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.

Legislative Update

FY 2023 National Defense Authorization Act (December 6, 2022)

The House and Senate have passed the FY2023 National Defense Authorization Act and sent it to President Biden’s desk for signature. As always, it’s a broad and wide-ranging piece of legislation with substantial impact on our industry. We summarize some of the key changes from the bill, and from the associated Joint Explanatory Statement, below.

• Section 803 gives the DOD authority to obtain data to support commercial product determinations in certain circumstances. The joint explanatory statement provides helpful background for the provision, saying “in order for contracting officers to make critical, foundational decisions related to contract actions for firm-fixed price sole source contracts, they need access to sufficient information to assess commercial item assertions and price reasonableness determinations.” The section also continues the obligation for USD Acquisition and Sustainment to submit an annual report detailing contractor denials of CO requests for uncertified cost or pricing data.
• Section 807 further expands whistleblower reprisal productions for disclosures to certain other federal inspector general offices, including the Pandemic Response Accountability Committee and the Council of the Inspectors General of Integrity and Efficiency.
• Section 816 extends a reporting requirement relating to unusually hazardous risk and contract indemnification. The Explanatory Statement provides interesting color that Congress remains concerned about the timeline for indemnification decisions and associated risks of delaying critical weapons systems, and the differences in application by various military branches.
• Section 822 will be of particular interest to contractors as it allows funds to be used to modify the terms of a contract or an option to provide an economic price adjustment due to inflation pressures. In the joint explanatory statement, Congress “recognize[d] that higher than anticipated economic inflation continues to challenge . . . budgeting and execution processes . . . . While it is important for the Department to uphold and enforce contractual terms and conditions, we believe the Department should be provided tailored authority to engage extraordinary measures to address extraordinary economic impacts.”
• Section 841 requires the development of guidelines for acquisition or licensing of intellectual property.
• Section 842 extends the authority for noncompetitive follow-on contract awards to transactions for prototypes in certain circumstances.
• Section 856 codifies the DOD mentor-protégé program. It also establishes a 5-year pilot program during which the protégé may receive a significant amount of reimbursement from the mentor company for certain engineering, software development or manufacturing customization activities.
• Section 857 requires the disclosure of the “provenance” of certain rare earth materials or to establish a supply chain tracking system no later than 180 days after the contractor provides certain items to the Defense Department.
• Section 884 requires classified programs to provide guidance for the proper marking of controlled unclassified information.
• Section 1553 requires DOD to set a policy for independent testing of cybersecurity of commercial cloud infrastructure.
• Section 5821 codified FedRAMP within the General Services Administration.
• Section 5949 prohibits certain semiconductor products and services originating in China. The Joint Explanatory Statement notes “that the intent of Congress in advancing this proposal is that, in serving federal supply chains, Federal contract recipients and their suppliers (including domestic and foreign subsidiaries, affiliates, distributors, and intermediaries) should not utilize companies connected to foreign countries of concern that threaten national security such as Semiconductor Manufacturing International Corporation, Yangtze Memory Technologies Corp, and ChangXin Memory Technologies. . . .”

Regulatory Update

SBA Creates Certification Process for VOSB and SDVOSB Concerns, 87 Fed. Reg. 73400 (November, 29, 2022)

• The Small Business Administration (SBA) has amended its regulations to implement a new certification process for Service-Disabled Veteran-Owned Small Business (SDVOSB) and Veteran-Owned Small Business (VOSB) Concerns. The new regulations will take effect on January 1, 2023. 
• The new rules are primarily aimed at Department of Veterans Affairs (VA) procurements set aside for SDVOSB and VOSB concerns. However, as of January 1, 2024, SDVOSBs must be certified by the SBA to compete for SDVOSB set-aside procurements by any federal agency. 
• The new rules contain instructions for the certification process, as well as provisions for companies that are already verified under the prior framework, including a grace period for those with certifications that will expire over the next year.

This is the latest of many twists and turns over the years for certifying SDVOSB and VOSB status, which was previously managed by the VA. The unique statutory and regulatory framework for VA set asides has become one of the most complex and heavily litigated areas of procurement law. For companies competing for these set-asides, whether directly or with a teammate, it is critical to understand how the new rules work.

Bid Protest Decisions

Obsidian Solutions Group, LLC vs. United States, No. 1:20-cv-01602-RAH (Fed. Cir. December 8, 2022)

• 15 U.S.C § 632(a)(2) of the Small Business Act provided that there would be a three-year look-back period for calculating the average annual receipts of a small business. However, in 2018, the Small Business Runway Extension Act of 2018 (REA) amended § 632(a)(2), allowing for a five-year look-back period.
• In this case, the SBA determined that, using a three-year look-back period, Obsidian did not qualify as a small business. Obsidian argued that the size determination was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” because the SBA was required to start using five years of annual receipts.
• Obsidian appealed from a decision by the Court of Federal Claims, which previously granted the United States’ motion for judgment on the administrative record. The Federal Circuit affirmed the prior ruling. The Federal Circuit determined that the REA did not apply to the SBA, and thus, the SBA’s size determination was not arbitrary or capricious.

This case shows that the five-year look-back period as specified in the REA applies to other agencies, and not the SBA. For contractors, this is important because the SBA, when making a size determination, will look-back to receipts from the past three years. The distinction is important when determining whether your company qualifies as a small business when bidding on a government contract.

Air Borealis Ltd. P'ship v. United States, No. 22-1554C (Fed. Cl. December 12, 2022)

• The Court of Federal Claims confirmed the broad right of intervention in bid protests. The case arose from the Department of Defense’s unique procurement regime for contracts with Canadian suppliers, in which DOD first awards all contracts to the Canadian Commercial Corporation (CCC), which in turn, awards the contract to the successful offeror. DOD awarded the contract in dispute to Kenn Borek; Air Borealis protested the award and contested Kenn Borek’s motion to intervene.
• The Court affirmed intervention as of right. The Court upheld that Kenn Borek–as the presumptive awardee–has a “legal right to be paid for its work,” and furthermore, that its interests were not adequately protected by the Government as “it is unrealistic to think that ‘collusion, adversity of interest, or nonfeasance’ should be necessary to show different interests” between the Government “participating in commerce” and an intervenor. The Court also rejected the argument that Kenn Borek was essentially a subcontractor to CCC, or that CCC’s independent interest in the procurement impacted the awardee’s right to intervene.
• The Court also would have granted permissive intervention. The Court broadly affirmed that intervention is permitted so long as the intervenor may raise arguments that are of “the ‘kind that can’ be raised” in the litigation, and rejected the claim that intervention should be denied as it would increase the expense of litigation and lead to duplicative pleadings where, again, the Government’s and intervenor’s positions are not coextensive.

The decision confirms that contractors—particularly awardees of a challenged contract—have a broad right to intervene in bid protests. Exercising that right is important because, as the decision recognizes, the Government does not and cannot adequately protect a contractor’s interests, even if the protester does not directly assert any claims against a potential intervenor. While intervention is often undisputed, the issue does sometimes require careful briefing of nuanced procedural rules; protest parties and their counsel should be ready and able to engage on this front.

ASRC Federal Data Solutions, LLC, B-421008 et al. (December 2, 2022) (published December 8, 2022)

• GAO sustained a bid protest alleging that the awardee made a material misrepresentation concerning the availability of a proposed key person.
• When submitting its quotation, the awardee (Arlluk Technology Solutions, LLC) stated the company had a contingent offer of employment from Dr. B, who was currently employed by ASRC’s subsidiary on the incumbent contract. While Dr. B originally accepted a contingent offer from Arlluk, prior to quotation submission she informed the company that she was exclusively committed to ASRC and no other company was authorized to use her name in their quotation.
• GAO concluded the inclusion of Dr. B in Arlluk’s proposal was a misrepresentation because the company did not have a reasonable basis on which to expect it would furnish Dr. B during contract performance.
• GAO further held that the misrepresentation was material because the agency assigned Arlluk’s quotation a strength for Dr. B’s qualifications and experience, which led to the view that Arlluk’s quotation was technically superior and worth the price premium.
• Notably, GAO recommended that Arlluk be excluded from the competition.

When proposing key personnel, offerors must have a reasonable basis that the candidates they put forth will be available for performance. The penalty for a material misrepresentation—being kicked out of the competition—is too severe to be anything less than scrupulous in this regard.

VSolvit, LLC, B-421048, B-421048.2 (December 6, 2022) (published December 13, 2022)

• GAO found untimely VSolvit’s primary objections to the Department of Agriculture’s (USDA) decision not to consider the experience of VSolvit’s proposed subcontractors in a USDA competition, conducted under FAR subpart 8.4, for the issuance of a call order for information technology services.
• During the competition, VSolvit learned that its subcontractor’s past performance would not be taken into account, and it objected to the contracting officer. VSolvit then escalated its concerns in an email to the USDA senior procurement executive (SPE).
• On August 29, the SPE replied to VSolvit, explaining that “a subcontractor’s experience is not required to be considered as experience for the prime” in this GSA schedule procurement.
• VSolvit filed its post-award GAO protest within 10 days of award notice but 14 days after the SPE rejected the vendor’s past performance objection.
• In finding VSolvit’s post-award protest largely untimely, GAO viewed VSolvit’s letter to the USDA procurement executive as an agency-level protest, thus requiring any protest to GAO to be filed within 10 days of the SPE’s response.
• According to GAO: VSolvit “appeal[ed] to a higher agency authority concerning the contracting officer’s interpretation of the solicitation”; VSolvit’s email to the SPE “expresse[d] concern with [USDA’s] interpretation of the RFQ regarding subcontractor experience, and provide[d] a detailed legal and factual basis for VSolvit’s concerns”; and the email “request[ed] relief from the senior procurement executive on the issue raised.”
• Because VSolvit’s August 22 email to the USDA senior procurement executive had “all the hallmarks and trappings of an agency-level protest,” GAO treated the email as such, rendering the subsequent protest to GAO—filed 14 days after the SPE response—untimely.

The FAR prescribes substantive requirements for all agency-level protests, and requires that a protest include, among other things, a detailed statement of the legal and factual grounds for the protest, a request for a ruling by the agency, and a statement requesting a form of relief. FAR 33.103(d)(2)(v)-(vi). GAO routinely explains that a vendor’s letter or email does not have to state explicitly that it is intended as a protest for it to be so considered, but it must, at least, express dissatisfaction with an agency decision and request corrective action. Under GAO’s timeliness rules, if a timely agency-level protest was previously filed—even a de facto one not intended by a protester to be an agency-level protest—any subsequent protest to GAO must be filed within 10 days of actual or constructive knowledge of initial adverse agency action.