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.

Commercial Item Contracting Update

A recent DFARS amendment restricts DoD contracting officers’ ability to include non-commercial FAR and DFARS clauses in new solicitations for commercial products and services. The new rule also curtails the types of clauses that DoD prime contractors can flow down to subcontracts for commercial products and services. Previously, the DFARS vaguely permitted prime contractors to flow down additional clauses above and beyond the mandatory flow-downs. Under the amended rule, only mandatory flow-downs are permitted. Additional DFARS amendments are expected as part of a broader initiative to clarify the rules for commercial subcontracts, including a much-anticipated definition of the term “subcontract.”

Artificial Intelligence Update

Byte-Sized Steps – Navigating the Biden Executive Order on AI and Other Recent Developments in AI Regulation

President Biden signed a long-awaited executive order that builds upon the administration’s previously released, non-binding Blueprint for an AI Bill of Rights, and seeks to catalyze both agency action and congressional legislation on artificial intelligence in the coming months. The Federal AI Executive Order covers myriad concerns that have been raised relating to AI—from cybersecurity to anti-discrimination to competition. This executive order builds on state executive and international efforts to regulate AI. Jenner & Block has compared the key elements of major orders and a new international code of conduct to regulate AI to help companies, including government contractors, understand the risks and concerns they face in building or integrating AI tools into their consumer or enterprise-facing products and services.

EEO-1 Data Collection Update

The 2022 EEO-1 Data Collection Process is Finally Open

After multiple delays, the collection is open. The deadline for completion is December 5, 2023.

The Director of the US Securities and Exchange Commission’s Enforcement Division issued guidance in a recent speech concerning Chief Compliance Officer liability. The SEC has brought enforcement actions where compliance personnel participated in misconduct outside of their compliance jobs, where compliance personnel misled regulators, and where there was a wholesale failure to carry out compliance responsibilities, such as failing to conduct compliance reviews and failing to remediate quality control problems. Director Grewal noted it is “rare” for compliance officers to be targeted, but the speech serves as an important reminder for compliance professionals about the rigors of, and risks involved with, their professions.

Protest Decisions

Myriddian, LLC v. United States, No. 23-1113C | November 20, 2023

• Court of Federal Claims Judge Bruggink issued an interesting decision upholding the evaluation of the awardee’s proposed key personnel where the underlying solicitation provided broad minimum education requirements and permitted flexible staffing approaches.
• CMS issued a solicitation to procure coding services to improve Medicare and Medicaid claim processing systems. After resolving a previous protest and conducting a reevaluation of proposals, CMS awarded the contract to J29. Myriddian, a technically superior but higher-priced offeror, protested. Myriddian argued that CMS conducted an improper best value determination because, in part, the agency misevaluated the qualifications of two of J29’s proposed personnel.
• Specifically, Myriddian contended that J29’s program director did not meet the solicitation’s minimum requirements because the individual had a bachelor’s degree in psychology, and the solicitation required the director to have a bachelor’s or master’s degree “in a field of study that can be reasonably interpreted to perform tasks related to this position.” Myriddian also argued that the agency unreasonably evaluated the risk posed by J29’s medical director, who was proposed as a part-time employee supported by an “assistant medical director” whose resume was not included in the proposal.
• The Court rejected these arguments. First, it was “eminently reasonable” for the agency to find that someone with a “quasi-medical” degree would be able to successfully lead a project team as the program director. Second, the Court rejected Myriddian’s complaints regarding the medical director position and noted that the solicitation neither required a full-time medical director nor required the submission of an associate medical director’s resume.

Although agencies cannot disregard minimum requirements set forth in a solicitation, agencies are generally afforded discretion to assess the adequacy of an offeror’s proposal. Myrridian provides an important reminder that COFC will uphold agency decision-making where it is reasonably consistent with the solicitation’s terms, notwithstanding recent decisions sustaining LCAT mapping and minimum requirements-related protests.

Global Alliant, Inc., B-421859.1 et al. | November 7, 2023

• GAO denied a protest challenging the issuance of a task order by the Department of Health and Human Services (HHS).
• Notably, HHS requested that GAO dismiss the protest, claiming that the protester was not an interested party because one of its proposed key personnel left the company prior to task order award and the protester did not advise HHS of the departure.
• HHS invoked GAO’s well-known rule—almost always applied by protesters to challenge the evaluation of an awardee—that a firm is required to advise an agency where it knows that its key personnel became unavailable after proposal submission but prior to award.
• GAO rejected the argument, finding that the evidence did not support the agency’s contention of unavailability: the proposed key person was employed by the protester’s subcontractor up to and through the date of award and only departed days later.

GAO’s rejection of the agency’s “interested party” dismissal request turned on the fact that the protester’s key person was not actually unavailable, but a different result presumably could have manifested under alternative circumstances. Key personnel availability issues thus should remain top of mind for both awardees and protesters under GAO’s precedent.

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.

Former CIO’s False Claims Act Suit: A Warning for Universities (And Beyond) over Controlled Unclassified Information Compliance, The Government Contractor (October 11, 2023)

Jenner & Block Partner David Robbins and Associate Moshe Broder highlight a recent decision by a Pennsylvania court to deny the government’s request to keep under seal a False Claims Act (FCA) qui tam suit against Pennsylvania State University. The authors provide background on the complaint, which alleges that Penn State failed to follow government contracting requirements to safeguard controlled unclassified information, or CUI. They observe: “As experienced FCA defense lawyers, we know well that complaints can exaggerate facts and the truth is not always as colorful. Nevertheless, this complaint highlights the complexity of compliance with difficult and highly technical cybersecurity requirements.”

GAO Releases Its Annual Bid Protest Statistics (October 30, 2023)

Our Government Contracts team breaks down the numbers in the Government Accountability Office’s (GAO) Bid Protest Annual Report to Congress for Fiscal Year 2023. As we explain, the report shows that the number of bid protests filed and GAO’s “effectiveness rate” increased this past fiscal year, but these statistics were largely inflated by hundreds of protests emanating from one procurement. We also stress that “in more than half of the cases GAO resolved in fiscal year 2023, the bid protest forum was an effective avenue for the protester to obtain at least some relief.”

Bid Protest Updates

Sierra7, Inc., B-421299.2 (October 11, 2023)

• GAO denied in part and dismissed in part a protest where the protester was not an “interested party” to maintain its protest.
• After the protester filed its initial protest, the agency revealed that an intervening offeror submitted a quotation that was rated equally under the non-price factors but lower in price. The agency sought dismissal because that intervening offeror was next in line for award of the task order.
• To avoid dismissal, the protester alleged that the intervening offeror’s quotation should have been assigned a weakness because the agency determined that one price element was unbalanced.
• GAO disagreed, noting that unbalanced pricing is ordinarily required only in connection with the award of negotiated contracts under FAR Part 15 unless the requirement is specifically stated in the solicitation. In this competition conducted under FAR Part 16, the solicitation did not require an assessment for unbalanced pricing; indeed, the RFQ expressly disclaimed the applicability of FAR Part 15 procedures. In any event, the agency’s conclusion that the unbalanced price element did not pose an “unacceptable risk” was broadly consistent with the requirements of FAR Part 15.

Interested party status can be a trap for the unwary. Protesters must carefully assess the competitive landscape, including whether intervening offerors stand in the way of reaching a decision on the merits.

Small Business Updates

Karthik Consulting, LLC v. United States, No. 23-944 (October 4, 2023)

• Court of Federal Claims Judge Dietz issued an important opinion on the SBA 8(a) program’s eligibility requirements relevant to contractors who may graduate (or have graduated) from the program.
• In December 2022, DHS issued a solicitation set aside for 8(a) vendors under the GSA Highly Adaptive Cybersecurity Services (HACS) Special Item Number (SIN) 54151 vehicle. The solicitation asked quoters to indicate their 8(a) status and noted that “quotes that are not submitted by 8(a) quoters under GSA HACS MAS SIN 54151 8(a) at the time of initial task order quote submission shall not be considered and will be further removed from the competition.”
• Karthik, which was awarded a GSA HACS MAS SIN 54151 contract as an 8(a) firm but had since graduated from the program, submitted a quotation. Although identified as the intended awardee, based upon SBA guidance, DHS deemed Karthik ineligible for award.
• Karthik protested, arguing that there was a safe harbor for companies that obtain their seat on a multiple award contract as an 8(a) awardee, and then graduate from or exit the 8(a) program during the base period of contract performance.
• Judge Dietz disagreed, finding that there was no continued right to compete for and receive 8(a) task order awards where the task order awardee has graduated from the 8(a) program. Instead, he specifically noted the SBA was correct in asserting that FAR 19.804-6 does not provide a safe harbor for firms bidding on a multiple award contract that is not an exclusive 8(a) set aside.

It is not always easy for 8(a) participants to understand their eligibility to bid on a certain contract. Karthik Consulting is an important reminder to contractors that the interplay of relevant SBA regulations requires careful consideration, and that—where it is at all ambiguous—it is important to seek counsel before responding to solicitations containing these requirements.

FOIA Exemption Updates

Buzzfeed Inc. v. United States, No. 19-1977 (D.D.C. October 17, 2023), No. 19-1977 (D.D.C. October 17, 2023)

The DC District Court recently denied a motion for summary judgment challenging the agency’s use of FOIA Exemptions 4, 7(A), and 7(E) to withhold responsive documents. Buzzfeed sought documents related to the Los Angeles FBI field office and procuring services from several genetic genealogy testing companies, and when rebuffed, argued that the agency had failed to justify invoking the claimed FOIA exemptions.

• The district court disagreed. The court explained that to withhold documents under FOIA Exemption 4, the information must be (1) commercial or financial, (2) obtained from a person, (3) privileged or confidential, and (4) it is reasonably foreseeable that disclosure would harm the interest protected by the exception.
• The court found that the FBI’s Vaughn Index and declaration submitted to support the agency’s exemptions adequately demonstrated that the withheld documents, which included “confidential contractual and transactional documents and communications, including terms, conditions, privacy agreements, and procedural guidelines, and details relating to advancements for use of genetic genealogy services for law enforcement investigation purposes,” contained commercial information obtained from a person.
• The court also held that the documents were “confidential” as defined by the Supreme Court in Food Marketing Institute v. Argus Leader Media because the information was both customarily and actually treated as private by the genetic genealogy companies and provided to the FBI under an assurance of privacy. The information provided to the FBI had not been publicly disclosed, and the companies had confidentiality policies that prohibited the disclosure of the information shared with the government. With respect to the second prong of the Argus standard, the court noted that the contractors had submitted proposals after being told that “the contractor services requested would remain confidential even if the service contract is not accepted.”
• Finally, the court agreed that the agency had sufficiently explained how the disclosure of the information would foreseeably harm the interest protected where the FBI specified that disclosure would place the contractors at a competitive disadvantage by revealing pricing, financial, and proprietary genetic services information, especially where competitors were vying for the same contracts with the same potential customer.

This case serves as an important reminder that to shield confidential information from disclosure under FOIA Exemption 4, contractors should not only have in place confidentiality policies protecting the disclosure of information but must also be careful to indicate that information submitted to the agency—for example, in response to a solicitation—is shared with the expectation that the agency would keep it confidential.

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.

Claims Updates

The Federal Circuit took the second major step towards correcting the jurisdictional framework that applies to Contract Disputes Act (CDA) litigation in ECC International Constructors, LLC v. Secretary of the Army, holding that the requirement for contractors to state a sum certain in a CDA claim is not a jurisdictional rule. The Federal Circuit explained that Congress did not clearly state that a claim submitted under the CDA must include a sum certain in order for the board or a court to exercise jurisdiction, and Supreme Court precedent further supports that the sum-certain requirement fits comfortably within the class of mandatory, nonjurisdictional claim-processing rules that concern the elements of a claim.

Stay tuned for more detailed analysis from Special Counsel Nathan Castellano in the next issue of The Nash & Cibinic Report.

PAE Applied Technologies LLC, ASBCA No. 63233 (August 24, 2023)

• The ASBCA denied the Navy’s motion to dismiss in a decision addressing what constitutes a government claim under the Contract Disputes Act.
• Specifically, the ASBCA determined that a Navy demand letter—in which the Navy sought repayment of COVID-19-related costs previously paid to the contractor—could constitute a final decision and government claim under the CDA. Accordingly, the ASBCA determined it had jurisdiction over the contractor’s appeal.
• The Navy’s demand letter asked the contractor to reimburse the Navy $4,302,782.8 plus the applicable indirect rates plus a 2% fee. The Navy wrote that the payments to the contractor were unallowable “non-productive” COVID-19 costs. In addition, the Navy placed a 30-day payment deadline, after which the Navy stated it would calculate interest on the amount owed.
• The ASBCA looked to the “totality of the previous correspondence between the parties” to determine whether a final decision, and thus a government claim under the CDA, existed.
• Using this test, the ASBCA determined that the demand letter sufficiently stated the amount the Navy was seeking to recoup and Navy’s basis for seeking recoupment. The board concluded it did not matter that the demand letter was not formally labeled as a final decision. The board also determined that the sum certain requirement was met regardless of whether the correct applicable indirect rates and fee were applied; the sum certain was the amount the government previously paid the contractor.

The boards will look to substance over form when determining whether a final decision and claim by the government has been issued. Contractors receiving requests for monetary payments from their government customer should take care to not miss any appeal deadlines.

Protest Decisions

Raytheon Intelligence & Space, Electronic Warfare Self Protect Systems, B-421672.1; B 421672.2 (August 17, 2023)

• GAO upheld the exclusion of Raytheon from a competition for electronic-warfare self-protection decoys where the contracting officer determined that Raytheon gained an unfair competitive advantage by hiring a former government employee.
• The contracting officer’s investigation found that the former government employee served as a technology advisor for a predecessor phase of the program and provided input on draft documents for the current acquisition.
• GAO rejected all the protester’s arguments, including that the former government employee’s access to information was limited. GAO noted that the contracting officer conducted a thorough investigation that documented the scope of the employee’s responsibilities and the relevance of his work on the predecessor program to the current procurement.
• Similarly, despite the protester’s contention that the former government employee provided only limited input into preparing Raytheon’s proposal, GAO found that there were “hard facts” (and not mere speculation) based on the official’s access to proprietary information and involvement in prior government work. Under such circumstances, there is a rebuttable presumption that judgments involved in preparing a proposal may be shaped—consciously or subconsciously—by knowledge of restricted information.
• Finally, GAO found unobjectionable the contracting officer’s decision to place little weight in the post-government employment opinion letter for the former government employee. Although the letter imposed no restriction relating to participation in the procurement, the opinion letter was based solely on information volunteered by the employee to the Navy lawyers, and the employee did not identify any role on this program.

The FAR prohibits conflicts of interest in the government’s procurements, directing agencies to strictly avoid even the appearance of a conflict of interest in relationships between the government and contractors. Accordingly, where an offeror chooses to hire a former government official who has had recent access to competitively useful information and uses that official to help prepare the offeror’s proposal, the proposal may be properly disqualified based on the appearance of an unfair competitive advantage.

Small Business Updates

A recent decision from the Small Business Administration (SBA) Office of Hearing and Appeals (OHA) serves as a good reminder that OHA is a stickler for its service rules. In this matter, VSBC Appeal Of: Better Metal, LLC, the appellant appealed the denial of its application for certification as a Veteran-Owned Small Business to OHA, but served a copy of its appeal to the wrong SBA email address. Despite the appellant’s arguments that this was an unknowing and inadvertent typographical error with no prejudicial effect on the SBA, OHA nonetheless dismissed the appeal as noncompliant. For companies filing at OHA, it is critical to ensure that all service requirements have been met—or suffer dismissal.

8(a) Applications/Eligibility 

In the wake of a court decision preventing the government from using a “rebuttable presumption of social disadvantage in administering” the 8(a) program, GSA has issued guidance on how to administer the program. 8(a) program participants and prospective participants should review the guidance here.

Investigations and Enforcement

Joint Commerce, Treasury and Justice Announcement Regarding Disclosing Export Control Violations

The Departments of Commerce, Treasury and Justice recently released a note describing the voluntary self-disclosure policies applying to US sanctions, export controls, and other national security laws, and highlighting recent changes. This helpful guide contains timelines and summary guidance that government contractors and recipients of federal funds are well advised to review and, if necessary, use to update existing company policies and procedures.

COVID-19 Relief Fraud Enforcement Results Announced

DOJ recently announced the results of its COVID-19 fraud enforcement efforts. The results include criminal charges against 371 defendants for offenses relating to over $836 million in alleged COVID-19 fraud. DOJ also highlighted its seizure of “over $1.4 billion in COVID-19 relief funds” and charged “over 3,000 defendants with crimes in federal districts across the country.” The DOJ press release may be found here.

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.

Federal Circuit Cases

Percipient.ai, Inc. v. United States, Fed. Cir. No. 2023-1970

• We have been covering the Percipient.ai protest, which has sparked significant litigation over the scope of Court of Federal Claims (COFC) bid protest jurisdiction.
• The protest argues that the National Geospatial-Intelligence Agency (NGA) failed to satisfy its obligations under the Federal Acquisition Streamlining Act (FASA) when deciding to develop software under a task order vehicle rather than acquire an existing commercial solution.
• COFC initially found that the protest was timely and justiciable, but later reversed course and dismissed the protest as precluded under the FASA task order protest bar.
• Percipient.ai sought expedited appeal proceedings at the Federal Circuit; the Court permitted Percipient.ai to expedite its own briefing and assured the case would be scheduled for argument relatively soon after briefing is complete, but the Court declined to accelerate the deadline for response briefs.
• Percipient.ai filed its opening brief, arguing that the protest is not barred by FASA, but rather seeks to hold the agency accountable to FASA.
• Based on their responses in opposition to the motion for expedited briefing, the government and intervenor appear poised to defend COFC’s holding and raise alternative arguments for dismissing the protest (i.e., re-raise the standing and timeliness challenges that COFC previously rejected).

The Percipient.ai protest raises important and interesting substantive questions about the scope of an agency’s obligations under FASA. These issues go to the heart of how agencies can use the now-ubiquitous “umbrella contract” vehicles like IDIQs, GWACs, and MACs. But the posture of the protest may mean that procedural issues like jurisdiction, Blue & Gold, and “interested party” status prevent the Court of Federal Claims from ever reaching the substantive issues. Either way, there is a lot for contractors, procuring agencies, and their counsel to learn from this litigation as it works its way through the Federal Circuit.

FOIA Exemption 4 Cases

Flyers Rts. Educ. Fund, Inc. v. Fed. Aviation Admin., No. 21-5257 D.C. Cir. (June 30, 2023)

• In 2020, following the conclusion of the FAA’s 20-month review of Boeing 737 MAX planes after a decision to ground them in 2018 in light of two deadly plane crashes, Flyers Rights filed a FOIA request seeking documents the FAA relied upon to determine whether to authorize the planes to reenter service.
• While the FAA identified responsive documents, it withheld or redacted most documents under FOIA Exemption 4, which protects trade secrets and privileged or confidential commercial or financial information.
• Flyers Rights challenged the agency’s use of FOIA Exemption 4, but the district court sustained the FAA’s application of the exemption. The DC Circuit affirmed the district court’s decision on appeal.
• The DC Circuit elaborated on a question left open by the Supreme Court’s decision in Food Marketing Institute v. Argus Leader Media on whether information is confidential—and therefore protected under FOIA Exemption 4—only if “the party receiving it provides some assurance that it will remain secret.” Food Marketing Institute v. Argus Leader Media, 139 S. Ct. 2356, 2363 (2019). 
• Relying on this uncertainty in Argus Leader, Flyers Rights argued that while Exemption 4 does not always require an assurance of secrecy, it cannot apply where an agency explicitly represents before disclosure that the information would be released. 
• But the DC Circuit rejected Flyers Right’s factual predicate that the various statements made by the FAA and Boeing that the investigation would be conducted with “transparency” were in fact explicit commitments to release information, and thus held that Exemption 4 properly applied.

This decision serves as a reminder that it is yet unsettled what role the dicta regarding the assurance of secrecy in Argus Leader plays in whether confidential information qualifies for protection under Exemption 4. Contractors providing information to the government should consider requesting confirmation from the agency that its confidential information will be kept confidential. At a minimum, contractors should be wary of express statements by the agency that the contractor’s information will be subject to disclosure.

Protest Cases

Leidos Inc.; Booz Allen Hamilton Inc., B-421524 et al. (June 20, 2023)

• GAO denied a protest challenging the agency’s failure to conduct a price realism evaluation because the terms of the solicitation did not require the agency to conduct such an assessment.
• In this cmpetition valued in excess of $1 billion, the Department of Treasury issued a solicitation to establish a blanket purchase agreement for IT and cloud solutions.
• One protester alleged that the solicitation required a price realism evaluation and that the awardee’s proposal—which was more than $140 million less than the protester’s—contained risk that was unaccounted for by the agency.
• GAO disagreed, finding that the solicitation’s language was permissive, not mandatory. GAO focused on the lack of an express price realism evaluation criterion, as well as the overall structure of the solicitation, to conclude that the agency reserved the right to conduct a price realism evaluation but did not commit itself to doing so.

In a fixed price environment, procuring agencies do not necessarily have to conduct a price realism evaluation because the risk of loss is on the contractor rather than on the government, but may include such a provision when the agency is concerned that its requirements may not be fully understood by offerors. Where, as here, a solicitation merely reserves the agency’s right to conduct a price realism evaluation, such an assessment remains at the agency’s discretion.

BOF GA Lenox Park, LLC, B-421522 (June 20, 2023)

• GAO sustained a protest where an agency unreasonably evaluated the awardee’s proposal as complying with material terms of the solicitation.
• On behalf of the Drug Enforcement Agency, the General Services Administration (GSA) issued a request for lease proposals (RLP) for the provision of commercial office space in the Atlanta, Georgia area. The RLP contained certain public transportation requirements, including that a subway, light rail, or bus rapid transit stop shall be located within the immediate vicinity of the building offered.
• The protest alleged that the awardee should have been evaluated as technically unacceptable because its proposed property did not meet a material RLP requirement for proximity to public transportation options, including, as relevant here, a “bus rapid transit stop.” Instead, the awardee was only located within the vicinity of traditional, standard bus lines. In response, GSA argued that “bus rapid transit” did not refer to any specific type of bus transit system, and the protester’s definition was too restrictive.
• GAO agreed with the protester, finding that the RLP included a specific term, which was provided at the direction of a GSA lease alert and regularly used in all GSA leases, intended to require proximity to a particular type of transit service. GSA therefore improperly evaluated the awardee’s proposal on this basis.
• GAO also found prejudice because the protester stated that it considered purchasing the property offered subsequently by the awardee but “had discounted it because of the lack of proximity to rapid transit required by the RLP.” This was sufficient for showing a reasonable possibility of prejudice.

This decision reinforces that GAO will scrutinize solicitations when deciding protest grounds challenging the waiver or relaxation of requirements. To win such protests, however, it is critical for protesters to identify how the waiver or relaxation affected their substantial chance of receiving the award.

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.

Supreme Court Update

• On June 1, 2023, the Supreme Court issued a unanimous opinion on U.S. ex rel. Schutte v. SuperValu Inc. On May 3, 2023, we noted that we would update our readers once the opinion was issued.
• Previously, the Seventh Circuit found that subjective intent is not relevant to False Claims Act scienter when the law says the defendant’s actions were objectively reasonable.
• The Supreme Court instead held that the False Claims Act's scienter element refers to a defendant’s knowledge and subjective beliefs—not to what an objectively reasonable person may have known or believed.

Regulatory Update

New FAR 52.204-27 Prohibits TikTok on Information Technology Used or Provided by Contractors under Contracts

• On June 2, 2023, the FAR Council issued an Interim Final Rule that prohibits the presence or use of TikTok on information technology used or provided by the contractor under a contract that includes the clause.
• The rule is effective immediately given “urgent and compelling reasons” as a “national security measure to protect Government information and information and communication technology systems.” It is being included in solicitations beginning on June 2, 2023 and must be added to existing solicitations through amendment. It will also be added to existing contracts as part of new orders or option exercises.
• The rule prohibits “[t]he Contractor…from having or using a covered application on any information technology owned or managed by the Government, or on any information technology used or provided by the Contractor under this contract, including equipment provided by the Contractor's employees….”
• Following the statutory language, “information technology” is defined based on an existing—and somewhat confusing when applied here—definition at 40 U.S.C. 11101(6): “any equipment or interconnected system or subsystem of equipment, used in the automatic acquisition, storage, analysis, evaluation, manipulation, management, movement, control, display, switching, interchange, transmission, or reception of data or information by the executive agency, if the equipment is used by the executive agency directly or is used by a contractor under a contract with the executive agency that requires the use—(i) of that equipment; or (ii) of that equipment to a significant extent in the performance of a service or the furnishing of a product;…, but (C) does not include any equipment acquired by a federal contractor incidental to a federal contract.” (Emphases added.)
• Comments can be submitted prior to August 1, 2023.

Federal Circuit Court Claims Decision

Dept. of Transportation v. Eagle Peak Rock & Paving, Inc., Fed. Cir. No. 2021-1837 (June 6, 2023)

• A divided Federal Circuit opinion provides a useful reminder of the standard of review applicable in Contract Disputes Act (CDA) appeals.
• A contracting officer terminated a contract for default based on concerns that the contractor was not making sufficient progress to complete performance on time.
• On appeal at the Civilian Board of Contract Appeals, the Board converted the default termination into a convenience termination. The government appealed to the Federal Circuit.
• The majority decision, authored by Judge Taranto and joined by Judge Schall, reversed and remanded the Board’s decision. The opinion focuses on the principle that the Board was required to review de novo the contracting officer’s default termination. The majority concluded that the Board was too focused on identifying flaws in the contracting officer’s rationale, rather than determining in the first instance whether the termination was warranted.
• Judge Newman, dissenting, argued that the Federal Circuit panel should have gone ahead and decided based on the record whether the default termination was justified, rather than remanding to the Board for further litigation.

This decision is a useful reminder of the de novo standard of review that applies to CDA appeals, as compared to more deferential standards of review (abuse of discretion, arbitrary and capricious, etc.) that apply to review of agency decisions in the bid protest and other contexts. These varying standards of review drive significant differences in how disputes are litigated and resolved. Another significant implication of de novo review of CDA claims is that a contractor’s decision to appeal a contracting officer’s decision can place at risk any partial victory the contracting officer may have provided in response to the contractor’s claim. That is: if a contracting officer grants a contractor partial recovery in response to its claim, the Board on appeal may well conclude that no recovery was warranted at all, depriving the contractor of even the partial win. All these factors are worth weighing as companies consider claims litigation.

Protest Cases

Kupono Government Services, LLC; Akima Systems Engineering, LLC, B-421392.9 et al. (June 5, 2023)

• GAO sustained a protest challenging the scope of the Department of Energy’s (DOE) corrective action taken in response to earlier protests.
• The proposed corrective action contemplated revisions to cost proposals only. The protesters argued that that their respective cost and technical proposals were inextricably intertwined, and therefore they should be permitted to revise both portions of their proposals.
• As an initial matter, GAO criticized DOE for failing to even articulate the flaws in the procurement process that warranted the corrective action. The agency’s declarations on this point offered no substantive details or explanations. Because GAO was unable to discern the concerns that led the agency to take corrective action, GAO was unable to assess whether the proposed corrective action was appropriate to remedy the unidentified concerns.
• The protesters also demonstrated that because the agency is soliciting for a cost-reimbursement type contract, their respective cost and technical proposals were inextricably intertwined. Citing a few examples, GAO agreed that changes to the protester’s respective cost proposals will necessarily impact their respective technical approaches.
• GAO therefore sustained the protest and recommended that the agency permit offerors the opportunity to revise any aspect of their proposals, or if the agency stuck with only allowing revisions to costs proposals, then offerors should be allowed to revise any aspect of their proposals impacted by changes to their costs proposals.

It is well established that agencies have broad discretion to take corrective action where the agency determines that such action is necessary to ensure a fair and impartial competition. An agency’s discretion when taking corrective action extends to a decision on the scope of proposal revisions, and there are circumstances where an agency may reasonably decide to limit the revisions offerors may make to their proposals. But as this rare sustain decision shows, an agency may not prohibit offerors from revising related areas of their proposals that are materially impacted by an agency’s corrective action.

Tyonek Engineering & Agile Mfg, LLC, B-421547; B-421547.2 (June 2, 2023)

• GAO sustained a protest challenging the agency’s price realism and reasonableness evaluations.
• GAO has consistently explained that price reasonableness concerns whether a price is unreasonably high, while price realism relates to whether a price is too low.
• Here, the protester’s price was more than four times the price of the lowest-priced awardee, and nearly three times the price of the highest-price awardee. The Air Force concluded that the proposed prices of both the protester and the awardees were simultaneously reasonable and realistic. The protester challenged this conclusion.
• GAO agreed with the protester that the agency’s evaluation was unreasonable, internally inconsistent, and did not explain the basis on which prices with a significant disparity could be considered both reasonable and realistic.
• Specifically, the agency relied on a government estimate, but the estimate stated that the final prices of three awardees still presented realism and reasonableness concerns. The agency also claimed that it relied on an analysis of other than certified pricing data, but the contemporaneous record failed to support this assertion.

When a substantial disparity in prices exist, and an agency has concluded that the low price is realistic and the high price is reasonable, GAO will scrutinize the record to ensure that the agency has adequately explained its conclusion.

Small Business Issues

NAICS Appeal Of: Laredo Technical Services, Inc., SBA No. NAICS-6216 (May 30, 2023)

• The Small Business Administration (SBA) Office of Hearings and Appeals (OHA) granted a challenge to a solicitation’s NAICS code.
• In government contracting, each contract is assigned a single NAICS code “which best describes the principal purpose of the product or service being acquired.” 13 C.F.R. § 121.402(b). For contracts set aside for small businesses, the assigned NAICS code will dictate the size standard for the procurement (i.e., either the number of employees or average annual receipts that a company must be under to be small for purposes of the particular contract).
• Here, the Department of Veterans Affairs solicitation required the contractor to provide radiology technologists to deliver “the full range of radiology imaging care for inpatient and outpatient VA patients.” The VA assigned NAICS code 561320, Temporary Help Services, with a corresponding size standard of $34 million average annual receipts.
• Laredo protested, arguing that the correct NAICS code was 621399, Offices of All Other Miscellaneous Health Practitioners, with a corresponding size standard of $10 million average annual receipts.
• OHA agreed with Laredo that the assigned NAICS code was incorrect because the contractor will not be supplying workers for “limited periods of time” and because the radiologists will be supervised by the contractor. However, OHA concluded that the appropriate NAICS code was 621512, Diagnostic Imaging Centers, with an associated size standard of $19 million average annual receipts. 

This decision is a good reminder that the assignment of the correct NAICS code can have significant implications on a competition. A wrong NAICS code can improperly exclude a company for being too large, or alternatively allow companies to bid when they should be excluded. For small businesses, it is crucial to carefully examine the assigned NAICS code to ensure that the right code is applied, and to challenge when it is not.

DoD OIG CUI Audit

The Department of Defense Office of the Inspector General released an audit report finding inconsistent implementation of DoD’s Controlled Unclassified Information (CUI) program.

As background, the CUI program was established in a 2010 Executive Order to standardize the way the Executive Branch handles and marks information that is not classified but is subject to safeguarding or dissemination controls required by law or policy. Previously, agencies used a wide variety of differing markings, such as For Official Use Only or Sensitive But Unclassified for such materials. Agencies similarly instituted inconsistent safeguarding policies, often leading to unclear or overly restrictive dissemination policies.

More than a decade later, implementation is inconsistent. Many agencies have only recently begun to implement a CUI program, others practice varying degrees of adherence to the CUI marking and dissemination requirements, and several DoD components that are also members of the intelligence community operate under an “exigent circumstance waiver” that permits the continued use of legacy FOUO markings in certain situations.

Relevant here, in 2020, DoD issued DoD Instruction (DoDI) 5200.48 establishing the DoD CUI program and providing guidance on its implementation. OIG’s audit assessed the extent to which DoD developed guidance, conducted training, and oversaw the implementation of DoD’s CUI program.

Notably, OIG conducted the audit at the direction of the Senate Armed Services Committee and in response to concerns that Executive Branch officials were improperly using “Limited Dissemination Control” CUI markings to restrict sharing CUI without a legitimate rationale or to impede lawful Congressional oversight.

The OIG’s audit assessed implementation of the CUI program at ten DoD components and three DoD contractors.

• Most significantly, OIG found that DoD components did not effectively oversee the implementation of DoDI 5200.48 to ensure that CUI documents and emails contained required markings and that personnel completed required training.
• For example, personnel at nine of ten DoD components did not consistently include required CUI markings on nearly half of all documents containing CUI.
• A more granular analysis confirms the disparities in implementation: some of the DoD components had correctly marked none of the documents within the sample population, while others correctly marked the vast majority.
• The state of training also differs across DoD. Although two DoD components were found to have no personnel lacking a current CUI training certificate, at eight DoD components, many personnel did not have a current CUI training certificate.

Contractor compliance was assessed more favorably. Of the 103 CUI documents assessed in the sample from three DoD contractors, only 3% did not include CUI headers and footers and only 1% did not include proper portion markings. However, the OIG found that DoD contracting officials did not consistently verify whether DoD contractors completed required CUI training. Overall, contractors had more uniformly implemented the CUI program as compared to DoD components.

Also relevant for contractors, OIG requested that DoD provide additional comments within 30 days describing their plans for developing a DFARS clause to require all DoD contractor personnel to complete DoD CUI training. (Separately, a FAR clause implementing the CUI program for civilian contractors has been under development for six years and was most recently reviewed by OIRA in August 2022.) Contractors should expect continued regulatory developments and attention impacting the implementation of the CUI program at DoD and all federal agencies.

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.

Notable Updates

Biden Administration Ends Contractor COVID-19 Vaccine Mandate

On May 9, 2023, President Biden issued an executive order revoking his prior executive orders requiring vaccination of federal employees (EO 14043) and requiring federal contractors to follow the COVID-19 safety protocols issued by the Safer Federal Workforce Taskforce, including what became known as the contractor vaccine mandate, as of May 12, 2023.

The new executive order: 

• recounts the circumstances during which the two prior executive orders were issued: the advent of the Delta variant and a rise in cases and hospitalizations;
• states that the two prior executive orders “were necessary to protect the health and safety of critical workforces serving the American people and to advance the efficiency of government services during the COVID-19 pandemic;”
• cites broad success in its vaccination program and critical investments in tests and therapeutics; and
• concludes that “considering this progress, and based on the latest guidance from our public health experts, we no longer need a Government-wide vaccination requirement for Federal employees or federally specified safety protocols for Federal contractors.”

The Safer Federal Workforce Taskforce website reflects this revocation. It requires agencies to promptly rescind any policies, guidance, or deviations based on the executive orders and provides that “the Federal Government will not take any steps to require covered contractors and subcontractors to come into compliance with previously issued Task Force guidance implementing Executive Order 14042 and will not enforce any existing contract clauses implementing Executive Order 14042.”

After much uncertainty, pain for contractors, and litigation, the contractor COVID-19 vaccine mandate has met its end in a relatively quiet fashion.

NIST Revises Cybersecurity Standards

On May 10, 2023, the National Institute of Standards and Technology (NIST) issued a third draft revision to the foundational cybersecurity standard SP 800-171, Protecting Controlled Unclassified Information in Nonfederal Systems and Organizations.

• Draft revision 3 follows a pre-draft call for comments issued in July 2022 and a public comment period. Explaining the need for an update, NIST noted that SP 800-171 was published in June 2015 with only minor updates in December 2016 and February 2020. Since then, there have been “significant changes in the cybersecurity threats, vulnerabilities, capabilities, technologies, and resources that impact the protection of [Controlled Unclassified Information].”
• The draft publication includes updates to align SP 800-171 with SP 800-53 revision 5 and SP 800-53B moderate control baseline.
• Significantly, the draft revision updates the controls by increasing the “specificity of security requirements to remove ambiguity, improve the effectiveness of implementation, and clarify the scope of assessments.” The draft revision also removes outdated and redundant controls, and withdraws certain requirements that were incorporated into others. The total number of requirements remains the same at 110.
• NIST will host a webinar on June 6, 2023, to provide an overview of the changes, and a public comment period is open through July 14, 2023.

For most government contractors, implementing the NIST SP 800-171 controls represents an important compliance area with increasing implications ranging from allegations of False Claims Act violations to eligibility to compete in procurements. Contractors should scrutinize the proposed changes in this latest draft revision and ensure that their systems are prepared to comply with these updated requirements.

Office of Federal Contract Compliance Programs (OFCCP) Issues New Voluntary Self-Identification of Disability Form

On April 25, 2023, OFCCP issued a new Voluntary Self-Identification of Disability Form (CC-305), which updated “the preferred language for disabilities and [included] additional examples of disabilities.” The deadline for contractor adoption of this new form is July 25, 2023.

Federal Circuit Reconsiders CDA Jurisdiction 

ECC International Constructor, LLC v. Secretary of the Army, Fed. Cir. Nos. 22-1368, 21-2323 (Argued May 5, 2023, recordings available here)

• A Federal Circuit panel’s questions during oral argument suggest the court is actively reconsidering whether the notorious “sum certain” rule qualifies as a jurisdictional prerequisite to litigation under the Contract Disputes Act (CDA).
• The CDA does not even mention “sum certain,” yet the Federal Circuit has long held that a claim for monetary relief must state a sum to perfect jurisdiction for CDA litigation.
• During argument, the panel appeared to recognize that a recent line of Supreme Court precedent admonishes lower courts for imposing jurisdictional requirements beyond those that are clearly imposed by Congress itself. The panel included Federal Circuit Judges Prost, Linn, and Cunningham.

Eliminating the jurisdictional requirement for a sum certain would be the Federal Circuit’s second critical step toward correcting the jurisdictional rules applicable to CDA litigation. The first step occurred in 2014, when the court confirmed that the CDA’s six year statute of limitations could no longer qualify as a jurisdictional rule, permitting parties to toll the statute of limitations. Special Counsel Nathan Castellano has published several articles arguing that, in light of the latest Supreme Court precedent, the CDA’s claim submission, certification, and timely appeal requirements do not qualify as jurisdictional rules.

Claims Cases

Midatlantic Constr. & Design Assocs., Inc. v. United States, No. 22-447C, 2023 WL 3269668 (May 5, 2023)

• Judge Bonilla of the Court of Federal Claims issued a decision denying the government’s motion to dismiss for lack of subject matter jurisdiction, where the contractor challenged the Defense Logistics Agency’s (DLA) refusal to issue a final decision on a Contract Disputes Act (CDA) claim.
• The contractor submitted a request for equitable adjustment (REA) and a revised REA for unabsorbed corporate overhead costs caused by changes and delays experienced while performing under the contract. However, after a certain point, DLA refused to grant the contractor’s request and refused to issue a final decision on the matter. The contractor appealed to the Court of Federal Claims.
• At the heart of DLA’s motion to dismiss, DLA argued that the contractor failed to timely submit a duly certified claim to the contracting officer under the CDA.
• When denying the government’s motion to dismiss, Judge Bonilla emphasized that the Federal Circuit in Sikorsky Aircraft Corp. v. United States, held that the six-year statute of limitations for contractors to file a certified claim under § 7103 is not jurisdictional.

Protest Cases

Aptim-Amentum Alaska Decommissioning, LLC, B-420993.3 (Apr. 26, 2023) (published May 9, 2023)

• GAO sustained in part a protest where the awardee’s proposal failed to meet a material requirement of the solicitation.
• The Army Corps of Engineers issued a solicitation for the decommissioning of a nuclear reactor facility in Ft. Greely, Alaska.
• GAO agreed with the protester that, under the management approach factor, the awardee entirely failed to submit a key personnel retention plan, a solicitation requirement that GAO found to be material.
• The fact that the awardee had also submitted letters of commitment for key personnel was immaterial; the requirement to submit a key personnel retention plan was distinct.

When a proposal fails to meet a material requirement of the solicitation, the proposal is technically unacceptable and cannot serve as the basis for the award of a contract. Here, GAO sustained the protest and recommended that the agency either eliminate the awardee from the competition or solicit and evaluate revised proposals and issue a new source selection decision.

TechSynap Corp. v. United States, Fed. Cl. No. 23-36C (Published May 8, 2023)

• While the Court of Federal Claims typically decides protests based upon the existing administrative record, occasionally discovery will be permitted if necessary to adjudicate the protest.
• Here, the protester alleged that the awardee materially misrepresented that their proposed Program Manager—a key position—ever intended to perform on the contract. Following the submission of dueling declarations, the Court was faced with categorically conflicting statements regarding whether or not the awardee offered the job to the outgoing Program Manager. The protester moved to supplement the administrative record and to conduct limited discovery.
• Chief Judge Kaplan granted the motion, allowing the protester to depose three witnesses. In the context of a material misrepresentation claim, where “it is unlikely (at best) that an administrative record will ever include the evidence a court would need to determine whether a statement made in a successful proposal was false,” the decision reflects that given the “stark divide” between the assertions of the outgoing Program Manager and the awardee’s categorical denial, depositions were “appropriate to determine whether or how the apparent conflict can be reconciled.”

Supplementing the administrative record is worth pursuing in cases where the existing record is incapable of providing the evidence needed to decide a protest on the merits. A material misrepresentation claim is a prime candidate for such discovery.

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. 

Protest Cases

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.

Claims Cases

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.

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

Defense Federal Acquisition Regulation Supplement: Use of Supplier Performance Risk System (SPRS) Assessments (DFARS Case 2019–D009)

DoD issued a final rule amending the DFARS to update the policy and procedures for use of the SPRS and to require contracting officers to consider SPRS risk assessments, if available, in both the evaluation of quotations or offers and when determining contractor responsibility.

• The final rule creates a new solicitation provision, DFARS 252.204-7024, Notice on the Use of the Supplier Performance Risk System.
• Contracting officers will be required to consider item risk, price risk, and supplier risk in evaluating quotations or offers in response to solicitations for supplies and services (including FAR part 12 acquisitions of commercial products or services). The rule gives discretion to the contracting officer in considering the information available within SPRS.
• Contractors are already required to conduct basic assessments of compliance with NIST SP 800-171 controls and submit scores to SPRS under DFARS 252.204-7020.
• Contractors can access their own risk assessments in SPRS and challenge a rating generated by SPRS.

FOIA Update

Gandhi v. CMS, No. 21-CV-2628, 2023 WL 2707879 (D.D.C. March 30, 2023)

• DC District Court Judge Cooper held that CMS failed to meet its burden to establish that Employer Identification Numbers (EINs) of health care organizations and their parent companies qualify as confidential records that may be properly withheld in response to a FOIA request.
• University professors conducting research on whether CMS collects accurate data on the structure of health care providers submitted a FOIA request seeking unredacted EINs and parent company tax identifying numbers (TINs). The request implicated records for over 1.6 million health care providers, ranging from large corporate hospitals to small clinics and physician groups. The request did not seek social security numbers or data pertaining to individual health care providers or sole proprietors.
• CMS asserted that it was prohibited from releasing the EINs or parent TINs under FOIA Exemption 4, which shields confidential commercial or financial information from disclosure, and Exemption 6, which protects personnel records, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
• Judge Cooper held that CMS failed to meet its burden under Exemption 4 to establish that at least some of the providers actually consider EINs and parent TINs to be confidential. While CMS appeared to perceive an obligation to keep that information confidential, CMS did not establish any firm obligation or assurance of confidentiality, and the plaintiffs provided evidence that at least some businesses do not treat the data as confidential (for example, through public SEC filings).
• CMS also failed to present “competent evidence of a risk of corporate identity theft, or any other harm for that matter, stemming from the release…” of this information.
• Judge Cooper further rejected CMS’s reliance on Exemption 6, because the request did not seek personnel information, and the government did not meaningfully defend its position once challenged.

Beyond the immediate release of EINs and TINs, Judge Cooper’s opinion is a reminder that federal agencies (and the companies that submit confidential information to those agencies) cannot hope to withhold information under FOIA based on vague, unsubstantiated assertions of confidentiality or privacy concerns. The FOIA Exemptions have elements, and those elements require careful briefing and meaningful evidence.

Protest Cases

Sierra7, Inc.; V3Gate, LLC, B-421109 et al. (January 4, 2023) (Published March 28, 2023)

• GAO denied a protest alleging that the Department of Veterans Affairs failed to assess whether the awardee’s proposal was consistent with Section 889 prohibitions relating to acquiring certain telecommunications equipment made by companies affiliated with the Chinese government.
• Under the solicitation for various types of personal computers, each offeror had to propose to quote devices from a single original equipment manufacturer (OEM). One offeror, AATD, quoted products from OEM Lenovo.
• One protester alleged that the Lenovo computer products were inconsistent with the prohibition under FAR 52.204-25, which implements Section 889 of the Fiscal Year 2019 National Defense Authorization Act and prohibits the government from acquiring certain covered telecommunications equipment or services produced by Chinese government-affiliated or owned entities identified by DoD. The protester argued that the VA was required to analyze whether award to AATD complied with FAR 52.204-25, including by investigating the truthfulness of the offeror’s representation that its quoted products were not prohibited telecommunications equipment.
• GAO denied the protest. Citing precedent that an agency is permitted to reasonably rely on a vendor’s self-representation of compliance with regulatory requirements, GAO found that there were no “concrete indications” that the offeror was providing prohibited telecommunications equipment or that Lenovo was subject to any exclusion listing.
• GAO also rejected the assertion that the VA was obligated to conduct any investigation, stating that there was no evidence that the contracting officer was aware of several government public reports warning of cyberespionage risks associated with Lenovo products.

GAO’s decision did not entirely foreclose evaluation challenges invoking compliance with Section 889 requirements; however, protesters may have a more compelling argument where they can identify facial evidence that the awardee’s proposal was non-compliant as opposed to invoking extra-record information of which the agency should have been aware. Aside from issues in contract formation, Section 889 compliance continues to be an important risk area for government contractors.

Compel JV, LLC, B-421328 (March 8, 2023) (Published March 16, 2023)

• GAO denied a protest challenging the Agency’s decision to exclude the protester’s proposal from consideration because the protester failed to include all the cost information required by the solicitation.
• This request for task order proposals was issued under a previously awarded indefinite-delivery, indefinite-quantity (IDIQ) contract. In response to the IDIQ solicitation, offerors were permitted to submit cost-type proposals or time-and-materials (T&M) proposals. As relevant here, Compel was awarded a T&M IDIQ contract.
• The task order request for proposals contemplated the award of a cost-type task order, but also provided that a T&M type task order “will be considered” for IDIQ contract holders with a T&M IDIQ contract. Additionally, offerors were required to complete a breakdown of estimated costs, including “all” cost elements specified.
• Compel submitted a spreadsheet “in lieu of” the required breakdown of estimated costs, and did not provide summary cost calculations as specified in the solicitation. The agency ultimately found Compel non-compliant with the solicitation.
• Compel protested, complaining that its proposal contained all the information required for a T&M proposal and that the solicitation contained latent ambiguities.
• GAO disagreed. First, GAO found that the protester provided no meaningful explanation for how the solicitation’s specific requirements or the unique aspects of a T&M proposal afforded the company discretion to omit the specified summary cost information. Second, GAO found that any solicitation ambiguities were patent and thus any challenges were required to be filed prior to the deadline for proposal submission.

It is fundamental that a proposal must conform to the material terms of a solicitation, and that an offeror is responsible for submitting an adequately written proposal that contains all required information. Regarding protests challenging the terms of a solicitation, alleged solicitation defects that are apparent on the face of a solicitation must be protested prior to submission of proposals. Indeed, where terms of a task order solicitation are inconsistent with an underlying IDIQ contract, offerors should carefully consider whether a protest must be filed prior to the deadline for proposal submission.

J.E. McAmis, Inc. v. United States, COFC No. 22-570 (March 10, 2023) (Published March 27, 2023)

• This COFC bid protest denial highlights the tension between small business policy goals and government contracting performance needs.
• The Army Corps of Engineers issued a solicitation for jetty repair services that included special instructions regarding responsibility in accordance with FAR 9.104-2. Specifically, the solicitation provided that to be eligible for award, the bidder must have completed a project meeting certain criteria.
• Two small businesses submitted bids: J.E. McAmis and Trade West Construction. The Corps determined that Trade West was non-responsible for not having previously performed a project that met the criteria. In response, Trade West appealed this determination to the Small Business Administration (SBA) by requesting a Certificate of Competency (COC) determination. Despite the Corps informing the SBA that it did not think Trade West could handle a project of this magnitude, SBA issued a COC for Trade West and directed the Corps to award the contract to Trade West. McAmis protested on multiple grounds.
• At the outset, the Court held that although it could review an SBA finding of non-responsibility, it does not have jurisdiction over an affirmative COC determination by the SBA—Congress vested this power in the SBA.
• Next, the Court found that McAmis conflated responsiveness and responsibility when arguing that the Agency “should have deemed Trade West’s bid as nonresponsive and rejected its bid for failing to provide any information required by the special instructions.” The special instructions referred to responsibility, which were distinct from whether Trade West’s proposal conformed in all material respects to the solicitation’s requirements.
• Additionally, the Court held that the SBA did not violate its regulations by not following the solicitation’s heightened responsibility criteria when issuing its COC determination. Importantly, the Court affirmed that the SBA is not bound by the special standards of responsibility developed by contracting officers for certain acquisitions.

Small businesses should carefully examine any heightened responsibility criteria. For offerors who satisfy the criteria, it may be worthwhile to encourage the agency to fold these criteria into the evaluation. For small businesses facing non-responsibility determinations based upon special standards, appealing is crucial.

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.

Claims Cases

Aries Construction Corp. v. United States, No.22-166C (February 21, 2023) 

• Court of Federal Claims Judge Schwartz issued an opinion discussing the relationship between the Contract Disputes Act (CDA) claim submission requirement and contractor claims for breach of the duty of good faith and fair dealing.
• A long line of Federal Circuit precedent requires contractors to submit their claims relating to a contract dispute to the contracting officer for decision before raising those claims at a Board of Contract Appeals or the Court of Federal Claims.
• Here, the plaintiff submitted claims seeking equitable adjustment based on a constructive change theory. The contracting officer denied the claims. The plaintiff appealed to the court and, in addition to alleging breach of contract, also alleged breach of the implied duty of good faith and fair dealing. The government moved to dismiss the implied contract theory on the basis that it was never presented to the contracting officer.
• Providing a useful summary of the relevant legal principles, Judge Schwartz denied the government’s motion, finding that the plaintiff's CDA claim put the contracting officer on notice of the relevant facts and legal basis that could support a breach of implied contract claim.

While the Federal Circuit has strictly construed and enforced the requirement for CDA claim submission, it has also made clear that the legal theories raised on appeal will not necessarily be stated verbatim in the claim. It is critical for contractors and their counsel to be careful and deliberate when crafting a claim, and to also understand how the language of the claim may impact future appeals litigation. That is particularly true when it comes to alleged breaches of the implied duty of good faith and fair dealing.

Protest Cases

TRAX Int’l Corp., B-420361.6 (March 9, 2023)

• GAO dismissed a protest alleging Procurement Integrity Act (PIA) violations because the dispute only involved private parties with no government involvement.
• TRAX and a company named Oasis Systems entered into a teaming agreement to compete for the Department of the Army’s Aberdeen Test Support Services (ATSS) procurement, and “TRAX’s specific, highly confidential and proprietary win strategies and themes” were shared with Oasis. A few months later, Oasis withdrew from the teaming agreement and later was acquired by Engineering Research and Consulting, Inc. (ERC).
• Subsequently, the Army awarded the ATSS contract to ERC, prompting TRAX to raise PIA concerns. The Army investigated and concluded that no PIA violation had occurred, which led TRAX to protest at GAO.
• GAO agreed with the Army that TRAX’s concerns were encompassed by the PIA’s “savings provisions,” which make clear that the PIA does not “restrict a contractor from disclosing its own bid or proposal information or the recipient from receiving that information.” 41 U.S.C. § 2107(2). GAO saw no relevance that TRAX had only shared the information with Oasis—not ERC. 
• In dismissing the protest, GAO explained that the dispute as to the possible misuse of TRAX’s proprietary information, which did not involve any government action, was a dispute between private parties that was not for GAO’s consideration. 

The PIA generally prohibits a federal government official from “knowingly disclos[ing] contractor bid or proposal information or source selection information before the award of a federal agency procurement contract to which the information relates,” as well as prohibits anyone from knowingly obtaining such information. But the PIA also includes a “savings provision” under which there is no PIA violation where a contractor discloses its own bid or proposal information to a third party. GAO routinely explains that even if the voluntarily provided information is subsequently misused or not properly safeguarded, that still does not constitute a PIA violation, but rather is a dispute between private parties—not subject to GAO’s review.

General Dynamics Information Technology, Inc., B-421290; B-421290.2 (March 1, 2023) (Published March 10, 2023)

• GAO sustained a bid protest where the agency unreasonably evaluated the awardee’s proposal under the past performance and technical evaluation factors.
• The RFQ required the agency to consider offerors’ prior work in two regards: under the past performance factor and the capability and experience element of the technical factor. The protester alleged that the awardee lacked relevant experiences that were similar in size and scope to the instant procurement, and because the awardee proposed the same references for both evaluation factors, the evaluation was doubly unreasonable.
• GAO agreed, finding that the agency did not reasonably explain why the awardee’s past performance and experience references were relevant either in dollar value or the number of full-time employees, or how the scope of the work performed was relevant to the instant requirements. GAO also found that the assignment of a strength to the awardee’s proposal for offering 10 years of experience was unreasonable when the proposal’s cited two experience references did not cover 10 years of performance.

For disappointed offerors, publicly available information and competitive intelligence can provide avenues for challenging an awardee’s past performance. Offerors should be vigilant in keeping tabs on the competitive landscape.

Investigations and Enforcement

Inflation Adjustments for False Claims Act Penalties

The latest CPI-adjusted FCA penalties range is out. Penalties assessed after January 30, 2023, where the underlying violations occurred in November 2015 or later, will range from $13,508 to $27,018.

President Biden’s Sweeping Pandemic Anti-Fraud Proposal: Going After Systemic Fraud, Taking on Identity Theft, Helping Victims (March 2, 2023)

Earlier this month, the Biden Administration proposed to address “a historic degree of outright fraud” regarding emergency pandemic era benefits, including:

• Devoting significant resources to investigate and prosecute pandemic-era fraud cases, including tripling the COVID-19 Fraud Strike Force teams;
• Proposing to increase the statute of limitations for pandemic fraud to 10 years;
• Proposing to increase opportunities for executive agencies to recover up to $1 million in claims using the Program Fraud Civil Remedies Act instead of the $150,000 limit in place now; and
• Investing heavily in fraud prevention and addressing identity theft that facilitated benefits fraud.

U.S. ex rel. Morsell et al. v. NortonLifeLock Inc.

The long-running False Claims Act case United States ex rel. Morsell v. NortonLifeLock, Inc. came to an end with a lengthy ruling that the company violated the False Claims Act, but awarding just a fraction of the damages and penalties sought by the government. This case both serves to remind government contractors of the risks inherent in GSA contracting, and to remind the government that it bears the burden of proving damages. The contractor, which used an underqualified consultant to prepare Commercial Sales Practices submissions, failed to disclose discounts given to its basis of award customer as well as details about a rebate program. But the government’s arguments about damages failed to impress the court, which found no evidence it could use to determine how much additional discounts the government would have negotiated had the government been fully informed.

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.

Investigations and Enforcement

Future Implications of Low Dollar False Claims Act Recoveries for FY2022, Jenner & Block (February 9, 2023)

The DOJ has released its summary of False Claims Act recoveries for Fiscal Year 2022. We believe these statistics—combined with other trends—mean more civil fraud enforcement is on the horizon. Specifically, we anticipate:

• More attention to civil fraud matters 
• More DOJ lawyers focused on civil fraud/FCA matters 
• More investigative resources focused on civil fraud/FCA matters 

In light of what we believe will be an environment of increased enforcement, companies in industries facing FCA risk (e.g., healthcare and government contracting) are well advised to do the following:

• Treat inbound requests from Offices of Inspectors General (e.g., subpoenas and informal requests for information) as preludes to civil FCA cases.
• Treat your hotline reporters well.
• Double down on compliance matrices and recordkeeping.

Claims Cases

Beechcraft Defense Co., LLC et al., ASBCA No. 61743 et al. (February 3, 2023)

• The ASBCA issued a decision illustrating several statute of limitations and other procedural issues that can arise when navigating DCAA audits and DCMA assertions of CAS non-compliance.
• The case involved DCAA audit findings of CAS non-compliance issued more than a decade ago in 2011, and the decision describes the years-long back-and-forth among the contractors, DCAA, and DCMA to navigate the accounting issues, including contractor submission of cost impact statements in 2015 and execution of a tolling agreement in 2017. In 2018, DCMA eventually issued a contracting officer final decision asserting entitlement to payment, which were timely appealed to ASBCA.
• The contractors sought summary judgment and argued that the government claims were barred by the statute of limitations, claiming that the claims accrued with the DCAA audit reports issued in 2011. The government contended that its claims did not accrue until the contractors submitted cost impact statements in 2015.
• After working through the issues, the board concluded that the record contained insufficient undisputed evidence to conclude that the statute of limitations began running in 2011, and therefore denied summary judgment.

This decision is further confirmation that the procedural rules governing government claims under the Contract Disputes Act, particularly for disputes over indirect cost rates, are far from intuitive, and the analysis can be extremely fact sensitive. While the goal is of course to resolve these disputes without litigation, contracting professionals and counsel working in this area should keep track of the evolving legal standards and be prepared for fact-intensive litigation.

Protest Cases

AttainX, Inc., B-421216; B-421216.2 (January 23, 2023) (published February 9, 2023)

• GAO sustained a bid protest on multiple grounds, including that the agency’s evaluation of the experience of the awardee was inconsistent with small business regulations.
• The awardee, MiamiTSPi, LLC, is an 8(a) small business joint venture comprised of Miami Technology Solutions, LLC (MTS), the managing member and 8(a) small business, and Technology Solutions Provider, Inc. (TSPi), the minority member. As part of the solicitation’s similar experience factor, MiamiTSPi submitted experience examples related to work managed by TSPi and a different joint venture between the two companies.
• Under the small business regulations, when evaluating a small business joint venture for award of a contract, a procuring activity must consider work done and qualifications held individually by each partner to the joint venture as well as any work done by the joint venture itself previously.
• The protester argued that the agency failed to reasonably evaluate the risk of MiamiTSPi’s quotation because it never considered the fact that the company’s experience examples were not performed by either the joint venture or the managing member.
• Here, GAO sustained the protest, finding that because the evaluation was based on a consideration of only one joint venture member’s experience, the agency failed to properly evaluate MiamiTSPi’s quotation in accordance with small business regulations.

Small business joint ventures must carefully adhere to all small business regulations when submitting quotations to the government—experience and past performance requirements included.