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Government Contracts Legal Round-Up | 2021 Issue 11

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

Regulatory Update

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

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

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

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

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

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

Protest Cases

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

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

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

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

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

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

Claims Cases

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

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

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

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

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

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

Anti-corruption National Security Memorandum

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

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


Government Contracts Legal Round-Up | 2021 Issue 10

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

Regulatory Update

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

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

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

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

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

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

Protest Cases

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

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

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

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

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

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

Claims Cases

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

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

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

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

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

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

New COVID-19 Fraud Task Force Launched by DoJ

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

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


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

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

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

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

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

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

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

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

 

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

[2] Cybersecurity EO § 1.

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

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

[5] Cybersecurity EO § 2.

[6] Cybersecurity EO § 2.

[7] DFARS 252.204.7012.

[8] FAR 52.204-21.

[9] Cybersecurity EO §§ 2(a), 2(e).

[10] Cybersecurity EO § 2(g)(i).

[11] Cybersecurity EO § 2(b).

[12] Cybersecurity EO § 2(e).

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

[14] Cybersecurity EO § 3.

[15] Cybersecurity EO § 3(d).

[16] Cybersecurity EO § 3(f).

[17] Cybersecurity EO § 4.

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

[19] Cybersecurity EO §§ 4(p)-(q).

[20] Cybersecurity EO §§ 4(s)-(t).

[21] Cybersecurity EO § 5.

[22] Cybersecurity EO § 5(c).

[23] Cybersecurity EO § 5(e).

[24] Cybersecurity EO § 6.

[25] Cybersecurity EO § 6(b).

[26] Cybersecurity EO § 6(b).

[27] Cybersecurity EO § 7.

[28] Cybersecurity EO § 7(b).

[29] Cybersecurity EO §§ 7(c)-(d).

[30] Cybersecurity EO § 8.

[31] Cybersecurity EO §§ 8(b)-(c).

[32] Cybersecurity EO § 8(b).

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

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


Government Contracts Legal Round-Up | 2021 Issue 8

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

Executive Orders

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

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

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

Protest Cases

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

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

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

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

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

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

Claims Cases

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

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

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

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

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

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

Investigations and Enforcement

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


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

Haws_Matthew_COLORBy: Matthew L. Haws

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

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

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

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

Some additional details related to the executive order:

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

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

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

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

Government Contracts Legal Round-Up | 2021 Issue 7

Welcome to Jenner & Block’s Government Contracts Legal Round‑Up, a biweekly update on important government contracts developments. This update will offer brief summaries of key developments for government contracts legal, compliance, contracting, and business executives.

Regulatory Update

1. Notice of Request for Comments on Executive Order “America's Supply Chains,” (April 13, 2021)

  • On February 24, 2021, President Biden issued Executive Order 14017, “America’s Supply Chains,” which directs several federal agency actions to secure and strengthen America’s supply chains.
  • Under that Order, within 100 days, the Secretary of Defense must identify risks in the supply chain for strategic and critical materials and develop policy recommendations to address these risks.
  • DoD is seeking input by April 28, 2021 from both consumers and producers of strategic and critical materials on fifteen separate topics, including transparency, diversification, reclamation, global fair trade, environmental sustainability, workforce issues, and the full spectrum of risk to supply disruption.

Protest Cases

1. APR Staffing, B-419667 (March 30, 2021) (publicly released April 6)

  • GAO dismissed as a matter of contract administration a protest alleging errors in the agency’s evaluation of the protester’s prior performance under a blanket purchase agreement (BPA), on which the agency relied in deciding not to exercise options under the BPA.
  • GAO rejected the protester’s view that the agency’s evaluation of vendors’ performance constituted a “procurement process” that rendered those actions subject to GAO’s bid protest jurisdiction.

As a general rule, option provisions in a contract are exercisable at the discretion of the government. GAO will not question an agency’s exercise of an option under an existing contract unless the protester shows that the agency failed to follow applicable regulations or that the determination to exercise the option, rather than conduct a new procurement, was unreasonable.

2. SAGAM Securite Senegal, B-418583.2 (March 22, 2021) (publicly released April 7)

  • GAO dismissed as untimely a protest objecting to the agency’s cancellation of a solicitation where the protest was filed more than 10 calendar days after receipt of the agency’s email notice of cancellation.
  • The protester maintained that its director first received the contracting officer’s email within 10 days of filing its protest, because the individual was on leave when the email notifying the company of the cancellation was sent, and the director was unable to access emails without physically going into the company’s office.
  • GAO disagree that the company did not have constructive or actual knowledge of the notice of cancellation until the director accessed his email account 10 days prior to filing its protest. The fact that the director did not access his email because he was on leave did not toll the filing deadline imposed by GAO’s regulations.

For the purposes of GAO’s timeliness rules, the mechanical receipt of the email during a firm’s regular business hours constitutes notice to a party. The filing deadline imposed by GAO’s regulations is not tolled where the recipient’s email system generated an automatic response indicating that the recipient was on leave, and the agency was not required to respond or otherwise take action in response to receiving the out-of-office email notice.

3. Zolon Tech, Inc., B-419280.4 (March 18, 2021) (publicly released April 7)

  • GAO denied a protest alleging that a Library of Congress (LOC) procurement for agile development and system integration services was tainted by an unmitigated unequal access to information organizational conflict of interest (OCI).
  • The protester asserted that the awardee had an OCI by virtue of the company’s access to sensitive procurement-related information, including non-public information, based on the awardee’s level of access to two LOC systems and its president’s placement in the Office of the Chief Information Officer.
  • LOC explained that it conducted a thorough investigation of the allegations and found that no OCI existed. The agency pointed out that information in these two project management systems was available to both the protester and the awardee as incumbent contractors, and that the allegations did not show how information in these two systems gave the awardee any specific or unfair advantage regarding this procurement. LOC also confirmed that the two project management systems referenced by the protester do not contain proprietary or source-selection information, and the awardee’s president did not have access to sensitive procurement-related information either.

An unequal access to information OCI exists where a firm has access to non-public information as part of its performance of a government contract, and where that information may provide the firm with an unfair competitive advantage in a later competition for a government contract. GAO reviews the reasonableness of a contracting officer’s OCI investigation and, where an agency has given meaningful consideration to whether an OCI exists, GAO will not substitute its judgment for the agency’s, absent clear evidence that the agency’s conclusion was unreasonable.

Claims Cases

1. Appeal of Carothers Construction, ASBCA No. 62204 (February 11, 2021)

  • Carothers won a contract to build an elementary school at Maxwell Air Force Base in Alabama.
  • Carothers identified that the 2 ½ inch roofing system in the contract was available from only one manufacturer. Carothers identified an alternative 2-inch system that it believed was equivalent.
  • Carothers made five different submissions regarding the equivalence of the 2-inch system, but the government failed to engage in a substantive consideration and repeatedly denied Carother’s requests to use the alternative.
  • Carothers ultimately installed the 2 ½ inch system and submitted a claim for the difference in cost. Carothers asserted that FAR 52.236-5, Material and Workmanship entitled it to use the 2 inch system because it was equal in all important performance requirements.
  • The board sustained the appeal, finding that an item with only one source is, by definition, proprietary and that Carothers had proven the elements for a clam under FAR 52.236-5. The court held that the “general rule of strict compliance with the contract specifications does not apply simultaneously with the Material and Workmanship clause—it is one or the other.” 

The government is required to meaningfully engage with contractors on contract interpretation issues like those found in FAR 52.236-5. Contractors can take heart in this decision: understanding and diligently pursing your rights under the contract pays off. 

2. Appeal of SRM Group, CBCA Nos. 5194, 5938 (March 11, 2021)

  • SRM held a Department of Homeland Security contract for housing maintenance services at the Federal Law Enforcement Training Center in Georgia.
  • The government deleted two buildings from the contract scope and later sought to add them back. The parties couldn’t agree on the price for that addition, and SRM brought a claim for its asserted amount.
  • In support of its claim, SRM engaged multiple lawyers and cost consultants, ultimately submitting five different expert reports from two different experts, each finding a different amount of claimed costs. At trial, SRM did not provide any explanation regarding the different amounts.
  • The board denied SRM’s appeal, finding that it had failed to adequately support its quantum.

This case demonstrates the benefit of engaging experienced, detailed-oriented outside counsel to assist in developing and litigating claims. While damages need not be proven exactly, self-contradiction, imprecision, and errors can sink a claim.

Investigations and Enforcement 

In U.S. ex rel. Felten v. William Beaumont Hospital, the Sixth Circuit construed Section 3730(h) anti-retaliation provisions of the False Claims Act to apply after a purported whistleblower’s employment ends. While not all circuits have the same standard, False Claims Act defendants should be aware of this ruling and consider providing instruction not only to avoid retaliating against a whistleblower employee, but to avoid retaliating (including, but not limited to, impacting reputation so as to preclude future employment) against a whistleblower former employee as well.


Government Contracts Legal Round-Up | 2021 Issue 6

Welcome to Jenner & Block’s Government Contracts Legal Round‑Up, a biweekly update on important government contracts developments. This update will offer brief summaries of key developments for government contracts legal, compliance, contracting, and business executives.

Regulatory Update

1. Class Deviation 2021-O0003: DFARS 252.239-7098 Prohibition on Contracting to Maintain or Establish a Computer Network Unless Such Network is Designed to Block Access to Certain Websites – Representation (Apr. 2, 2021)

  • This Class Deviation sets out a new representation for contracts to maintain or establish a computer network that are funded under the Consolidated Appropriations Act, 2021 (Pub. L. 116-260) (the Act), or extensions to the Act.
  • For covered solicitations, by submission of an offer, the offeror represents “that it is not providing as part of its offer a proposal to maintain or establish a computer network unless such network is designed to block access to pornography websites.” 
  • Contracting officers will include the provision at 252.239-7098, in all solicitations, including solicitations for the acquisition of commercial items under FAR part 12.
  • Funding under the Act may be still used by law enforcement to carry out activities related to criminal investigations, national defense, and intelligence. 

Contractors anticipating submitting proposals that include maintaining or establishing a computer network will want to ensure compliance with this new “porn blocking” representation and evaluate any needed changes to supply chain representations.

2. Implementation of the Government Furnished Property Module (Mar. 24, 2021)

  • As of January 2021, and in accordance with DFARS subpart 245.102(5), contractors are required to report the loss of Government property in the GFP Module in lieu of the Defense Contract Management Agency (DCMA) Property Loss eTool. 
  • Training resources on how to use the GFP Module are available at the DoD Procurement Toolbox and live webinars are posted here.

Contractors should note increased oversight of Government property. DoD describes its GFP Module as “an important step” in addressing “DoD’s material weakness in better accounting for Government Property” in contractors’ possession. The tool supports DoD’s strategic plan for defense-wide procurement financial and audit improvements. Documentation and data for completed loss cases in the GFP Module will be saved, allowing greater insight into loss patterns.

3. Securing the Information and Communications Technology and Services Supply Chain: Licensing Procedures (Mar. 29, 2021)

  • On January 19, 2021, the Department of Commerce (the Department) published an interim final rulemaking, ‘‘Securing the Information and Communications Technology and Services Supply Chain,’’ which became effective on March 22, 2021. 
  • This rule allows the Secretary of Commerce, in accordance with Executive Order 13873, to prohibit certain information and communications technology and services transactions (ICTS Transactions) to address national security threats.
  • ICTS Transactions include provision of services. The term includes all transactions that occurred on or after January 19, 2021, by any person owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary. Providing services, such as software updates, to US persons may provide a foreign adversary an opportunity to engage in activities that may threaten US national security.
  • In its January 19 notice, the Department stated it would implement a licensing process by May 19th for entities seeking pre-approval before engaging in or continuing to engage in ICTS Transactions.
  • Because additional public input is needed and the Department no longer expects to meet its May 19 deadline, the Department seeks public input through April 28, 2021, on such a licensing or other preclearance process.

In this Advanced Notice of Proposed Rulemaking, the Department of Commerce seeks public input by April 28, 2021 on all aspects of a future ICTS licensing process, including potential models for creating a process that would provide entities seeking to engage in an ICTS Transaction greater certainty that the transaction will not be prohibited.

Protest Cases

1. TekSynap Corp., B-419464; B-419464.2 (Mar. 19, 2021)

  • GAO sustained a protest challenging the National Geospatial-Intelligence Agency’s (NGA) evaluation of proposals and decision not to hold discussions.
  • Specifically, GAO found the agency unreasonably assigned only a “slight weakness” to the awardee despite one of its key personnel failing to meet a mandatory qualification. In a cascading effect, this meant the management plan subfactor rating of “outstanding” was unreasonable, and the overall “outstanding” rating for the technical/management factor was unreasonable.
  • GAO also held that the assignment of a “moderate strength” rather than a “significant strength” to the protester’s proposal was unreasonable when the evaluators positively described numerous merits of the proposal in detail and used language associated with a significant strength.
  • Based upon these errors, GAO concluded that NGA’s decision not to enter into discussions with TekSynap—because the agency had determined the awardee’s proposal was technically superior—was necessarily unreasonable.

2. IAP World Services, Inc., B-418566.2 et al., Aug. 20, 2020 (published Mar. 24, 2021)

  • GAO denied a protest alleging that awardee Vectrus-J&J Facilities Support, LLC (VJFS) materially misrepresented its management structure by failing to disclose an imminent sale. One of VJFS’s joint venture members (J&J Maintenance) was subject to a stock purchase several weeks after it was awarded the contract.
  • As a general matter, an offeror’s material misrepresentation in its proposal can invalidate an agency’s evaluation, and serve as a basis to cancel any contract award.
  • Here, GAO agreed with the contracting agency (the Navy) that even if there had been a misrepresentation, it did not invalidate the agency’s evaluation. While the Navy cited VJFS’s experience and past performance in its best value determination, the stock purchase did not impact VJFS’s stated experience or past performance as J&J’s operations, management team, and resources remained the same.
  • Notably, GAO also explained that even assuming that VJFS had a duty to notify the agency about the potential future stock transaction and failed to do so, the protester was not prejudiced by any failure to notify.

Where an offeror’s proposal represents that it will perform a contract in a manner materially different from the offeror’s actual intent, an award based on such proposal cannot stand, since both the offeror’s representations, and the agency’s reliance on such, have an adverse impact on the integrity of the procurement process. But GAO will not sustain a protest alleging a misrepresentation unless the protester can demonstrate competitive prejudice from the awardee’s failure to notify the contracting agency of any changes to its proposal.

Claims Cases

1. Appeal of L3 Technologies, Inc., ASBCA Nos. 61811, 61813, 61814 (Mar. 1, 2021)

  • L3 appealed multiple contracting officer’s final decisions (COFDs) disallowing costs, including for “other direct costs” and overhead expenses.
  • The COFDs were based on DCAA incurred cost audits for 2011-2014, which employed cost sampling and then extrapolated the questioned cost amounts across the entirety of the sample pool.
  • During discovery, the contracting officer withdrew the COFDs, stating that the government would no longer challenge the costs. The government moved to dismiss the appeals.
  • L3 sought to continue the appeals over the government motion to dismiss, desiring a decision on the merits. L3 argued that the government had engaged in a pattern of asserting and then withdrawing such incurred cost disallowance claims.
  • The board dismissed the claims, holding that they were moot and not subject to any exception to the mootness doctrine.
  • Judge Clarke dissented, noting that “The majority decision subjects L3 (and other contractors) to the unfortunate chain of events discussed below until DCAA and DCMA resolve whatever their differences are.”

The painful pattern seen here is familiar to many government contractors: delayed DCAA audits result in rushed COFDs to avoid the statute of limitations. Contractors must then defend against a government claim, often seeking millions of dollars in previously paid amounts. Unfortunately, this decision gives contractor’s little hope of relief and highlights the need to pay close attention to all DCAA audits and disallowances.

2. Appeal of SRA International, Inc., CBCA Nos. 6563, 6564 (Mar. 19, 2021)

  • SRA appealed COFDs disallowing $29 million in costs on two State Department contracts following DCAA incurred costs audits.
  • After a structured negotiation process, SRA secured a complete withdrawal of the COFDs and dismissal of the government claims with prejudice.

Continuing the theme of government cost disallowance claims, this case demonstrates the benefit of engaging experienced outside counsel to assist in dealing with DCAA audits, disallowances, and any resulting COFDs or government claims.


Government Contracts Legal Round-Up | 2021 Issue 5

Welcome to Jenner & Block’s Government Contracts Legal Round‑Up, a biweekly update on important government contracts developments. This update summarizes key developments for government contracts legal, compliance, contracting, and business executives.

Regulatory Activity

1. Withdrawal of Several FAR Cases on March 19, 2021

The change in administration has resulted in the review and withdrawal of several rules pending for years. Because of the passage of time, the FAR Council favors further consideration under new FAR cases, if at all. One FAR case (2018-002) was withdrawn as it was tied to a now-revoked executive action. The rules withdrawn include:

  • FAR Case 2011-001: Withdrawal of Organizational Conflicts of Interest 
  • FAR Case 2012-015: Withdrawal of Small Business Set Asides for Research and Development Contracts
  • FAR Case 2013-022: Withdrawal of Extension of Limitations on Contractor Employee Personal Conflicts of Interest 
  • FAR Case 2018-002: Withdrawal of Protecting Life in Global Health Assistance

2. Request for Comments on Semiconductor Manufacturing by US Department of Commerce

  • In response to President Biden’s Executive order on “America’s Supply Chains,” the Secretary of Commerce must submit a report within 100 days that: (1) identifies risks in the semiconductor manufacturing and advanced packaging supply chains; and (2) proposes policy recommendations to address these risks.
  • The FY 21 NDAA also includes a provision to incentivize the production of semiconductors for the US, and mandates several actions to secure the semiconductor-related supply chain.
  • This notice requests comments by April 5, 2021 to assist the Commerce Department in preparing its report to the White House.Publish

3. Department of Labor Plans to Rescind Two Rules Related to Independent Contractors and Joint Employers Finding They “Weaken” Protections to Workers Under the Fair Labor Standards Act

  • The first Notice of Proposed Rulemaking proposes the withdrawal of the Independent Contractor Final Rule issued on Jan. 7, 2021. This rule adopted a new “economic reality” test that narrowed or minimized other factors considered by courts traditionally, making it less likely a worker will be found an employee subject to FLSA protections. Independent contractors have no FLSA protections, but employees are eligible for the federal minimum wage and overtime.
  • The second Notice of Proposed Rulemaking seeks to rescind a current regulation on joint employer relationships under the Fair Labor Standards Act, effective March 16, 2020. On September 8, 2020, the US District Court for the Southern District of New York vacated portions of the Joint Employer Rule, stating that the rule was contrary to the FLSA and was “arbitrary and capricious” due to its failure to explain a shift from prior guidance or to consider the effect of the rule on workers.
  • The Department of Labor invites comments on both proposed rules by April 12, 2021.

Protest Cases

1. People, Technology and Processes, LLC, B-419385, B-419835.2 (Feb. 2, 2021) (published Mar. 15)

  • GAO found unobjectionable the General Services Administration’s (GSA) rejection of a late-submitted proposal.
  • The request for proposals (RFP) required that offers be submitted by October 13, 2020, via the agency’s online proposal submission portal, “GSA ASSIST.” The RFP warned that proposals received after the closing data and time would not be considered.
  • The protester had trouble with the online portal—it uploaded materials but was unable to click submit—so it emailed the proposal to the contracting officer instead.
  • Even though the protester had uploaded proposal materials prior to the deadline, GAO noted that the protester maintained the ability to revise its proposal by uploading new, modified attachments until the moment it pressed the “submit” button. Thus, GAO found that the uploaded materials were never under the government’s control.
  • GAO also found that the use of email to submit the proposal was not authorized by the RFP.

Late is late. It is an offeror’s responsibility to deliver its proposal to the government office designated in the solicitation by the time specified, and an agency is not required to consider a proposal where there is no evidence that the proposal was actually received.

2. HVF West, LLC v. United States, CAFC No. 2020-1414, 2020-1583 (Feb. 19, 2021)

  • The Court of Appeals for the Federal Circuit reversed a Court of Federal Claims decision, finding that the successful protester actually lacked standing to bring its COFC protest.
  • HVF protested the Defense Logistics Agency’s (DLA) award of a “sales contract” for the purchase and destruction of surplus Government military equipment. Given that DLA technically was selling the property to the contractor, DLA awarded the contract to the highest bidder, Lamb Depollution, Inc. HVF was fourth in line for the contract.
  • First at the agency-level, then at GAO, and eventually at COFC, HVF raised numerous “detailed allegations” to challenge the award to Lamb, and HVF also questioned the experience of the two intervening bidders. COFC sustained the protest, finding that HVF showed that DLA erred in finding Lamb satisfied all non-price criteria in the solicitation.
  • On appeal, the Federal Circuit found that HVF’s challenges to the intervening offerors were “based upon conjecture,” which was insufficient for HVF to establish that it had a substantial chance of winning the award such that it qualified as an interested party. More specifically, HVF alleged only that the intervening bidders “failed to meet the standards for a successful pre-award survey,” a conclusory statement deemed insufficient to question the eligibility of the intervening bidders.

To have standing to bring a bid protest, a losing bidder must be an interested party; that is, an actual or prospective bidder whose direct economic interest would be affected by the award of the contract or by failure to award the contract. The Federal Circuit clarified that “even when an agency assesses price-ranked bidders together for technical compliance to select the bid most advantageous to the Government, . . . the least favored price-ranked bidder has standing only upon mounting a credible challenge to the technical acceptability of the better price-ranked bidders in line and in front of the protesting party.”

3. Peraton, Inc., B-416916.11 (Feb. 8, 2021) (published Mar. 16)

  • Following a series of protests and corrective action over two years, GAO dismissed as untimely the protester’s new allegation that the RFP no longer reflected the agency’s requirements.
  • Under GAO’s timeliness rules, protests challenging the terms of a solicitation must be filed prior to the proposal due date unless no due date has been established, in which case the protester is required to raise any issues within ten days of when it knew or should have known about the defects in the solicitation. An agency’s alleged failure to amend a solicitation based on changed requirements is a challenge to the terms of the solicitation.
  • Here, on October 30, the agency set a deadline for proposal submission. While Peraton protested prior to the due date, the company knew about the issues it raised between April 27 and October 30, when no closing time had been established for this procurement. GAO thus concluded Peraton’s protest was untimely.
  • In a rare admonishment, GAO also noted that this procurement had been subject to six protests by Peraton, the incumbent contractor that had continued performance throughout, and “permitting a protester to, in effect, hold solicitation challenges in reserve until it becomes clear that they are unlikely to prevail in a competition is antithetical to the idea that allegations of solicitation improprieties should be resolved as early as possible in the procurement process.”

When challenging the terms of a solicitation—including an agency’s failure to amend a solicitation based on changed requirements—the key question for timeliness is whether the date for proposal submissions (or resubmissions) has been set. In situations where no due date has been established, the protest must be filed within ten days of when the basis for protest was known. Failure to protest on time will result in a dismissal.

4. Mission 1st Group, Inc., B-419522 (Mar. 15, 2021)

  • GAO denied a protest challenging the company’s elimination from the competition based on a “go/no-go” evaluation factor for ISO 9001:2015 certification.
  • Offerors were required to show that they possessed a current/valid certificate, and also that they had possessed one during the period two years prior to the deadline for submitting proposals (October 5, 2020). The protester provided a current certificate, issued on December 27, 2019, but did not submit its prior certification. Based on missing the RFP requirement, the agency said “no-go.”
  • GAO found this result unobjectionable, because there was nothing ambiguous about the terms of the RFP, and had the agency requested the company submit additional documentation, that would have amounted to discussions.

A good reminder that contractors must pay close attention to RFP documentation requirements, particularly on “go/no-go” factors, as failure to provide the necessary information will likely result in elimination from the competition.

Claims Cases

1. Creative Mgmt. Servs., LLC v. United States, US Court of Appeals for the Federal Circuit, Case No. 2020-1449 (Feb. 26, 2021)

  • Creative held a GSA contract to host the annual GovEnergy conference. Under the contract, it was to maintain a separate bank account with all proceeds from the conference and from which it could receive payment. When GSA cancelled the conference in 2012, GSA requested by letter that Creative return the entire amount in this account. Creative responded that it was entitled to keep any remaining funds and submitted a termination for convenience settlement. Eventually the government issued a final decision with a settlement amount and sought return of any difference remaining in the account.
  • Creative failed to appeal this Contracting Officer’s Final Decision (COFD) within 12 months, and the Court of Federal Claims found its appeal time barred by the Contract Disputes Act.
  • On appeal, Creative argued that the COFD was not proper as it did not state a sum certain.
  • The Federal Circuit upheld COFC’s dismissal, holding that a COFD need only be based on a claim stating a sum certain. Even then, the “sum certain” only needs to be “readily ascertainable to the party against whom the claim was made.” The court held that the government’s prior demand letters for the balance of the account constituted a sum certain despite containing different amounts and the word “approximately.” The court held the amount was readily ascertainable to Creative by simply checking the balance in the account.

This case is a reminder to pay close attention when dealing with any government demand for payment or any letter that identifies itself as a Contracting Officer’s Final Decision. Time limits under the Contract Disputes Act are a trap for the unwary. Creative gets credit for making creative technical arguments to attempt to avoid them, but it couldn’t get around its failure to timely appeal the COFD.

Investigations and Enforcement

O'Fallon Building Co. Settles Fraud Claims, USAO-SDIL, Department of Justice

R&W Builders, Inc., agreed to pay $400,000 to resolve allegations that it fraudulently obtained construction contracts reserved for 8(a) businesses. R&W had graduated from the 8(a) program, then stood up a new joint venture and, upon award of a new contract, stepped forward and managed the contracts using its own employees to perform nearly all the work in violation of 8(a) rules.

The International Rescue Committee (IRC) Agrees to Pay $6.9 Million To Settle Allegations That It Performed Procurement Fraud by Engaging in Collusive Behavior and Misconduct on Programs Funded by the United States Agency for International Development, USAO-DC, Department of Justice

International Rescue Committee agreed to pay $6.9 million to settle False Claims Act allegations related to USAID funds for humanitarian assistance for displaced persons in Syria. The allegations involved collusion and kickbacks for goods purchased by USAID funds.


5 Ways Gov't Contractors Can Manage Schedule Change Risk

Partner Matt Haws wrote “5 Ways Gov't Contractors Can Manage Schedule Change Risk” with Jonathan Rice and Sashi Mahtani of Breakwater Forensics LLC. It’s an important read for government contractors facing project delays or the threat of liquidated damages.

Matt also spoke with Tom Temin of Federal News Network about how these schedule management tips can help contractors deal with COVID-19 delays. To listen to or read about the interview, click here.


Government Contracts Legal Round-Up | 2021 Issue 4

Welcome to Jenner & Block’s Government Contracts Legal Round‑Up, a biweekly update on important government contracts developments. This update summarizes key developments for government contracts legal, compliance, contracting, and business executives.

Executive Actions

Executive Order on America’s Supply Chains (Feb. 24, 2021)

  • This order sets out a policy to ensure resilience in US supply chains through robust US manufacturing capacity and the availability and integrity of critical products and services.
  • Within 100 days, members of the National Security Council (NSC) and heads of agencies will identify supply chain risks in key areas, including:
    • Semiconductor manufacturing and advanced packaging supply chains;
    • Critical minerals and other identified strategic materials, including rare earth elements; and
    • Pharmaceuticals and active pharmaceutical ingredients.
  • Within one year, DoD, among other agencies, must report on respective industrial bases, including identifying:
    • Critical materials and gaps in any US manufacturing capabilities; and
    • Any contingencies that may disrupt, strain, compromise, or eliminate the supply chain.

This order addresses concerns regarding exclusive or dominant supply of needed goods and materials through nations that are, or are likely to become, unfriendly or unstable. Within one year, agencies must supply recommendations regarding sustainably reshoring and building redundancy into US supply chains, enlarging stockpiles, developing workforce capabilities, and expanding research and development. Contractors should expect future regulatory changes that may be “necessary to attract and retain investments in critical goods and materials and other essential goods and materials.”

Audits

Weapon Systems Cybersecurity: Guidance Would Help DoD Programs Better Communicate Requirements to Contractors (Mar. 4, 2021)

  • GAO concluded that DoD has struggled to ensure its weapons systems can withstand cyberattacks, although some improvements have been made since 2018. 
  • DoD programs are not always incorporating cybersecurity requirements into contract language. Some contracts had no cybersecurity requirements when they were awarded, with vague requirements added later.

As a result of GAO’s recommendation that DoD components do better at incorporating cybersecurity requirements into contracts, contractors should expect to see new guidance from the Army, Navy, and Marine Corps on “tailored weapons systems cybersecurity requirements, acceptance criteria, and verification processes.” 

Protest Cases

1. Spartan Medical, Inc., B-419503 (Feb. 26, 2021)

  • GAO dismissed a protester’s challenge to an Air Force other transaction agreement (OTA) procurement for COVID-19 testing supplies.
  • The protester waited until after its response was rejected to challenge both the agency’s use of its OTA authority and the agency’s basis for eliminating the firm from further consideration.

OTAs are not procurement contracts covered by the Competition in Contracting Act, and GAO generally does not review protests of the award or solicitations for the award of an OTA. The only exception is where an agency is exercising its OTA authority and the protester files a timely, pre-closing date protest alleging that the agency is improperly exercising that authority. Here, GAO dismissed Spartan’s protest because its objection to the use of OTA authority was filed too late and because its challenge to the rejection of its submission was outside of GAO’s jurisdiction.

2. Anduril Industries, Inc., B-419420 (Feb. 22, 2021)

  • GAO denied a protest arguing that an Air Force task order competition for “tactical edge node support” was outside the scope of the underlying indefinite-delivery, indefinite-quantity (IDIQ) contract, or otherwise unduly restrictive of competition.
  • The Air Force’s advanced battle management systems (ABMS) IDIQ contract covered several categories and pools of contractors, and while the protester held an ABMS IDIQ contract for certain categories, its ABMS contract did not cover the category in which the “tactical edge node support” was being procured—“secure processing.” Anduril argued the competition should be conducted in the “transmission of data” category or that it should be permitted to compete.
  • GAO concluded that the tactical edge node support requirement was logically connected with the broad scope of work described in the ABMS program’s “secure processing” category.
  • Jurisdictional note: Even though the task order was valued below GAO’s $25 million jurisdictional threshold for DoD task order competitions, GAO had jurisdiction over the assertion that it was outside the scope of the IDIQ category. GAO did not have jurisdiction to consider the protester’s second argument that the solicitation was unduly restrictive of competition.

In determining whether a proposed task order is outside the scope of the underlying contract, GAO examines whether it is materially different from the original contract, as reasonably interpreted. Where there is a logical connection between a broad scope of work in an IDIQ contract and the services to be procured under a subsequent task order, the task order is within the scope of the IDIQ contract.

3. Microgenics Corp., B-419470 (Feb. 2, 2021)

  • GAO dismissed a protest challenging an award made by the Administrative Office of the United States Courts (AOUSC) that was filed more than 10 days after the protester learned of its basis of protest.
  • AOUSC is a judicial branch agency not bound by the statutory requirement for a post-award debriefing that applies to executive branch agencies, and a debriefing mandated by internal agency policy guidance was not a “required debriefing” for purposes of GAO’s timeliness rules.
  • Thus, the debriefing exception did not apply, and the debriefing did not toll the protest filing deadline.

GAO’s strict rules for the timely submission of protests can be a trap for the unwary. In preparation for award notifications, offerors should ensure they understand the relevant deadlines in the event they are disappointed by the outcome and elect to protest.

Claims Cases

1. Appeal of BAE Systems Ordnance Systems, Inc., ASBCA Nos. 62416 (Feb. 10, 2021)

  • BAE Systems submitted three letters to the US Army related to environmental fines assessed on ammunition production facilities in Virginia. Each letter identified itself as a request for equitable adjustment (REA), referenced the DFARS REA clause, and contained the DFARS REA certification. None of the letters requested a Contracting Officer’s Final Decision (COFD) or contained the FAR claim certification language.
  • After failed negotiations, BAE Systems converted the REAs to certified claims through a document requesting a COFD and containing the FAR claim certification. The Army failed to issue a COFD by the date it identified, and BAE Systems appealed the deemed denial to the Armed Services Board of Contract Appeals (ASBCA).
  • The Army moved to dismiss the appeal for lack of jurisdiction, arguing that BAE Systems’ earlier letters were “claims” under the Federal Circuit’s 2019 decision in Hejran Hejrat and, thus, the contractor’s appeal was untimely.
  • The ASBCA acknowledged that the holding in Hejran Hejrat made this case a “closer call” than it would have been, but concluded the REAs did not cross the “Rubicon” into CDA claims. The Board focused on BAE’s lack of explicit or implicit request for a COFD and the lack of substantive change in the “posture between the parties” during the REA information exchanges.  

The government frequently attempts to argue jurisdictional and procedural bars to claims. In BAE Systems, the Army attempted to use case law that traditionally helped contractors as a weapon against them: arguing that a document intended by the contractor to be a REA should be treated as a claim and trigger the 90 day clock for appeal to the ASBCA. The Board rejected the argument, but the warning is clear: the government may insert ambiguous language in its contractual correspondence (e.g., "Contracting Officer’s Final Determination") and then attempt to use it in a jurisdictional argument. Remember to develop a clear strategy for pursuing REAs and converting them to claims, be careful in drafting each, and pay close attention to government correspondence in response.

2. Appeal of Central Diversified Contracting, LLC, ASBCA No. 62585 (Jan. 6, 2021)

  • Central Diversified Contracting, LLC received an Army Corps of Engineers contract to remove a floating fish collector from a reservoir in Oregon. The government had informed bidders the fish collector weighed 15,000 pounds, but it actually weighed 81,000 pounds. As a result, Central Diversified had to use a different crane and method of performance. 
  • The Army Corps and Central Diversified entered into a bilateral modification increasing the contract amount by $29,530, but Central Diversified later sought additional damages through contract claims.
  • The Army Corps argued that the modification’s release covered all additional effort resulting from the larger fish collector.
  • The ASBCA held that the modification’s description of its purpose as “mobilize a 400-ton crane to the site” was not all-inclusive, and Central Diversified was entitled to additional cost related to the larger fish collector.

This case is a reminder to pay close attention to the release language in any contract modification. Much like any good fish story, the government will often attempt to claim the release was bigger later on.

FCA Priorities

The annual Federal Bar Association's Qui Tam Conference, held last month (and featuring Jenner & Block Partner David Robbins in the "Defense Strategies" panel), saw an important keynote session from Sen. Chuck Grassley (a career-long champion of the False Claims Act) and Brian Boynton, acting Assistant Attorney General for the Civil Division. They outlined FCA enforcement priorities for 2021 and signaled future amendments to the FCA to counter efforts to, in Sen. Grassley's words, "undermine the law as written." Enforcement priorities include combatting COVID-19/stimulus-related fraud, cybersecurity-related fraud, and fraud related to opioids.