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.

The Department of Justice (DOJ) has released its summary of False Claims Act (FCA) recoveries for Fiscal Year 2022. At $2.2 billion, financial recoveries were significantly lower than the $5.7 billion collected the year before. DOJ’s press release noted that the overall number of settlements and judgements increased to 351, the second highest total on record. As usual, healthcare recoveries dominated, but the government contracting industry continued to represent a small but significant component of the caseload and overall recoveries.

What do these statistics mean for future FCA enforcement risks? We believe the statistics, combined with other trends, mean more civil fraud enforcement is on the horizon. Specifically, we anticipate:

1. More attention to civil fraud matters: We do not believe that last year’s lower recoveries will significantly impact DOJ’s resolution demands in individual cases this year. But the statistics will likely motivate DOJ to increase the pace that pending False Claims Act cases move through the system because more cases increase opportunities for recoveries. And increased oversight pressure from the new Congress may contribute additional motivation. As a result, contractors should expect to see more FCA investigations opened, more Civil Investigative Demands issued, and potentially more pressure to respond. There will be ample opportunities for DOJ as significant numbers of new qui tam cases have been filed in recent years.
2. More DOJ lawyers focused on civil fraud/FCA matters: A non-trivial number of DOJ civil lawyers at Main Justice and in the US Attorneys’ offices have spent time detailed to other components recently. This has reduced the time that those lawyers could dedicate to FCA cases. In recent months, it appears as if more attention is being paid to civil fraud matters again.
3. More investigative resources focused on civil fraud/FCA matters: As travel budgets for agents return to pre-pandemic norms, and pressures caused by other pressing investigative focus areas fade, it appears that investigative resources are again available for civil fraud matters. Additional agents and analysts will also increase case throughput.

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:

1. Treat inbound requests from Offices of Inspectors General (e.g., subpoenas and informal requests for information) as preludes to civil FCA cases. Companies sometimes provide requested information to investigators without seeking advice of outside counsel or considering ways to mitigate FCA risk in early communications. It is a best practice to involve skilled counsel at an early stage to help avoid escalation to a full-blown, resource-intensive FCA matter.
2. Treat your hotline reporters well. Company personnel generally do not set out to become qui tam plaintiffs. Sometimes, those who feel like the company has not “listened” to their concern or responded appropriately take the next step and file a complaint. Taking hotline reports (and informal reports through HR or supervisors) seriously, and responding to the reporter with the results of an internal review, can help avoid escalation to qui tam filing.
3. Double down on compliance matrices and recordkeeping. If companies have not created or recently updated their compliance matrices or processes, or have less than robust government contract/government grant file systems, this is a great time to focus on those areas. Showing company efforts towards training and compliance, as well as maintaining robust contract documentation, can help build defenses to future FCA allegations. Stated differently, contemporaneous documentation of good faith compliance efforts can help reduce FCA risk by rebutting scienter allegations or otherwise demonstrating government knowledge or a lack of materiality.

Jenner & Block lawyers stand ready to assist with these issues.

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.

FOIA

Citizens for Responsibility and Ethics in Washington v. United States, No. 21-5276 (D.C. Cir. January 31, 2023) 

• The DC Circuit clarified what information an agency may properly withhold under FOIA’s Exemption 4, which protects “trade secrets and commercial or financial information obtained from a person [that is] privileged or confidential.” This case arose from the Bureau of Prisons’ decision to withhold the names of the contractors who supplied pentobarbital, a drug used for lethal injections in death penalties, and certain contract terms such as the quantities purchased under FOIA’s Exemption 4. The lower court had sustained the Government’s withholdings.
• The DC Circuit reversed and remanded the case.
  • First, the DC Circuit held that a government contractor’s business name is not “commercial information” protected under Exemption 4. The Court explained that Exemption 4 only protects information that is commercial “in and of itself,” i.e., information that serves a commercial function or is of a commercial nature. The DC Circuit rejected the Government’s argument that the names of its government contractors were “commercial” because disclosure may cause commercial repercussions from public hostility to the companies supplying the drug used in lethal injections. Such downstream commercial impacts were insufficient to show that information was commercial “in and of itself.”
  • Second, the Court held that the Government had failed to demonstrate that certain key contract terms were “confidential” under Exemption 4. Information is “confidential” if it is customarily and actually treated as private by the owner. The Government had argued that the withheld terms were confidential because they were potentially identifying information, and identifying information was treated as confidential by the contractors. The DC Circuit held that the Government was accordingly required to demonstrate that the withheld contract terms were in fact identifying information satisfying Exemption 4’s requirement for confidentiality.

Contractors should be aware that FOIA’s Exemption 4 may not protect against the release of information that can identify the contractor’s participation in a particular program, even if such identifying information may result in downstream commercial impacts.

Protests

AT&T Corp., B-421195, B-421195.2, January 17, 2023 (Publicly Released January 30, 2023)

• GAO sustained AT&T’s protest challenging the issuance of a US Secret Service task order for communications services to Lumen Technologies Government Solutions where the selection authority (SSA) disagreed with the underlying evaluation record without sufficient explanation.
• The agency’s technical evaluation team (TET) assigned AT&T’s higher-rated, higher-priced proposal a total of 42 strengths across the various evaluation factors.
• However, in selecting Lumen for task order award, the SSA listed only nine “benefits” of AT&T’s proposal, entirely disregarding 33 of the strengths that the TET had assigned to AT&T’s proposal, while also identifying four new strengths in Lumen’s proposal.
• GAO sustained the protest because the SSA failed to adequately document why they removed a significant number of AT&T’s strengths, and resultant downgrade in the number of benefits represented by AT&T’s proposal. In reaching this conclusion, GAO emphasized that changes made by the SSA to the TET’s evaluation record must be adequately documented.
• GAO also rejected the SSA’s post-protest explanations as inconsistent with the contemporaneous record, which offered no insight into the SSA’s decision to reject the AT&T strengths. Instead, the agency was effectively seeking to justify a widescale reevaluation of AT&T’s proposal entirely on the basis of post-protest explanations, and without adequate support and documentation within the contemporaneous record.

Although source selection officials may reasonably disagree with the ratings and recommendations of lower-level evaluators, they are nonetheless bound by the fundamental requirement that their independent judgments be reasonable, consistent with the provisions of the solicitation, and adequately documented in the contemporaneous record. Where an agency fails to adequately document the basis of its evaluation and best-value tradeoff, it runs the risk that GAO will be unable to determine whether the agency's evaluation was reasonable and sustain the protest.

CACI, Inc.-Federal, B-421224 et al., (January 23, 2023) (Published January 30, 2023)

• GAO denied a protest challenging the Agency’s determination that the protester’s use of a former government employee to prepare its proposal created an actual or apparent unfair competitive advantage.
• CACI, the protester here, hired a former government employee who was the Army’s source selection advisory council (SSAC) chairperson for the predecessor procurement and who also received briefings on the incumbent contractor’s performance that included cost and rate information.
• After retiring, this government official began providing consulting services to CACI via an agreement with a third-party consulting firm, including assistance in preparing its proposal for the present procurement. Following a thorough investigation during which CACI was afforded the opportunity to respond to the Government’s findings, the Army determined that CACI gained an unfair competitive advantage and was ineligible to compete.
• CACI protested this decision, but GAO denied the protest on all grounds, agreeing that the former government official had broad access to non-public competitively useful information, that he participated in CACI’s proposal preparation efforts, and that CACI failed to rebut the presumption of disclosure flowing from these facts.
• GAO noted that specific evidence showed that the government official participated in an analysis of the incumbent contractor’s pricing and specifically requested and received detailed information regarding that pricing. In light of this evidence, the contracting officer found the former government official’s credibility to be questionable because he submitted a declaration in response to the protest attesting that he accessed no such information.
• The Army also found the former official’s claim that he was a “hands-off leader” technical manager to not be credible; multiple government employees contradicted that assertion and explained that he was intimately involved.

GAO has explained that despite certain procedural differences, the standard for an agency’s consideration of unfair competitive advantage under FAR subpart 3.1 is “virtually indistinguishable” from the unfair competitive advantage arising from unequal access to information under FAR subpart 9.5. Here, where an offeror chooses to hire a former government official with recent access to non-public competitively useful information, and uses that official to prepare its proposal, there is a rebuttable presumption of prejudice.

SBIR Program

PublicRelay, B-421154 (January 17, 2023)

• In a rare decision discussing agency obligations with respect to the SBIR program, GAO denied a protest arguing that an agency was required to negotiate in good faith to award a Phase III contract to the protester rather than making award under a competitive solicitation.
• The protester argued that an SBA solicitation for media monitoring, daily briefing, and analytics would amount to an SBIR Phase III award for technology that the protester had previously developed under SBIR Phase I and Phase II efforts for the NSF. Therefore, the protester argued, SBA was required to enter good faith negotiations with the protester for a Phase III award rather than competing the requirement.
• After exchanging information with the protester, the SBA disagreed and concluded that the solicited effort would not constitute a Phase III effort because: (a) SBA was not aware of the prior SBIR effort at the time SBA drafted the requirement, (b) SBA did not require the technology that the protester developed, (c) SBA’s requirement predated the protester’s early SBIR contracts, and (d) SBA created the requirement without use of the protester’s concepts, findings, ideas, or research results. SBA added that just because the protester would propose to use its SBIR-developed technology to meet the SBA’s requirements does not mean SBA’s requirements are for a Phase III contract.
• During the protest, SBA submitted to GAO a statement from the Director of SBA’s Office of Innovation and Technology, the office that administers the SBIR program and issues the SBIR Policy Directive. The statement is partially excerpted in the decision and explains, in essence, that because SBA “did not solicit the specific SBIR-developed technology that [PublicRelay] has described in its proposal for a Phase II award from NSF,” the SBA solicitation did not qualify as Phase III work.
• After analyzing the SBIR Policy Directive, GAO concluded that, “although SBA may have been able to pursue an SBIR Phase III award with PublicRelay, the agency was not otherwise required to do so.” While GAO agreed with the protester that the reasons initially put forward by the agency were not necessarily dispositive, GAO explained that “where the agency is not specifically pursuing the production of technology developed under a prior SBIR Phase I or Phase II award, the agency has the discretion to fund such efforts only if it elects to do so,” and for that reason GAO denied the protest.

The SBIR program and the various obligations set forth in the SBIR Directives are rarely addressed in litigation, so decisions like this that reveal both SBA and GAO interpretations of the Directives can be quite significant. Although rarely litigated, disputes often arise among SBIR contractors, large businesses, the SBA, and procuring agencies about the circumstances under which an agency must (or may) procure a technology directly from an SBIR contractor or otherwise afford certain rights to an SBIR contractor. For better or worse, this GAO decision will likely play an important role going forward in the resolution of those disputes. For contracting personnel and counsel working in or around the SBIR program, the decision warrants careful attention.

Investigations and Enforcement

DOJ Announces Changes to Corporate Enforcement Policy

On January 17, 2023, Assistant Attorney General (AAG) Kenneth Polite, Jr., delivered a speech announcing several important revisions to the Department of Justice (DOJ) Criminal Division’s Corporate Enforcement Policy (CEP). These changes, which will apply to current and future corporate defendants in cases involving the Criminal Division—including all cases brought under the Foreign Corrupt Practices Act (FCPA)—include:

1. Preserving the possibility of securing a declination of prosecution for companies even when aggravating circumstances may exist;
2. Increasing the maximum potential fine reduction to 75% off the bottom of the applicable sentencing guidelines range in cases that warrant a criminal resolution but where the company voluntarily self-discloses the misconduct, fully cooperates, and effectively remediates; and
3. Increasing the maximum potential fine reduction to 50% off the bottom of the applicable sentencing guidelines range for companies that do not voluntarily self-disclose, but still fully cooperate and effectively remediate.

These policy modifications follow a September 2022 memorandum from Deputy Attorney General (DAG) Lisa Monaco announcing revisions to DOJ’s corporate criminal enforcement policies. As we wrote at the time, that memorandum reflected the Department’s stated goal of bringing more prosecutions of individuals responsible for corporate wrongdoing—and thus building an incentive structure that encourages companies to self-report more misconduct and cooperate more comprehensively and expeditiously with the government’s investigation.

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

The Biden Administration’s Fall 2022 Regulatory Agenda was issued earlier this month. These items provide advanced warning of impending regulatory changes as well as an opportunity to become involved in the rulemaking process, when relevant. Among the changes of note:

• Assessing Contractor Implementation of Cybersecurity Requirements (DFARS Case 2019-D041): DoD is amending an interim rule to implement the CMMC framework 2.0 in order to protect against the theft of intellectual property and sensitive information from the Defense Industrial Base (DIB) sector.
• Prohibition on Procurement of Foreign-Made Unmanned Aircraft Systems: DoD is proposing to amend the Defense Federal Acquisition Regulation Supplement (DFARS) to implement section 848 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2020 to prohibit the procurement of foreign-made unmanned aircraft systems by the Department of Defense.
• Limitations on Communications Systems Lacking Certain Resiliency Features (DFARS Case 2020-D023): DoD is proposing to amend the DFARS to implement section 168 of the NDAA for FY 2020. Section 168 limits availability of funds for the procurement of a current or future DoD communications program of record, unless certain conditions are met.
• Undefinitized Contract Actions (DFARS Case 2021-D003): DoD is proposing to amend the DFARS to implement recommendations from DoD IG Report 2020-084, dated May 11, 2020, regarding undefinitized contract actions. The rule would specify that failure to meet the qualifying proposal date in the definitization schedule could result in the government withholding a percentage of all subsequent financing requests.
• Restriction on Certain Metal Products (DFARS Case 2021-D015): DoD is proposing to amend the DFARS to implement section 844 of the NDAA for FY2021. Section 844 revises the 10 U.S.C. 2533c prohibition on procuring covered material melted or produced in any covered nation to procuring covered material mined, refined, separated, melted in any covered nation. It also amends the exceptions to the prohibition by removing the term tungsten and substituting covered material.
• Modifications to Printed Circuit Board Acquisition Restrictions (DFARS Case 2022-D011): DoD is proposing to amend the Defense Federal Acquisition Regulation Supplement to implement section 851 of the NDAA for FY2022 (Pub. L. 117-81) which amends 10 U.S.C. 2533d, including the effective date of the statute, and section 841 of the FY2021 NDAA (Pub. L. 116-283), which prohibits acquiring a covered printed circuit board from a covered country, unless a waiver is obtained.
• DFARS Buy American Act Requirements (DFARS Case 2022-D019): DoD is proposing to amend the DFARS to implement the requirements of Executive Order 14005, Ensuring the Future Is Made in All of America by All of America’s Workers. Changes to the Federal Acquisition Regulation (FAR) are being made via RIN 9000-AO22 (FAR Case 2021-008, Amendments to the FAR Buy American Act Requirements). This rule proposes conforming changes to the DFARS.
• Employment Transparency Regarding Individuals Who Perform Work in the People's Republic of China (DFARS Case 2022-D010): DoD is finalizing an interim rule that amended the DFARS to implement section 855 of the NDAA for FY2022 (Pub. L. 117-81). Section 855 prohibits the award of a covered contract to, or renewal of a covered contract with, a covered entity unless such covered entity has submitted each required disclosure such covered entity is required to submit. For FY2023 and FY2024, it requires each covered entity that is a party to one or more covered contracts in the fiscal year to disclose if the entity employs one or more individuals who perform work in the People’s Republic of China on any such contract.
• NIST SP 800-171 DoD Assessment Requirements (DFARS Case 2022-D017): This rule was split from RIN 0750-AK81. DoD is finalizing an interim rule (see RIN 0750-AK81, interim rule for DFARS Case 2019-D041) to implement the National Institute of Standards and Technology (NIST) Special Publication (SP) 800-171 DoD Assessment Methodology in order to protect against the theft of intellectual property and sensitive information from the DIB sector. This methodology enables DoD to assess contractor implementation of the cybersecurity requirements in NIST SP 800-171, Protecting Controlled Unclassified Information (CUI) In Nonfederal Systems and Organizations.
• Transactions Other Than Contracts, Grants, or Cooperative Agreements for Prototype Projects: DoD proposes to revise its rule on Transactions Other Than Contracts, Grants, or Cooperative Agreements for Prototype Projects in order to reflect changes in 10 U.S.C. 4022 and its predecessor authorities. Other Transactions (OTs) for prototype projects are legally binding agreements that serve as alternatives to traditional government procurement contracts and provide authority for broad flexibility in terms of the award process and the terms and conditions for the project. The proposed changes broaden use and revise procedures including: provide authority for follow-on production OTs and contracts; special circumstances for award of Ots to small businesses, nontraditional defense contractors, nonprofit research institutions, and consortia; add approval requirements for large dollar Ots; provide authority to supply prototypes and production items as Government furnished items; and apply procurement ethics requirements to section 4022.
• Cybersecurity Maturity Model Certification (CMMC) Program: DoD is proposing to implement the Cybersecurity Maturity Model Certification (CMMC) Framework, to help assess a DIB contractor’s compliance with and implementation of cybersecurity requirements to safeguard Federal Contract Information (FCI) and CUI transiting non-federal systems and mitigate the threats posed by Advanced Persistent Threats—adversaries with sophisticated levels of expertise and significant resources.
• National Industrial Security Program Operating Manual (NISPOM); Second Amendment: Based on public comments, DoD is proposing additional amendments to a rule last published on December 21, 2020. This amendment addresses comments received on requests for guidance and the cost to implement Security Executive Agent Directive (SEAD) 3, as well as to provide clarification on safeguarding procedures for the protection and reproduction of classified information. It also includes DoD’s response to public comments received regarding controlled unclassified information, National Interest Determination requirements for cleared contractors operating under a Special Security Agreement for Foreign Ownership, Control or Influence, and eligibility determinations for personnel security clearance processes and requirements, among others.

Investigations and Enforcement

The Supreme Court will (again) weigh in on the False Claims Act after granting cert to address whether the False Claims Act can be knowingly violated if the underlying conduct is “objectively reasonable.” The two consolidated Seventh Circuit cases are United States ex rel. Schutte v. SuperValu Inc., and United States ex rel. Proctor v. Safeway, Inc.

Protest Cases

SLS Federal Services, LLC v. United States, No. 22-1215 (Fed. Cl. January 10, 2023)

• In a case before the Court of Federal Claims (COFC), Judge Bruggink found an agency abused its discretion by refusing to engage in discussions in a DoD procurement valued above $100 million, subject to DFARS 215.306.
• Judge Bruggink concluded that DFARS 215.306 creates a presumption in favor of opening discussions for DoD procurements valued above $100 million; discussions are not mandatory under the regulation, but where the regulation applies, the agency must provide a rational basis for not engaging in discussions.
• Judge Solomson previously reached the same conclusion in Oak Grove v. United States, 155 Fed. Cl. 84 (2021) and IAP Worldwide Services, Inc. v. United States, 159 Fed. Cl. 265 (2022).

In most circumstances, agencies enjoy broad discretion when deciding whether to engage in discussion or make award based on initial proposals. GAO is particularly deferential to agency decisions to make award without discussions. DFARS 215.306, however, changes the analysis for DoD procurements valued above $100 million. Judge Solomson’s decisions in Oak Grove and IAP, and now Judge Bruggink’s decision in SLS, confirm that at least some COFC judges will scrutinize DoD’s decision to make award without discussions where the DFARS 215.306 applies. This is yet another area where protest practice before the Court of Federal Claims differs from practice at the GAO.

Arcticom, LLC, B-421256; B-421256.2 (December 28, 2022) (Published January 18, 2023)

• GAO denied a bid protest arguing, in part, that the agency should have evaluated past performance references from its affiliated entities.
• The protester submitted three past performance references, two of which were from affiliated entities. The agency concluded these references were not relevant both because the RFP did not contemplate the evaluation of affiliated companies’ past performance and because the proposal did not explain precisely how these firms would be involved in contract performance. The protester challenged this conclusion, arguing that its proposal made clear that these affiliated companies would provide technical and administrative support and thus were required to be considered.
• GAO agreed with the agency, explaining that while agencies may consider such experience where the proposal demonstrates that the resources of the parent or affiliated company will affect contract performance, an agency is under no general obligation to do so when the solicitation is silent on the issue.

When submitting past performance references, offerors must carefully adhere to the solicitation guidelines for what references will be considered by the agency. In cases where a contractor wants to submit a proposal but cannot satisfy the stated relevancy requirements, any dispute over the terms of the solicitation (including filing a protest) must occur prior to proposal submission.

Claims Cases

Secretary of Defense v. Raytheon Co. et al., No. 2021-2304 (January 3, 2023)

• In this long-running saga related to 2007/2008 incurred costs, the US Court of Appeals for the Federal Circuit reversed the ASBCA’s decision in favor of Raytheon.
• The ASBCA had found Raytheon’s policies for tracking unallowable lobbying and corporate organization costs to be reasonable and had denied the government’s claim. But the Federal Circuit disagreed.
• First, the Federal Circuit held that Raytheon’s established policy where employees in its government relations department tracked the amount of time spent on unallowable activities only during the “scheduled working day” (i.e., 8 a.m. to 5 p.m.) did not accurately reflect the proportion of time spent on unallowable lobbying, much of which was before- and after-hours. The court concluded the salary paid these employees was for all efforts regardless of the time of day performed. Thus, these hours should have been tracked and excluded as unallowable costs under FAR 31.205-22.
• Second, the Federal Circuit determined that Raytheon’s bright-line corporate-development policies were inconsistent with the FAR and resulted in Raytheon charging the government for unallowable costs. The FAR disallows costs associated with “planning . . . mergers and acquisitions.” FAR 31.205-27(a)(1). Because Raytheon only reported time after the submission of an indicative offer or the decision to go to market with offering materials—Raytheon’s bright-line rules—the court held Raytheon charged the government for time spent planning these corporate transactions. The Federal Circuit’s rationale was that a decision on submitting an offer or to go to market cannot be made unless at least some planning for that offer or the offering materials has occurred, and that planning time should have been unallowable. Furthermore, the court was unpersuaded that these costs were economic planning costs allowable under FAR 31.205-12.
• The matter was remanded back to the ASBCA for a determination of the quantum Raytheon owes to the government.

The Federal Circuit’s decision dramatically alters prevailing interpretations of FAR 31.205-22, 31.205-12, and 31.205-27, and companies relying upon the ASBCA’s prior guidance may find themselves with policies that no longer accurately reflect the line between allowable and unallowable costs. Contractors should carefully scrutinize their policies pertaining to lobbying and corporate organizations to ensure they are consistent with the Federal Circuit’s ruling.

Legislative Update

Preventing Organizational Conflict of Interest Federal Acquisition Act, P.L. No 117-324 (January 3, 2023)

• President Biden signed a law mandating updates to the FAR provisions that address Organizational Conflicts of Interest (OCI).
• The statute mandates that agencies provide definitions for three types of OCI: unequal access to information, impaired objectivity, and biased ground rules.
• The statute further calls for additional guidance and illustrative examples, and new solicitation provisions and contract clauses to address OCI issues.

The FAR 9.5 OCI provisions have been out-of-step with practice for well over a decade. Government and private practitioners alike rely primarily on a body of guidance from the GAO, Court of Federal Claims, and Federal Circuit to analyze these issues. There is certainly room for updated regulations. The question is whether the FAR Council can implement those updates in a way that improves the status quo, rather than requiring the acquisition community to re-assess everything we know about OCIs.

Corporate Monitorship Extension

The DOJ, SEC, and a company under monitorship announced in the waning days of 2022 that they had mutually agreed to extend an independent compliance monitorship by a year for (in the view of the government) failing to adequately investigate or disclose a compliance violation relating to conduct in Iraq (Ericsson to Stay Under U.S. Compliance Monitor an Extra Year - WSJ). This demonstrates the Justice Department’s current emphasis on corporate accountability and shows how Deputy Attorney General Monaco’s remarks about monitors, here Further Revisions to Corporate Criminal Enforcement Policies, September 15, 2022 (justice.gov), are put into practice.

Bid Protest Decisions

Ekagra Partners, LLC v. United States, No. 22-1038C (December 21, 2022) 

• In the Court’s final bid protest decision of 2022, Judge Solomson provided a detailed discussion of a plaintiff’s burden to demonstrate prejudice for purposes of establishing standing and competitive prejudice.
• While no party affirmatively disputed the protester’s standing, Judge Solomson walked through each claim to assess whether the plaintiff made factual allegations sufficient to establish that, assuming the claim were to succeed, the result would have a material impact to the award decision. Judge Solomson found that two of the five claims failed to sufficiently allege prejudice for standing purposes.
• Judge Solomson also identified and discussed shortcomings in the plaintiff’s prejudice arguments on the merits. The opinion explains that it is insufficient for prejudice purposes to allege that, but for an evaluation error, the protester’s evaluation would have received a higher rating; the plaintiff must go further and explain how that higher rating would translate to an increased likelihood of receiving award.

Prejudice is one of the most important aspects of bid protest litigation. It is the protester’s burden to establish prejudice, both to demonstrate standing and to succeed on the merits of each claim. Factual allegations and arguments relating to prejudice should feature prominently in the complaint and merits briefing.

Spatial Front, Inc., B-420921.2; B-420921.3, (December 21, 2022) (Published January 6, 2023)

• GAO sustained a protest challenging the issuance of a task order because the awardee’s quoted labor categories did not align to the labor categories on its GSA Federal Supply Schedule contract.
• GSA’s FSS program provides agencies a simplified process for obtaining commonly used commercial supplies and services. FSS program procedures also satisfy the requirement for full and open competition; non-FSS products and services may not be purchased using FSS procedures. Thus, as a precondition of task order award, all goods or services quoted must be on the vendor’s GSA FSS contract.
• Here, in response to a protest that the awardee’s quoted labor categories were not aligned to the labor categories in its FSS contract, the Department of Agriculture raised several defenses, including that the labor category mapping was previously assessed when the agency established the subject blanket purchase agreement with the awardee in 2020. GAO rejected that argument because the agency failed to contemporaneously document any such assessment.
• More substantively, GAO found that the awardee’s “proposed labor categories were, in numerous instances, not within the scope of its FSS contract,” including a Developer labor category that was mapped to a Quality Assurance Engineer labor category. GAO thus concluded that the awardee’s quotation could not properly form the basis for award.

Misaligned labor categories for GSA FSS contract holders continues to be a ripe area for bid protests; the remedy for a successful bid protest can be substantial. While GAO’s review of labor category mapping allows for a “degree of agency discretion,” that discretion is “tempered by the requirement that the agency adequately document the results of its evaluation.” Of course, agencies must work with the labor categories set forth on FSS contracts, and the math has to add up.

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

Legislative Update

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

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

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

Regulatory Update

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

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

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

Bid Protest Decisions

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

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

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

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

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

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

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

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

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

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

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

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