC, and suggest some practical compliance tips.

An interview with New York Attorney General, Letitia James

By Divonne Smoyer, Stuart Cobb and Hubert Zanczak on 29 September 2022 Posted in State Attorneys General

In the October edition of IAPP’s Privacy Advisor, Divonne Smoyer, Hubert Zanczak, and Stuart Cobb interview New York State Attorney General, Letitia James, about her view of consumer privacy, her work to date in enforcing existing laws, as well as helping introduce new ones, and her thoughts about the future of privacy in New York and around the country.

Protecting consumers online: FTC and CFPB team up with State AGs

By Divonne Smoyer and Eric Manski on 17 August 2022 Posted in State Attorneys General

Man using mobile online banking and payment, Digital marketing. Finance and banking networking. Online shopping and icon customer network connection, cyber security. Business technology.

The recent National Association of Attorneys General Presidential Summit marked a clear partnership between state AGs, the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) to accomplish Iowa AG Tom Miller’s “fight back” presidential initiative: Consumer Protection 2.0: Tech Threats and Tools. Given this, we expect to see enhanced coordination and enforcement between these regulators. Find out more in our latest Technology Law Dispatch Blog.

Mental Health Parity is Garnering Attention From State AGs – Is A Multistate Enforcement Effort On the Horizon?

By Divonne Smoyer, Martin Bishop, Nicole Aiken-Shaban and Samantha Sedivy on 28 July 2022 Posted in State Attorneys General

Congress passed the Mental Health Parity and Addiction Equity Act (MHPAEA), which amended the Mental Health Parity Act of 2016 to fill in loopholes impacting the coverage of mental health care, in 2008. Several states have since passed similar legislation on the state level. The possibility of subsequent legislation to further update provisions in this area has been looming on the horizon. These types of changes may have an impact on commercial payors, especially in light of a report by the U.S. Department of Labor (DOL), which concluded that all payors audited in 2021 were not complying with MHPAEA.

This audit by DOL comes in the wake of an increasing history of enforcement actions by state insurance departments and a series of actions by the New York Attorney General. As a result, numerous state attorneys general (AGs) have shown an interest in this issue and may later choose to exercise their enforcement powers under MHPAEA, their own states’ parity laws, or under unfair and deceptive acts and practices (UDAP) laws, which are on the books in most states – or under all three.

The possibility of individual or multistate efforts in this area was recently discussed during a program sponsored by the National Association of Attorneys General (NAAG). This program, which was entitled “State and Federal Behavioral Health Coverage Parity Enforcement and the Role of Attorney General Offices,” was held on July 14, 2022. It was facilitated by NAAG’s National Attorneys General Training and Research Institute division via funding from the prior settlement of a multi-state litigation and legislative activity. The program speakers were from the American Psychiatric Association, the Colorado Coalition for the Homeless, and the Massachusetts AG’s office.

The American Psychiatric Association set forth the history of behavioral health parity over the years and the current regulatory and compliance environment, including the DOL report and a related study by the Department of Health and Human Services, which concludes that non-compliance with MHPAEA remains an issue.

The Colorado speakers conveyed first-hand their experiences with the current system, including prior authorization requirements for urgent treatments that they contend are a barrier to treatment for those suffering from opioid and fentanyl addiction or otherwise from mental health conditions, leading to escalating rates of suicide arising out of the pandemic, all of which are top bi-partisan priorities for AGs.

The Massachusetts AG representative presented the findings of the office’s study on compliance with MHPAEA by payors operating in the Bay State. The representative identified the following areas in which compliance remains a challenge:

· Accuracy of mental health provider directories;

· Network adequacy;

· Provider reimbursement; and

· “Utilization management” practices (e.g., prior authorizations).

The presenter also emphasized that practices that violate MHPAEA may also violate the consumer protection laws of the Commonwealth under Massachusetts General Law chapter 93A, which provides for civil penalties as well as injunctive relief for violations. The results of the Massachusetts study have also led the office to consider more robust parity legislation in the Commonwealth – which could be replicated in other states ‒ as well as more stringent proposed insurance regulations.

It appeared that this video program was well-attended by representatives from other states. Questions to the panelists indicated a pointed interest in the topic.

A final question to the panel, and most notably to Massachusetts, was: “What is your top piece of advice?” It drew the response: “Dig in and understand.”

Oh the Places They’ll Go (and Come From): Exploring the Roles of State AGs, Where They Come From, Where They Go, and Why It Matters

By Divonne Smoyer, Samantha Sedivy and Edrius Stagg on 21 July 2022 Posted in State Attorneys General

There is a joke that NAAG, the acronym for the National Association of Attorneys General, also stands for the “National Association of Aspiring Governors.” State attorneys general (“AGs”) have been perceived as politically ambitious and “upwardly” mobile, with the intent of using their position as a launch pad for “higher office.” Time and time again, they have been referred to as the “farm team” for other offices, and the assumption is that they come from positions in state legislatures.

However, these generalizations often are not the case and discount the substantive importance and powerful role of a state AG in the United States, along with the talents and varied backgrounds of the individuals seeking the office. While partisan gridlock in the U.S. Congress and extreme public pressure and scrutiny on governors may hamstring their effectiveness in governing, the state-wide office of AG is imbued with highly potent powers – ranging from legislative and advisory to investigations and litigation – that can escape some of the road blocks encountered in other offices. Indeed, it has been state AGs who have effectively led big policy and legal changes in diverse areas such as in the realm of privacy and data security, opioid addiction and treatment, pharmaceutical sales and marketing, tobacco and vaping promotions, mortgage and student lending, human trafficking and in other key areas of consumer protection across the United States.

As a result, the office of AG has become extremely attractive to those who want to get things done – increasingly drawing individuals who have served in so-called “higher” offices or from other diverse professional backgrounds. Notable office holders drawn to the office of AG include former California Governor Jerry Brown, who served twice as Governor, separated by a term as AG. Another is Ohio Governor Mike DeWine, who previously served as AG, prior to which he served in the U.S. Senate.

At the same time, their track records while serving as AGs bear a close watch as they often are indicative of their priorities and positions after they leave office. Of particular note is the keen interest in privacy and consumer protection by US Senator Richard Blumenthal of Connecticut, who honed this interest during his long service as the AG of Connecticut.

This post explores the roles of state AGs before and after they serve as their state’s “top cop” to give some context to this important role and the individuals who serve in it – and also to encourage those who are or who may be touched by the activities of a state AG to pay attention their actions and interests as they serve in the role.

Justices of the Supreme Court of the United States

Several former state AGs have gone on to serve as a justice of the United States Supreme Court. Most recently, Associate Justice David Souter, who was nominated to the Supreme Court by President George W. Bush, previously served as the 20^th AG of New Hampshire. Previously, Associate Justice Nathan Clifford, who is one of the few people to have served in all three branches of the U.S. Federal government, was the AG of Maine before his nomination to the Supreme Court by President James Buchanan. Also, Chief Justice Roger Taney was the AG of Maryland long before he was appointed by President Andrew Jackson.

President of the United States

The resumes of two U.S. Presidents include the role of AG. Most recently, Bill Clinton, the 42^nd President, began his political career as the AG of Arkansas. He later went on to serve two terms as the Governor of Arkansas before defeating President George H.W. Bush. Martin Van Buren, the 8^th President, served as the AG of New York. He had previously served in local office and then as a member of the New York Senate. Van Buren was elected to serve as AG while he was still serving as a state Senator, and he held both positions simultaneously for several years. After his tenure as AG, Van Buren went on to serve as a U.S. Senator, the Governor of New York, the U.S. Secretary of State, a U.S. Minister to the United Kingdom, Vice President to President Andrew Jackson, and then, finally, President.

Vice President of the United States

Ten percent of all Vice Presidents previously served as a state AG.^[1] Martin Van Buren, noted above, served as Vice President before he became President. Other Vice Presidents who previously served as a state AG include: Aaron Burr (2^nd AG of New York), George Dallas (17^th AG of Pennsylvania), Walter Mondale (23^rd AG of Minnesota), and now Kamala Harris (32^nd AG of California), who may be the most prominent former AG to serve as Vice President to date. Vice President Harris served as a district attorney before she was elected as the California AG, where she made data privacy and security a key issue in California. After two terms, she went on to run for U.S. Senate, before becoming the Vice President of the United States.

Federal Agency Leadership Appointments

A number of former AGs have been appointed to serve in the federal government. Most recently, former California AG Xavier Becerra was appointed by President Joe Biden to lead the Department of Health and Human Services in 2021. Former Michigan AG and Governor Jennifer Granholm is now the Secretary of the Department of Energy. President Trump selected former Oklahoma AG Scott Pruitt to serve as the Administrator of the Environmental Protection Agency. Other examples are former Idaho AG Larry Echo Hawk, who was appointed by President Barack Obama in 2009 to serve as the Assistant Secretary of the Interior for Indian Affairs, as well as Gale Norton, former AG of Colorado and then US Secretary of Interior, appointed by President George W. Bush in 2001.

U.S. Congress – House Representatives and Senators

It is not uncommon for state AGs to later run for U.S. Congress, and there are several instances of AGs going on to serve as House Representatives and Senators. Currently, there are 8 members of Congress who are former state AGs: Representative Charlie Crist (35^th AG of Florida and also a prior Florida Governor) and Senators Richard Blumenthal (23^rd AG of Connecticut), John Cornyn (49^th AG of Texas), Catherine Cortez Masto (32^nd AG of Nevada), Josh Hawley (42^nd AG of Missouri), Dan Sullivan (27^th AG of Alaska), and Sheldon Whitehouse (71^st AG of Rhode Island). On the flip side, there are three state AGs who previously served in Congress: Indiana AG Todd Rokita, Louisiana AG Jeff Landry, and Minnesota AG Keith Ellison, and there likely will be three more starting in January 2023 – Congressman Raul Labrador of Idaho, Former Congressman (and current Lt. Governor) Tim Griffin of Arkansas and Congressman Anthony Brown of Maryland.

Governor and Lieutenant Governor

Of course, as the joke goes, many AGs do in fact go on to serve as the governor of their state – the sitting Governors of Kentucky, Maine, North Carolina, Ohio, South Carolina and Texas each previously served as AG. The role of AG provides exposure to a statewide audience, and provides a bird’s eye view into nearly all the functions of state government. As a result, many state AGs are well-equipped to serve as governors of their states. Currently, the following sitting AGs are running to be the governor: Kansas AG Derek Schmidt; Daniel Cameron of Kentucky; and Massachusetts AG Maura Healey. Similarly, AG Leslie Rutledge is running to be the Lieutenant Governor of Arkansas.

*******

All in all, the office of State AG is a powerful one that draws a diverse and dynamic group of people who often take hard-hitting positions on key issues in their – and our – days. Watchers of politics and law – or those who are subject to state policy and law enforcement by AGs would do well to monitor the activities and interests of AGs in their jurisdictions.

[1] Ryan Greenstein, NAAG, From Burr to Harris: AG to VP (Jan. 19, 2021), available at https://www.naag.org/attorney-general-journal/from-burr-to-harris-ag-to-vp/.

GAO dismisses post-award protest because protester is not an interested Party

By Liza Craig and Joshuah Turner on 18 July 2022 Posted in Government Contracts & Grants

The U.S. Government Accountability Office (“GAO”) recently dismissed a protest challenging the Department of Homeland Security’s evaluation of the Protester’s proposal and subsequent discussions with the Protester. The GAO found that the Protester’s arguments did not demonstrate that it was next in line for award, rendering the Protester a disinterested party with no standing to protest. This decision serves as a reminder that when challenging the government’s award decision, a contractor must be an interested party or the GAO will dismiss the protest, often times before even considering the merits. This decision also highlights how important it is for the Protestor to set forth timely arguments that demonstrate its interested party status in its initial protest filing.

Background

The Department of Homeland Security, U.S. Immigration and Customs Enforcement (ICE) issued a solicitation for “comprehensive detention services at the Port Isabel Detention Center (PIDC), in Los Fresnos, Texas. Importantly, the solicitation provided that offerors’ proposals would be evaluated based on price and non-price factors, with non-price factors being significantly more important than price. ICE received proposals from three offerors in response to the Solicitation: Ahtna (“Ahtna” or the “Protester”); AIP (“AIP” or the “Awardee”), and a third company (“Offeror 3”). The contracting officer, who also served as the source selection authority, assessed each proposal a “High Confidence” rating under the non-price evaluation factors. With respect to price, the Awardee proposed the lowest price, Offeror 3 proposed the second lowest price, and the Protester proposed the highest price.

ICE ultimately awarded the contract to AIP, and Ahtna timely protested. In the Protest, Ahtna alleged that:

The Awardee’s proposal should have been rated unacceptable under each evaluation factor, and therefore ineligible for award;
ICE engaged in misleading and disparate discussions with the Protester regarding price;
ICE relaxed solicitation requirements for the Awardee, thereby treating the Protester and Awardee disparately; and
ICE’s award decision was unreasonable because it was based on a flawed evaluation, it failed to document why the Protester’s proposal did not warrant a price premium, and it failed to document that the contracting officer and evaluators look behind the evaluation ratings.

In its Agency Report, ICE addressed the Protester’s arguments on the merits and requested the GAO dismiss the protest. Specifically, ICE claimed that the Protester lacked the status of an interested party because the contracting officer had assessed Offeror 3 a rating superior to the Protester’s under price and non-price factors, thereby making Offeror 3 the next in line for award. The Protester filed comments and supplemental protest grounds in response to the Agency Report, and the GAO required each party address specific questions it posed regarding the Protester’s interested party status.

GAO’s Analysis

The GAO determined that the contemporaneous record did not demonstrate that the Protester’s proposal would be in line for award, even if the watchdog were to find the Protester’s challenges to the evaluation of AIP’s proposal meritorious. Accordingly, the GAO concluded that the Protestor was not an interested party to challenge the award and dismissed the protest.

First, in reaching this conclusion, the GAO focused on ICE’s ratings of all offerors under the non-price factors, and concluded that while all offerors were assessed a “High Confidence” rating for each non-price evaluation factor, ICE expressly identified advantages with respect to the Awardee’s and Offeror 3’s proposal in the Source Selection Decision Document (SSDD). The GAO noted though that that ICE did not expressly identify any advantages in the Protester’s proposal under any non-price factor. Additionally, the GAO noted that the advantages identified by ICE were for the most heavily weighted non-price factor, “technical capability/management approach.” Therefore, despite the Protester’s argument that ICE’s explanation of its evaluation record amounted to post-hoc justifications, GAO found that the contemporaneous record clearly indicated that ICE compared the offerors’ proposals and found both the Awardee’s and Offeror 3’s proposals to be superior to the Protester’s under the non-price factors. The GAO also considered the Protester’s arguments related to ICE’s evaluation of the Protester’s proposal under the price factor. The Protester complained that the Awardee’s and Offeror 3’s price proposals both reflected a lack of understanding of or a deviation from the solicitation requirements. The GAO dismissed this basis of protest and determined that the Protesters argument focused on what it alleged were flaws in ICE’s evaluation of the Awardee’s price proposal and not on any alleged flaws in its evaluation of Offeror 3’s proposal. Accordingly, the GAO held that the Protestor failed to demonstrate that ICE unreasonably evaluated Offeror 3’s proposal in any way and fail to clearly state legally sufficient grounds of protest.

Additionally, the Protester argued that during discussions, ICE misled the Protester to increasing its price. The Protester specifically complained that ICE’s discussion questions were misleading and unequal, and that ICE should not have led the Protester to increase its price through discussions. The GAO noted, however, that the Protester, did not argue in its protest or supplemental protest that it would have lowered its price during discussions below its initially proposed price of $222,859,412, which is higher than that of Offeror 3, even if ICE had not misled it into raising its price. Because the Protestor raised this argument only in response to questions from the GAO attorney regarding its interested party status, the GAO determined that this argument was ultimately a “piecemeal presentation or development of protest issues” and noted that to the extent the Protester was seeking to raise an alternative argument as to why it believed ICE’s discussions were improperly conducted, the argument was untimely because it was not raised within 10 days of when the protester knew or should have known of its basis.”

Finally, the GAO addressed a protest allegation related to the debriefing that ICE provided which stated that the Agency did not develop a ranking of proposals during the source selection. The Protester asserted that this statement proved that ICE did not rank proposals for purposes of award, and accordingly that there can be no valid basis to conclude that Offeror 3’s proposal should be considered in line for award ahead of its own proposal. The GAO rejected this argument because it concluded that the contemporaneous record demonstrated that the contracting officer determined that Offeror 3’s technical proposal was superior to the Protestor’s. And, the GAO went on, because the Protester’s arguments failed to challenge the fact that Offeror 3’s proposed price was lower than the Protestor’s initial price, prior to discussions, this protest ground was dismissed because Protestor was not an interested party with standing to raise this issue with the GAO.

Key Takeaways

Standing takes precedent. To challenge an agency’s award decision, a protester must be an interested party. “Where there is an intervening offeror who would be in line for the award even if the protester’s challenges were sustained, the intervening offeror has a greater interest in the procurement than the protester, and [the GAO will] generally consider the protester’s interest to be too remote to qualify it as an interested party.
Present it all. The Bid Protest Regulations require protesters to “[s]et forth all information establishing that the protester is an interested party for the purpose of filing the protest.” 4 C.F.R. § 21.1(c)(5). This means that protestors should not present their bid protest arguments piecemeal. A protestor’s initial protest filing should set forth as many facts as possible that clearly demonstrate its interested party status.
Present it in a timely manner. Relatedly, when a protestor fails to present all the facts that demonstrate its interested party status, and instead raises these facts later in the course of the pending protest, the GAO may deem the related protest grounds untimely. If this happens, it is likely that these additional protests grounds will not be considered by the GAO.

GAO Sustains Post-Award Protest Challenging The Navy’s Unreasonable Interpretation Of Its Own Solicitation Criteria

By Liza Craig, Joshuah Turner, Jordon DeGroote and Ahmad Younis on 11 July 2022 Posted in Government Contracts & Grants

The U.S. Government Accountability Office (“GAO”) recently sustained a protest challenging the Department of the Navy’s (“Navy”) evaluation of the awardee’s proposed professional employee compensation plan, which was based on a flawed interpretation of the term “professional employee” in the Solicitation. This decision serves as a reminder that the GAO will interpret provisions, clauses, statutes, and regulations consistent with their plain meaning. Further, GAO will deem documented agency actions unobjectionable if they are in compliance with the solicitation criteria.

Background

The Navy issued a solicitation for “mission system software engineering development, integration, testing, and in-service support for U.S. Naval aircraft major defense acquisition programs” on October 2, 2020. This solicitation contemplated the award of an indefinite-delivery indefinite-quantity contract with a 5-year ordering period and cost-plus-fixed-fee and cost-reimbursement components. The Solicitation also provided that the Navy would make award on a best-value trade-off basis after evaluating proposals based the following three factors listed in descending order of importance: (1) technical; (2) past performance; and (3) price. There were three subfactors under the “technical” factor: (1) understanding of work; (2) workforce; and (3) management approach. The technical and past performance factors combined were significantly more important than price, with price becoming more important with the degree of equality amongst proposals.

Sabre Systems, Inc. (“Sabre” or the “Protester”), the incumbent, submitted a proposal in response to the subject Solicitation along with three other offerors, one being American Systems Corporation (“ASC” or the “Awardee”). The Navy made an initial award to ASC on July 30, 2021, Sabre timely protested the Navy’s evaluation and award decision, and the Navy took corrective action thereafter by reevaluating the proposals submitted in response to the Solicitation. Upon reevaluation, the Navy rated Sabre’s technical proposal slightly superior to ASC’s in the “workforce” technical subfactor. Otherwise, ASC and Sabre received equal technical ratings. However, Sabre’s Most Probable Cost (“MPC”) at $211,471,566 was roughly $21 million higher than ASC’s MPC at $190,126,983. The Navy awarded the contract to ASC a second time, noting that Sabre’s proposal’s slight superiority did not warrant a $21 million price premium. This timely protest followed.

The Protest Allegations and GAO’s Analysis

Sabre first argued that, because the Navy improperly excluded many labor categories from its professional compensation evaluation, it failed to meaningfully evaluate the Awardee’s total compensation plan and conducted a flawed cost realism analysis. Sabre also challenged the Navy’s evaluation of its proposal under both the technical and past performance factors. Specifically, Sabre complained that the Navy failed to recognize multiple strengths within its proposal and unreasonably equalized its superior past performance with that of the Awardee.

With respect to Sabre’s first argument, the GAO noted that the Solicitation required offerors to set forth their total compensation plan “for each proposed professional employee” consistent with Federal Acquisition Regulation (“FAR”) 52.222-46. According to the Solicitation, this plan was to include each professional employees’ direct labor rate, fringe benefits package, and data used to determine the compensation structure. In pertinent part, FAR 52.222-46 provides as follows:

Recompetition of service contract may in some cases result in lowering the compensation (salaries and benefits) paid or furnished professional employees. This lowering can be detrimental in obtaining the quality of professional services needed for adequate contract performance. It is therefore in the Government’s best interest that professional employees, as defined in 29 CFR 541, be properly and fairly compensated…This evaluation will include an assessment of the offeror’s ability to provide uninterrupted high-quality work. The professional compensation proposed will be considered in terms of its impact upon recruiting and retention, its realism, and its consistency with a total plan for compensation.

(Emphasis added). 29 CFR 541, Subpart D defines “professional employees” as follows:

(a) The term “employee employed in a bona fide professional capacity” in section 13(a)(1) of the Act shall mean any employee (1) Compensated on a salary or fee basis . . . at a rate of not less than $684 per week . . .; and (2) Whose primary duty is the performance of work (i) Requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction; or (ii) Requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

Notwithstanding the language in FAR 52.222-46, and the definition of “professional employees” set forth in 29 CFR 541, the Navy evaluators determined that only a small subset of four labor categories required by the Solicitation constituted “professional employees” as defined by 29 CFR 541. According to the record, the Navy’s rationale for excluding the remaining labor categories was that while these labor categories may constitute professional services, they also fit other definitions for categories of employees under 29 CFR 541. Therefore, the Navy did not consider the remaining labor categories as “professional employees.”

The GAO disagreed with the Navy, and concluded “that the plain language of the applicable FAR provision unambiguously required the Navy to evaluate the compensation plan for all proposed employees meeting the definition of “professional employees” as defined in subpart D of part 541…regardless of whether [proposed employees also meet] another part 541 labor category definition…” By way of example, the GAO highlighted the “software developer” labor category, which the Navy found not to be a “professional employee” under 29 CFR 541. However, according to the statement of work, this labor category required “minimum levels of higher education in the specified field of science or learning related to the duties of the position” including a bachelor’s degree in computer science or computer engineering. The Navy failed to include several professional employees in its evaluation of the Awardee’s compensation plan inconsistent with the Solicitation criteria, which contained FAR 52.222-46 referencing 29 CFR 541’s definition of “professional employees.” Accordingly, GAO sustained the protest on this basis.

Sabre also argued that the Navy failed to reasonably evaluate its technical proposal by failing to recognize additional strengths within its proposal. The GAO ultimately disagreed and found that the Navy thoroughly reviewed Sabre’s proposal and assessed strengths where the proposal exceeded the solicitation requirements in a manner advantageous to the government. Sabre also challenged the evaluation of its past performance by arguing that its past performance was more relevant and of higher quality than that of the Awardee. GAO found the Agency evaluated Sabre’s past performance consistent with the solicitation criteria, which required offerors’ past performance to be evaluated based on recency, relevancy, and quality of work. The Solicitation did not, however, require a comparison of offerors’ past performance examples. Therefore, the GAO denied this protest ground as well.

Lastly the GAO addressed prejudice. The Navy argued that that Sabre suffered no prejudice because a change in its methodology to include additional labor categories in the analysis would not have changed the evaluative outcome. In response, Sabre argued that the improper exclusion of more than 80 percent of its proposed personnel from its compensation plan analysis resulted in the Navy’s failure to appreciate the risk posed by the Awardee’s lowered compensation levels. The GAO resolved these arguments in favor of Sabre, noting that a reasonable possibility of prejudice is a sufficient basis for sustaining a protest.

Key takeaways

When competing for government contracts, Contractors who are unsuccessful are advised to closely scrutinize solicitation requirements to ensure that the agency’s evaluation is in strict compliance therewith.
Contractors should always look to the solicitation criteria for guidance regarding how an Agency should conduct the source selection evaluation of proposals. If, for example, a solicitation does not contemplate Agency’s evaluation of proposals by comparison, Contractors should expect that the Agency will evaluate proposals in accordance with the stated solicitation criteria, and not in comparison to other proposals.
When considering the merits of a protest, the GAO will review provisions, clauses, statutes and regulations consistent with their plain meaning. To the extent that an Agency relies on a provision, clause, statute or regulation, and interprets that provision, clause, statute or regulation in a manner that is inconsistent with its plain meaning, and conducts its evaluation on a flawed interpretation, the GAO is likely to find this conduct objectionable and erroneous. If such has occurred, an unsuccessful bidder may have a very good chance at having the GAO recommend overturning that award decision.