Government Contracts Legal Round-Up - January 26, 2021

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

Executive Actions

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

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

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

Federal Acquisition Regulation (FAR) Rules

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

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

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

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

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

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

Defense Federal Acquisition Regulation Supplement (DFARS) Rules

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

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

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

Protest Cases

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

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

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

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

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

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

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

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

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

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

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

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

Claims Cases

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

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

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

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

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

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

Investigations and Enforcement

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

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

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

2. First Civil Settlement for CARES Act Fraud Announced

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

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

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

4. Materially False Cost and Pricing Data Drives FCA Liability

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

5. Bribery and Kickbacks Still Draw Criminal Enforcement

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

Legislative Developments

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

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

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


Key Developments in the FY 2021 National Defense Authorization Act

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

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

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

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

Cybersecurity / IT Development

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

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

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

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

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

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

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

Section 1716: Subpoena Authority

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

Section 1722: Assessing Risk to National Security of Quantum Computing

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

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

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

Foreign Influence

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

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

Domestic Sourcing of Strategic and Critical Materials

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

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

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

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

Sec. 851: Report on Strategic and Critical Materials

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

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

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

Data Rights 

Sec. 804: Implementation of Modular Open Systems Approaches

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

Space Force

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

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

Other Transaction Authority

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

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

Sec. 833: Listing of Other Transaction Authority Consortia

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

Contractor Business Systems 

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

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

Commercial Contracting

Sec. 816: Documentation Pertaining to Commercial Item Determinations

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

Ethics Provisions

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

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

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

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

Small Business 

Sec. 815: Prompt Payment of Contractors 

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

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

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

Section 863: Employment Size Standard Requirements for Small Business Concerns

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

Section 868: Past Performance Ratings of Certain Small Business Concerns

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

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

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

Bid Protests

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

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

Contract Types / Other Matters

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

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

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

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

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

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

Small Businesses in the 8(a) Program Get Another Year of Eligibility to Make Up for Pandemic Disruption

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By: Matthew L. Haws and Scott E. Whitman

Congress has been focused on ensuring that small businesses in the 8(a) program receive extra time to make up for disruption from the COVID-19 pandemic. To that end, Congress included language in both the 2021 Consolidated Appropriations Act (CAA) and 2021 National Defense Authorization Act to provide one year of extended eligibility to companies who were 8(a) participants “as of” September 9, 2020. These acts required the Small Business Administration (SBA) to implement that mandate within 15 days of enactment. The CAA was signed on December 27, 2020, and SBA issued an interim final rule—with immediate effect—on January 13, 2021. This interim final rule provides important clarity on the extension of eligibility. Here are the details:

  • Any company participating in the 8(a) program between the dates of March 13, 2020 (the date of the pandemic disaster declaration) and September 9, 2020 (the “as of” date in the statutes) is eligible to extend its participation for one year from the end of its program. This eligibility exists regardless of whether the company elected to voluntarily suspend its program participation as a result of the President’s disaster declaration on March 13, 2020.

    • The two acts specified an “as of” date of September 9, 2020. The SBA added a start date, using the date of the disaster declaration: March 13, 2020. SBA stated that it sought to include any firms participating in the program as of the date of the national disaster declaration based on its “understanding that Congress extended the term of participation in the 8(a) BD [Business Development] program because it believed that the pandemic has adversely affected 8(a) concerns and their ability to participate in and receive the full benefits of the program.”

  • The period of extension will be added to the end of a company’s transitional stage in the 8(a) BD program. Thus, the company will receive the additional benefits of the transitional stage and also must meet the same 50 percent non-8(a) business activity target that applies to program year nine.

  • A firm that was participating in the 8(a) BD program as of March 13, 2020, but graduated or otherwise left the program before January 13, 2021 must notify SBA of its intent to be readmitted for an additional year. SBA must receive the request no later than March 15, 2021, and the company must certify that it continues to meet applicable 8(a) eligibility requirements.

  • This extension does not apply to business concerns that graduated from or otherwise left the 8(a) BD program prior to March 13, 2020, or to business concerns that were admitted to the 8(a) BD program after September 9, 2020. In addition, the extension does not apply to companies in the 8(a) BD program between March 13, 2020 and September 9, 2020 that were terminated, early graduated, or voluntarily withdrew from the program in lieu of being terminated or early graduated.

This one year extension provides an important benefit to 8(a) firms. SBA notes that the additional year of eligibility will benefit approximately 4,150 8(a) firms during the course of the next ten years.


Government Data Rights: Defense Contractors May Use Custom Markings to Signal Rights against Third Parties

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By: Steven R. Englund and Grant B. Schweikert

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

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

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

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

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

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

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

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

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

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


Government Contractors Obtain Relief in More than Half of GAO Bid Protests

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By: Noah B. Bleicher and Carla J. Weiss

In late December, the Government Accountability Office (GAO) published its Bid Protest Annual Report to Congress for Fiscal Year 2020. The statutorily mandated report contains an array of information about GAO’s bid protest forum over the prior fiscal year, including the most prevalent reasons GAO sustained protests along with a variety of statistical data.

Most notably, GAO reports an “Effectiveness Rate” of 51% for fiscal year 2020, which is the highest rate since GAO began reporting this metric in 2001. The Effectiveness Rate reflects the percentage of protest matters in which the protester obtained some form of relief, either due to voluntary agency corrective action or a GAO decision sustaining the protest. In other words, in more than half of the cases GAO resolved in fiscal year 2020, the bid protest forum was an effective avenue for the protester.

The Annual Report further highlights that last year 2,149 protests, cost claims, and requests for reconsideration were filed; 545 cases were resolved on the merits; and GAO sustained 15% of the merits cases. While GAO only held a hearing in nine cases—likely due to the coronavirus pandemic—GAO used alternative dispute resolution (ADR) in 124 protest matters, a 210% increase over the prior fiscal year. For more on ADR at GAO, please review our recent article on the topic published by Law360.

GAO reports that the most prevalent reasons for sustaining bid protests during fiscal year 2020 were: (1) unreasonable technical evaluation; (2) flawed solicitation; (3) unreasonable cost or price evaluation; and (4) unreasonable past performance evaluation. This is the first time GAO cited improprieties in solicitations as a frequent basis for sustaining protests. It is also noteworthy that flawed selection decision, unequal treatment, and inadequate documentation of the record did not make the list this year despite being popular bases for sustain decisions during the past several years.

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 or the terms of a government solicitation.


The Government Contracts Legal Round-Up | Episode 4

In this episode, Partners Marc A. Van Allen and David B. Robbins examine the new, and controversial, “Divisive Concepts” executive order prohibiting workplace training materials “teaching that men and members of certain races, as well as our most vulnerable institutions, are inherently sexist and racist.” The hosts also discuss recent case law updates and defective pricing trends.

 


The Government Contracts Legal Round-Up | Episode 3

In this episode, Partner Marc A. Van Allen and Special Counsel Carla J. Weiss examine an upcoming interim rule on certain Chinese telecommunication companies that will become effective next month. They also share developments about Section 3610 reimbursements offered by the CARES Act, as well as discuss the Peraton Inc. bid protest decision and recent fraud cases.