Government Contracts Legal Round-Up | 2021 Issue 11

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

Regulatory Update

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

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

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

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

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

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

Protest Cases

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

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

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

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

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

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

Claims Cases

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

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

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

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

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

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

Anti-corruption National Security Memorandum

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

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


White House Doubles Down on Private Sector Outreach for Cybersecurity Push

By: David BitkowerDavid B. RobbinsShoba PillayAaron R. Cooper, and Tali R. Leinwand

The White House sent an open letter last week to “corporate executives and business leaders” urging their companies to take “immediate steps” toward better protecting themselves against ransomware attacks.[1] Although the White House cannot generally dictate the actions that private companies take, the Biden administration has emphasized that “[b]usiness leaders have a responsibility to strengthen their cyber defenses to protect the American public and . . . economy.”[2] To that end, the letter referenced the five “best practices” set forth in the recently issued Executive Order on Cybersecurity, including (1) multifactor authentication; (2) endpoint detection; (3) endpoint response; (4) encryption; and (5) a skilled and empowered security team. The letter also outlined five basic but impactful security practices that the White House recommended companies implement:

  • Back-up Data. Back-up data, system images, and configurations, regularly test them, and keep the backups offline. If network data is encrypted with ransomware, the organization may still be able to restore its systems. 
  • Update Systems. Promptly update and patch systems, including applications and firmware.
  • Test Plans. Test incident response plans to help identify gaps and understand how long business operations can be sustained without access to certain systems.
  • Conduct Independent Checks. Check the security team’s work and ability to defend against a sophisticated attack, thereby increasing the likelihood that back doors or other loopholes can be addressed. 
  • Segment networks. Separate corporate business functions from manufacturing and production operations, and limit internet access to operational networks.[3] 

The letter, which was authored by Anne Neuberger, Deputy National Security Advisor for Cyber and Emerging Technology, was sent in light of a reported uptick in attacks involving ransomware (software that seizes control of a computer until the victim pays a fee), most recently an attack that reportedly closed off beef and pork production from one of the country’s leading food suppliers.[4]  

The letter also reflects the Biden administration’s growing emphasis on the need to improve the government’s cybersecurity defenses, both within and across various agencies. Yesterday, in a press conference regarding the ransomware attack on Colonial Pipeline, Deputy Attorney General Lisa Monaco emphasized that companies should take preemptive action against ransomware attacks, urging them to “pay attention now” and “invest resources now” because “[f]ailure to do so could be the difference between being secure now – or a victim later.”[5] The press conference came just a few days after Deputy Attorney General Monaco issued an internal memorandum directing US prosecutors to report all ransomware investigations that they may be working on, stressing the need for better coordination within the Department.[6] Two weeks ago, the Department of Homeland Security’s Transportation Security Administration announced a security directive requiring pipelines to report confirmed and potential cyber incidents and review current cybersecurity practices.[7] And last month, the White House issued the Executive Order imposing a variety of requirements on federal agencies and government contractors that are aimed at improving the government’s cybersecurity defenses. 

As companies seek to evaluate cybersecurity and expand their protections, it is important to consider the following legal issues alongside business and technical concerns:

  • Importance of a Multi-Functional Team. Cybersecurity and information protection are broad efforts encompassing many different skills within a company. Legal counsel should be included in the team to advise about the application of relevant laws, regulations, and policies, and to prepare for potential litigation and enforcement actions. 
  • Importance of Legal Privilege. Companies should consider how to maximize the application of legal privilege to internal factfinding efforts that are designed to address potential legal exposure from cybersecurity and data protection rules.

Outside counsel can help bolster in-house teams and provide broad industry perspective on common issues in these reviews. Jenner & Block lawyers stand ready to assist.

 

[1] Letter from Deputy National Security Advisor for Cyber and Emerging Technology Anne Neuberger to Corporate Executives and Business Leaders (June 3, 2021).

[2] Press Briefing by Press Secretary Jen Psaki (June 3, 2021), https://www.whitehouse.gov/briefing-room/press-briefings/2021/06/03/press-briefing-by-press-secretary-jen-psaki-june-3-2021/; see also Tucker Higgins, CEOs Need to Prepare Now for Exponential Increase in Ransomware Attacks, Top DOJ Official Says, CNBC (June 4, 2021), https://www.cnbc.com/2021/06/04/ceos-need-to-prepare-for-increase-in-ransomware-attacks-doj-official.html.

[3] Letter from Deputy National Security Advisor for Cyber and Emerging Technology Anne Neuberger to Corporate Executives and Business Leaders (June 3, 2021).

[4] David E. Sanger and Nicole Perlroth, White House Warns Companies to Act Now on Ransomware Defenses, N.Y. Times (June 3, 2021), https://www.nytimes.com/2021/06/03/us/politics/ransomware-cybersecurity-infrastructure.html.

[5] Office of Public Affairs, Department of Justice, DAG Monaco Delivers Remarks at Press Conference on Darkside Attack on Colonial Pipeline (June 7, 2021).

[6] Deputy Attorney General Lisa Monaco, Memorandum for all Federal Prosecutors on Guidance Regarding Investigations and Cases Related to Ransomware and Digital Extortion (June 3, 2021). 

[7] Press Release, DHS Announces New Cybersecurity Requirements for Critical Pipeline Owners and Operators, Department of Homeland Security (May 27, 2021).


Government Contracts Legal Round-Up | 2021 Issue 10

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

Regulatory Update

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

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

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

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

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

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

Protest Cases

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

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

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

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

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

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

Claims Cases

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

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

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

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

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

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

New COVID-19 Fraud Task Force Launched by DoJ

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

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


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

Bitkower_David_COLOR Robbins_David B_COLOR Pillay_Shoba_COLOR Cooper_Aaron_COLOR Leinwand_Tali_COLOR



 

 

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

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

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

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

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

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

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

 

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

[2] Cybersecurity EO § 1.

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

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

[5] Cybersecurity EO § 2.

[6] Cybersecurity EO § 2.

[7] DFARS 252.204.7012.

[8] FAR 52.204-21.

[9] Cybersecurity EO §§ 2(a), 2(e).

[10] Cybersecurity EO § 2(g)(i).

[11] Cybersecurity EO § 2(b).

[12] Cybersecurity EO § 2(e).

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

[14] Cybersecurity EO § 3.

[15] Cybersecurity EO § 3(d).

[16] Cybersecurity EO § 3(f).

[17] Cybersecurity EO § 4.

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

[19] Cybersecurity EO §§ 4(p)-(q).

[20] Cybersecurity EO §§ 4(s)-(t).

[21] Cybersecurity EO § 5.

[22] Cybersecurity EO § 5(c).

[23] Cybersecurity EO § 5(e).

[24] Cybersecurity EO § 6.

[25] Cybersecurity EO § 6(b).

[26] Cybersecurity EO § 6(b).

[27] Cybersecurity EO § 7.

[28] Cybersecurity EO § 7(b).

[29] Cybersecurity EO §§ 7(c)-(d).

[30] Cybersecurity EO § 8.

[31] Cybersecurity EO §§ 8(b)-(c).

[32] Cybersecurity EO § 8(b).

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

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


DoD Issues Proposed Rule Implementing Enhanced Debriefing Requirement

Bleicher_Noah_COLOR Weiss_Carla_COLOR Broder_Moshe_COLOR


 

By: Noah B. BleicherCarla J. Weiss, and Moshe Broder

The Department of Defense (DoD) has issued a proposed rule to amend the Defense Federal Acquisition Regulation Supplement (DFARS) to require that DoD provide enhanced postaward debriefings to contractors. Although these changes were required by Section 818 the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2018, and were partially implemented by a Class Deviation issued by DoD in the same year, the proposed rule would permanently implement these changes in the DFARS and provide for the production of redacted source selection documents in certain debriefings. Comments on the proposed rule are due by July 19, 2021.

Government contractors often struggle to understand the government’s decision to select the proposal of another offeror for contract award. The postaward debriefing process is an important tool to gain insight into the government’s reasoning, but the limited information provided to contractors during a debriefing frequently raises more questions than it answers and may cause contractors to protest the award decision as a way to gather more information or test the soundness of an agency’s opaque award rationale. Increased transparency through postaward debriefings can boost confidence in procurement decisions and provide disappointed offerors with practical insight that can help improve future bids.

Recognizing these benefits, Section 818 for NDAA FY18 required DoD to revise the DFARS to include, at a minimum, disclosure of a redacted version of the agency’s source selection decision, and an opportunity to ask follow-up questions and receive answers before the close of the debriefing, thereby delaying the deadline to timely file a bid protest and obtain an automatic stay of performance during the pendency of the protest at the Government Accountability Office (GAO).

Shortly after the passage of the NDAA, DoD partially implemented the requirement through a Class Deviation that required contracting officers to provide unsuccessful offerors with an opportunity to submit additional questions within two business days of receiving the debriefing, and for the agency to respond in writing within five business days of receipt of the questions. Importantly, the debriefing would remain open until the contractor received the written responses. DoD’s Class Deviation did not, however, implement the statutory requirement to provide offerors with a redacted version of the source selection decision, though DoD agencies were not prohibited from providing this documentation; indeed, some did upon request.

DoD’s proposed rule, issued on May 20, 2021, seeks to implement both aspects of Section 818 of NDAA FY18. Consistent with the changes implemented in the 2018 Class Deviation, the DFARS would be revised to require that contractors be provided the opportunity to submit written follow-up questions within two business days of receiving a debriefing and for the DoD agency to respond within five business days after receipt of the questions. The debriefing would not be considered concluded until the contractor receives the agency’s answers, and the clock to timely file a protest and receive an automatic suspension of contract performance would not begin to run until the debriefing concluded. Importantly, the proposed rule confirms that a contractor must submit follow-up questions for the protest clock to be tolled; otherwise, the time to file a protest begins to run from the day on which the contractor received the debriefing.

In addition, the DFARS would be revised to require that DoD, as part of a postaward debriefing, disclose to a disappointed offeror a redacted version of the source selection decision document where: (a) the offeror is a small business or nontraditional defense contractor, and the award is above $10 million; or (b) for all offerors, where the award is greater than $100 million. The proposed rule also clarifies that, when timely requested, a debriefing is required for all contracts and task orders or delivery orders valued at $10 million or more. These requirements will apply to negotiated procurements and contracts for the acquisition of commercial items, including Commercial-off-the-Shelf (COTS) items.

Government contractors should seek to utilize these procedures to maximize the benefit from a postaward debriefing in DoD procurements. Contractors should prepare and submit thoughtful and detailed follow-up questions and request a redacted version of the agency’s source selection decision. This information can provide invaluable insight to a contractor seeking to improve its next proposal submission or evaluate the merits of a potential protest. Practically speaking, the additional time allotted during the enhanced debriefing process provides a contractor with more breathing room to consider the cost/benefit of any potential bid protest—a decision often made under the pressure of short protest deadlines. As part of the DFARS, the proposed rule, once implemented, applies only to DoD and not civilian agencies, but non-DoD agencies are not prohibited from adopting these practices or implementing similar rules.

Jenner & Block’s Government Contracts lawyers have extensive bid protest experience, including prior service as a supervising bid protest hearing officer at GAO, and stand ready to support any challenges to the award of a government contract.


Government Contracts Legal Round-Up | 2021 Issue 9

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

Executive Orders

1. Executive Order on Improving the Nation’s Cybersecurity (May 12, 2021)

  • Described as “the first of many ambitious steps the Administration is taking to modernize national cyber defenses,” this significant order emphasizes that federal action alone is not enough and the private sector (especially critical infrastructure) should augment and align cybersecurity investments to minimize future incidents. 
  • The scope of order includes systems that process data (information technology) and those that run machinery (operational technology). 
  • Contractors should expect a number of proposed regulatory changes by the fall of 2021 that will:
    • Remove barriers to threat information sharing between the government and the private sector;
    • Modernize and strengthen cybersecurity standards in the federal government, including by adopting security best practices and advancing toward a zero trust architecture;
    • Establish a Cybersecurity Safety Review Board and create a standard playbook for responding to cyber incidents;
    • Improve detection of cyber incidents on federal government networks by establishing endpoint detection and response deployment; and 
    • Improve investigation and remediation capabilities.

Regulatory Developments

1. Withdrawal of Independent Contract Status Under the Fair Labor Standards Act (FLSA), Final Rule, Wage and Hour Division, Department of Labor (May 6, 2021)

  • The Department of Labor has withdrawn the Independent Contractor Rule finalized under the prior administration on January 7, 2021, which would have provided a new interpretation of employee or independent contractor status under the Fair Labor Standards Act.
  • After delaying the effective date of the final rule and seeking additional comments, the Department of Labor has concluded that the Independent Contractor Rule is not fully aligned with the FLSA’s text or purpose, or with prior case law applying the multifactor economic realities test.

2. Placing Rated Orders Under the Defense Priorities and Allocations System for Novel Coronavirus Disease 2019 (COVID-19), General Services Administration (May 7, 2021)

  • This policy provides guidance for placing DPAS rated orders to purchase cleaning supplies, IT equipment for telework, and IT equipment for healthcare.
  • The delegation of authority to place DO rated orders in support of GSA’s COVID-19 response and recovery activities extends through March 31, 2022, or until the Presidential Emergency Declaration is rescinded.

Protest Cases

1. M R Pittman Group, LLC, B-419569 (May 5, 2021)

  • GAO dismissed a protest as untimely where the protester waited until after its bid was rejected to challenge a patent ambiguity in the solicitation.
  • The Army Corps of Engineers issued an invitation for bids (IFB) that included standard FAR clauses indicating the procurement was being set aside for small businesses, but the IFB did not include other regulatory requirements for set asides, such as the NAICS code or size standard.
  • The Army rejected the protester’s low bid because the company was other than small, and the company protested.

The protest decision is a stark reminder that a company that competes under an ambiguous solicitation cannot wait until after the company is not selected for award to challenge the ambiguous solicitation terms. As GAO has explained, a patent solicitation ambiguity exists where the solicitation contains an obvious, gross, or glaring error, and an offeror has an affirmative obligation to seek clarification of a patent ambiguity prior to the due date for bids. When a patent ambiguity exists but is not challenged prior to the bid submission deadline, GAO will not consider subsequent untimely arguments asserting the protester’s own interpretation of the ambiguous provision.

2. Tridentis, LLC, B-418690.4 (Jan. 5, 2021) (publicly released May 11)

  • GAO found unobjectionable the Department of the Navy’s decision to reject a proposal as technically unacceptable where the protester failed to establish that it possessed a facility security clearance on the due date for receipt of proposals, as required by the solicitation.
  • The Navy initially evaluated the facility identified in the protester’s proposal as meeting the solicitation requirements, but following corrective action related to other allegations, the agency re-reviewed these aspects and found that the facility identified was not cleared to safeguard secret information after all.
  • GAO agreed with the Navy that an offeror’s showing that it met the facility clearance requirement at the time of proposal submission was a material term of the solicitation, and one of technical acceptability, not responsibility.
  • GAO then found that the agency’s conclusion that Tridentis failed to clearly demonstrate that it met the facility clearance requirement at the time of proposal submission was reasonable. While its proposal contained the address of its teaming partner’s Virginia Beach facility—which did possess the required facility clearance—the proposal did not explain that the facility belonged to another firm, or that Tridentis would be relying on that firm’s facility to meet the clearance requirement.

This decision serves as a warning that offerors must clearly explain how they intend to meet mandatory solicitation requirements, as the failure to do so may result in disqualification from competition. It is also important to remember that agencies are free to newly disqualify an offeror when reevaluating proposals following corrective action reevaluation, and GAO will not disturb the revised result if otherwise reasonable.

3. Verizon Business Network Services, Inc., B-419271.5, B-419271.6, B-419271.8 (Apr. 26, 2021) (publicly released May 11)

  • GAO dismissed a protest ground where the protester knew, or should have known, the basis of protest back when filed its pre-corrective action protest.
  • The Department of Homeland Security awarded AT&T a task order off the Enterprise Infrastructure Solutions (EIS) GWAC. In its first protest, Verizon argued that AT&T was ineligible for award because of the company’s alleged failure to have all required services on its EIS contract. The agency took corrective action.
  • After the order was re-awarded to AT&T, Verizon protested again, this time arguing that AT&T was ineligible because of alleged lack of SD-WAN service on its EITS contract, which had not been mentioned in the initial protest. Verizon used the same information database (the EIS Public Pricer tool) as evidence.
  • GAO concluded that this argument was untimely because the information underpinning the current protest ground was available to the protester as part of its earlier protest. Likewise, the fact that the information regarding AT&T’s alleged lack of SD-WAN services came from a different webpage (within the same EIS Public Pricer tool) did not negate the fact that the information was just as available to Verizon before as it was when it filed the instant protest. 

When filing a protest, it is imperative to raise all arguments known at the time—including those based upon publicly available information. GAO will readily dismiss protest grounds that were known before the filing of either a supplemental protest or a protest following corrective action.

Claims Cases

1. Pacific Coast Community Services, Inc. v. U.S., No. 1:19-cv-01187 (April 30, 2021)

  • Pacific Coast received a firm-fixed-price contract for administrative services with the Federal Protective Services. The contract included a provision stating that invoices must reflect the services provided each month and identified a monthly contractual hour amount of 1,888.
  • FPS began making unilateral deductions from invoices because it did not believe Pacific Coast personnel had worked the stated number of hours. Pacific Coast sued for underpayment, alleging breach of contract.
  • Pacific Coast alleged that the firm-fixed-price nature of the contract did not require adjustment for actual hours worked. Specifically, it alleged that such an interpretation would convert the contract to a firm-fixed-price, level-of-effort contract under FAR 16.207-1.
  • The Federal Circuit agreed with the lower court that “because productive hours were a specific deliverable,” the government was entitled to deduct payment for hours not actually provided.

Fixed-price contracts with a labor hour component frequently give rise to disputes: the contractor may be able to fully perform the support function with fewer hours and the fixed-price nature of the contract might lead it to believe it is entitled to benefit from its efficiency. But, even where the government has no complaints about the services provided, it may attempt to claw back money based on failure to fully provide the stated hours. This decision extends that problem from FFP-LOE contracts to other labor-hour based fixed-price contracts.  

2. Appeal of Glen/Mar Construction, Inc., CBCA No. 6904 (Apr. 2, 2021)

  • Glen/Mar received a contract with the Department of Veterans Affairs to remedy seismic deficiencies in buildings at a VA clinic in Oregon. During performance, a dispute arose regarding who was responsible for relocating an internet fiber service line.
  • Eventually the VA accepted responsibility and entered into negotiations regarding contract adjustment for this work. During the negotiations, the parties discussed both increased costs and schedule adjustment, but the VA asked Glen/Mar to remove the schedule portion from its request for equitable adjustment.
  • The parties executed a contract modification that include zero days of schedule adjustment and contained a broad release.
  • Glen/Mar asserted that the parties agreed to resolve the schedule adjustment issues separately and it submitted a claim for costs related to the delay. The VA asserted that the broad release in the contract modification prevented any further recovery.
  • The Civilian Board of Contract Appeals concluded that the release language was clear in resolving all issues related to the dispute and denied Glen/Mar’s attempt to introduce extrinsic evidence regarding agreement to resolve schedule issues separately.

This case is a reminder of the importance of reserving rights to additional adjustment in any release that the contractor believes does not fully resolve the contractor’s claim. There are a variety of reasons the government may seek to have the contractor remove a portion of its claim during negotiations, but unless those removed elements are reserved in the resulting modification, they could be waived.


Government Contracts Legal Round-Up | 2021 Issue 8

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

Executive Orders

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

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

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

Protest Cases

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

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

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

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

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

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

Claims Cases

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

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

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

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

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

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

Investigations and Enforcement

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


Biden Raises Minimum Wage for Federal Government Contract Workers to $15

Haws_Matthew_COLORBy: Matthew L. Haws

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

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

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

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

Some additional details related to the executive order:

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

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

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

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