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.
Supply Chain Regulatory Update
The US Department of Commerce’s National Institute of Standards and Technology (NIST) recently published a proposed rule that defines two clawback mechanisms under the Creating Helpful Incentives to Produce Semiconductors and Science (CHIPS) Act of 2022.
The CHIPS Act provides funding to support investments in semiconductor facilities in the United States. The two clawback mechanisms defined in the proposed rule are the “Expansion Clawback” and the “Technology Clawback.”
- The Expansion Clawback forbids CHIPS funding recipients from entering “significant transactions” involving the “material expansion of semiconductor manufacturing capacity in a foreign country of concern.” The proposed rule defines “significant transaction” as either one or an aggregate of transactions valued at $100,000.00 or greater. The definition of “material expansion” is steps that would increase a semiconductor facility’s manufacturing by “more than five percent.”
- The Technology Clawback provides for the US government’s full recovery of funds if the funding recipient knowingly engages in any joint research or technology licensing effort with a foreign entity of concern, as defined by the Act. A “foreign entity of concern” is defined, in part, as a foreign entity that is located in, or subject to the jurisdiction of, China, Russia, North Korea, Iran, or other countries that are determined to engage in activities detrimental to US foreign policy goals. The rule also covers entities that are designated as foreign terrorist organizations, entities included on the Department of Treasury’s list of Specially Designated Nationals and Blocked Persons (SDN List), and entities owned by, controlled by, or subject to the jurisdiction or direction of one of the countries listed above.
Public comment on this proposed rule is open until May 22, 2023. Interested contractors who are concerned about the implications of this rule are encouraged to discuss the matter with counsel and participate in the public commentary process.
Accenture Federal Services, LLC, B-421134.2 et al. (April 12, 2023)
- GAO denied a protest that the awardee possessed organizational conflicts of interests (OCIs) after the Department of Homeland Security Transportation Security Administration (TSA) executed a waiver during the protest.
- TSA issued the solicitation for human capital support services, a broad human-resources category of services previously provided through separate contracts performed by Accenture Federal Services and Deloitte. Additionally, both offerors perform IT support service task orders for TSA, with Deloitte providing IT support to TSA’s human capital office.
- Accenture alleged that Deloitte had disqualifying unequal access to information and impaired objectivity OCIs.
- Relevant here, the contracting officer found that there was no OCI because even though Deloitte would make recommendations for technology changes that would be implemented by Deloitte under its other IT support service order, TSA would review the recommendations and decide itself whether to adopt any recommended changes. During the course of the protest, GAO held a conference call and “raised questions” about this aspect of the OCI determination.
- Shortly thereafter, the head of TSA’s contracting activity executed an OCI waiver under FAR 9.503, which waived all alleged OCIs. GAO rejected challenges to the waiver, finding it procedurally sound, and denied the protest.
This decision highlights two significant principles in OCI jurisprudence at GAO. First, the fact that the Agency will review the potentially impaired advice does not necessarily resolve concerns of impaired objectivity; after all, it is the provision of biased advice that should be avoided. Second, a properly executed OCI waiver is a powerful response to OCI allegations because the waiver can be executed at any time and GAO’s review of the waiver is limited to compliance with the FAR’s procedural requirements.
Percipient.ai, Inc. v. United States, Fed. Cl. No. 23-28C (March 31, 2023)
- Court of Federal Claims Judge Bruggink denied motions to dismiss a protest by Percipient.ai challenging the National Geospatial-Intelligence Agency’s (NGA) compliance with its obligations under the Federal Acquisition and Streamlining Act (FASA) to procure commercial or non-developmental products to the maximum extent practicable.
- NGA previously awarded the SAFFIRE IDIQ contract to CACI, with the goal of obtaining both a data repository of geospatial intelligence and an AI-driven computer vision system that would allow NGA to analyze the data.
- Percipient.ai engaged with CACI and NGA to have its computer vision software, Mirage, evaluated as an analytical tool to support NGA’s analysis of data collected under CACI’s SAFFIRE contract. When rebuffed, Percipient.ai protested, claiming that CACI and NGA essentially decided to develop a new computer vision software rather than acquire an existing solution like Mirage. Percipient.ai argued that this developmental course of action violates FASA’s mandates, including the requirement to permit competition from offerors of commercial and non-developmental items, and to incorporate commercial services and products as components of items supplied to the agency.
- The Government and CACI quickly moved to dismiss the complaint, raising a host of jurisdictional, standing, and timeliness arguments.
- The Government’s primary arguments attempted to characterize the claims as matters of contract administration that could not be raised in a bid protest, particularly where Percipient.ai did not submit a bid for the SAFFIRE contract and did not claim capability to perform the entire SAFFIRE work scope. Judge Bruggink rejected these arguments based on the unique nature of the rights granted by FASA, which requires agencies to conduct market research to maximize use of commercial products and services even after the award of an IDIQ contract.
- Judge Bruggink also declined to dismiss the case as untimely, concluding that the doctrine of laches is not applicable in bid protests, and finding that the Blue & Gold rule does not apply because the SAFFIRE solicitation did not require a developmental solution.
This litigation is likely to carry significant implications for how agencies incorporate new technologies into existing contract vehicles. Consistent with the arguments for dismissal, many agencies currently operate under the assumption that they are essentially immune from protest risk when deciding what technologies to incorporate under a single award IDIQ like SAFFIRE. If Judge Bruggink’s analysis of the threshold issues hold, that alone will give commercial vendors significant leverage in efforts to enforce agency compliance with FASA.
Triple Canopy, Inc., ASBCA Nos. 61415, et al. (Published March 23, 2023)
- The ASBCA issued a decision holding that a private security firm was entitled to reimbursement for fees it paid to operate in Afghanistan; the board said the fees were akin to reimbursable after-imposed taxes and did not constitute penalties.
- The contractor held six fixed-price DoD contracts, all awarded in 2009 and 2010, to provide security services on military bases in Afghanistan. The contracts required compliance with local laws and included FAR 52.229-6 (Taxes-Foreign Fixed Price Contracts), which states that the contract price must be increased by the amount of any after-imposed tax the contractor pays.
- In 2011, the Afghan government issued a directive that required the contractor to pay certain fees for exceeding a 500-person employee cap. The contractor paid the fees and then invoked FAR 52.229-6 to seek reimbursement from the government.
- On appeal, the government argued that the fees were more like a penalty intended to deter contractors from doing business in Afghanistan, and that the contractor failed to prove that the fees were an after-imposed tax.
- The ASBCA rejected the government’s arguments and determined that the fee was like a tax because contractors could continue to do business by complying with the fee requirements. In other words, paying the fee made the contractor compliant with local law.
The Board’s decision is a reminder to contractors holding fixed-price contracts that unanticipated fees of doing business in a foreign country could be reimbursable under FAR 52.229-6.
Small Business Cases
Defense Integrated Solutions, LLC v. United States, Fed. Cl. No. 23-64C (April 5, 2023)
- Court of Federal Claims Judge Solomson affirmed the conclusion from the Small Business Administration (SBA) Office of Hearing and Appeals (OHA) that a mentor-protégé joint venture (JV) agreement requiring unanimous consent to file a claim or initiate litigation did not give rise to impermissible negative control by the mentor.
- In 2020, the SBA promulgated amendments to the small business regulations confirming that while the protégé must be responsible for controlling the day-to-day management and administration of the contractual performance, “other partners to the joint venture may participate in all corporate governance activities and decisions of the joint venture as is commercially customary.”
- Here, the JV agreement for Strategic Alliance Solutions LLC (SAS) (the intended awardee) requires unanimous consent of the partners to file a claim or initiate litigation. Following a size protest by Defense Integrated Solutions, LLC (DIS), OHA originally found that this requirement resulted in a deficient JV agreement that rendered SAS ineligible for award. Following COFC litigation filed by SAS and a remand back to OHA, OHA overturned its prior ruling and determined that entering into litigation is properly seen as part of corporate governance and is thus an area where the other partners to the joint venture may participate.
- In “the litigation version of Freaky Friday,” DIS challenged OHA’s change of heart. But Judge Solomson affirmed OHA’s decision, finding the plain language of the regulation supported this outcome (i.e., a contractor does not engage in contract performance when it files a claim or initiates litigation) and that OHA has deference to interpret its own ambiguous regulations.
This decision settles one question regarding what constitutes “corporate governance activities and decisions of the joint venture as is commercially customary,” but expect more litigation before OHA and COFC to flesh out these “hopelessly ambiguous” regulations.