Compliance Feed

Federal Contractors Will Be Required to Report and Set Reduction Targets for Greenhouse Gas Emissions

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By: Steven M. SirosAllison A. TorrenceMatthew L. Haws, Arie T. Feltman-Frank, and Aime J. Joo

On November 11, 2022, the FAR Council issued a proposed rule to implement section 5(b)(i) of Executive Order 14030. Executive Order 14030, issued by President Biden on May 20, 2021, began the regulatory process to require “major Federal suppliers” to publicly disclose greenhouse gas (GHG) emissions and climate-related financial risk and to set reduction targets. The proposed FAR rule lays out the specifics of these requirements and to whom they will apply.

1. Summary of the proposed rule

The proposed rule identifies that it seeks to “enable the Federal Government to conduct prudent fiscal management of all major Federal suppliers” through “public and standardized disclosure” that will “leverage existing third-party standards and systems.” The rule only applies to “significant contractors” and “major contractors”: “significant contractors” are those receiving $7.5 million to $50 million in federal contract obligations per year; “major contractors” are those receiving more than $50 million in federal contract obligations per year. 

Both “significant contractors” and “major contractors” must inventory and disclose “Scope 1” and “Scope 2” emissions. “Major contractors” must also inventory and disclose “Scope 3” emissions and “set science-based targets to reduce their GHG emissions.” 

  • Scope 1 emissions are direct GHG emissions from sources that are owned or controlled by the reporting contractor.
     
  • Scope 2 emissions consist of GHG emissions associated with the generation of electricity, heating and cooling, or steam, when these are purchased or acquired for the reporting contractor’s own consumption but occur at sources owned or controlled by another entity.

  • Scope 3 emissions are indirect GHG emissions and consist of emissions that are a consequence of the operations of the reporting contractor but occur at sources other than those owned or controlled by the contractor. For example, Scope 3 emissions include emissions associated with the goods and services purchased by a contractor. 

Disclosure will be made in the System for Award Management (SAM.gov), and the proposed rule also includes a compliance demonstration related to the requirements. Failure to comply will result in the contractor being presumed to be a nonresponsible prospective contractor for federal procurements. Unless a contracting officer determines certain exceptions apply, this means the contractor will be ineligible for federal contract awards. See 48 C.F.R. § 9.103(a). Notably, the nonresponsibility determination is a departure from the questions the FAR Council posed in advance of rulemaking, which had indicated the government might “give preference to bids and proposals from suppliers . . . to achieve reductions in greenhouse gas emissions.”[1] Instead of a preference regime, the proposed rule advances a binary approach. 

The proposed rule “acknowledges that significant and major contractors will need time to come into compliance” and provides “delayed starting dates”: one year from the date of the final rule for Scope 1 & 2 inventory/disclosure and two years for Scope 3 disclosure and validation of a reduction target.

2. Standards to be used under the proposed rule

The proposed rule provides information about the standards to be used for these disclosures and the reduction targets:

  • Covered contractors conducting the GHG inventory must follow the GHG Protocol Corporate Accounting and Reporting Standard to develop quantified lists of their Scope 1 and Scope 2 GHG emissions. 

  • Major contractors must submit annual climate disclosures that align with the 2017 Recommendations[2] of the Task Force on Climate-Related Financial Disclosures (TCFD) and the 2021 TCFD Annex: Implementing the Recommendations of the Task Force on Climate-Related Financial Disclosures. The annual climate disclosure includes: a GHG inventory of the major contractor’s Scope 1, Scope 2, and relevant Scope 3 emissions; and descriptions of the major contractor’s climate risk assessment process and any climate-related financial risks identified. Major contractors must submit their annual climate disclosures through the CDP’s Climate Change Questionnaire. Major contractors are only required to complete those portions of the Questionnaire “that align with the TCFD recommendations as identified by CDP.”

  • Major contractors are also required to develop reduction targets and have the targets validated by SBTi within the previous five calendar years and made available on a publicly accessible website. “Science-based targets” are described as targets for reducing Scope 1, 2, and 3 GHG emissions that are in line with reductions that the latest climate science deems necessary to meet the goals of the Paris Agreement (limiting global warming to well below 2 °C above pre-industrial levels and pursuing efforts to limit warming to below 1.5 °C above pre-industrial levels).

Notably, the reduction target requirement is broader than the requirement in the SEC’s parallel proposed rule on climate-related disclosures, which did not include a requirement for reduction targets and would only require disclosure of Scope 3 emissions if they are “material, or if the registrant has set a GHG emissions reduction target or goal that includes its Scope 3 emissions.”[3]

3. Exceptions to the proposed rule

The proposed rule will not apply to:

  • Alaska Native Corporations, Community Development Corporations, Indian tribes, Native Hawaiian Organizations, or Tribally owned concerns;

  • Higher education institutions; 

  • Nonprofit research entities; 

  • State or local governments; and 

  • Entities deriving 80 percent or more of their annual revenue from federal management and operating (M&O) contracts that are subject to agency annual site sustainability reporting requirements. 

Also, major contractors that are either a small business[4] or a nonprofit organization will not be required to complete an annual climate disclosure or set reduction targets. However, these major contractors are still required to complete a GHG inventory of their Scope 1 and Scope 2 emissions and must report these total annual emissions in SAM.  

4. Summary of Proposed Obligations for Significant and Major Federal Contractors

Significant Contractors

  • Offeror received $7.5 million or more, but not more than $50 million, in federal contract obligations in the prior federal fiscal year as indicated in SAM.

Starting one year after publication of final rule, must have:

  • completed a GHG inventory of annual Scope 1 and Scope 2 GHG emissions; and
  • reported the total annual Scope 1 and Scope 2 emissions from its most recent inventory in SAM.

All offerors that register in SAM will be required to make various representations in SAM on an annual basis for compliance purposes.

Major Contractors

  • Offeror received more than $50 million in federal contract obligations in the prior federal fiscal year as indicated in SAM.

Starting one year after publication of final rule, must have:

  • completed a GHG inventory of annual Scope 1 and Scope 2 GHG emissions; and
  • reported the total annual Scope 1 and Scope 2 emissions from its most recent inventory in SAM.

Starting two years after publication of final rule, must have:

  • submitted annual climate disclosure within its current or previous fiscal year (including an inventory of Scope 3 GHG emissions); and
  • developed a reduction target and had the target validated by SBTi within the previous five calendar years.

All offerors that register in SAM will be required to make various representations in SAM on an annual basis for compliance purposes.


Government Contracts Legal Round-Up | 2022 Issue 22

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.

DFARS Cost and Pricing Rule Amendments 

  • DoD recently issued two final rules that amend the DFARS requirements related to contract cost and pricing.
  • The first rule prohibits the contracting officer from determining that the price of a contract or subcontract is fair and reasonable based solely on the historical prices paid by the Government. Furthermore, an offeror is ineligible for award unless the head of the contracting activity determines it is in the best interest of the government if: 1) the contracting officer cannot determine whether proposed prices are fair and reasonable by any other means, and 2) the offeror does not make a good faith effort to comply with a reasonable request to submit data other than certified cost and pricing data. If a contractor received award, but denied multiple requests for submission of data over the preceding three-year period, the CPARS evaluations must note this fact, unless exempted by the head of the contracting activity.
  • The second rule repeals preferences for the use of fixed-price contracts, including fixed-price incentive contracts, and also removes the requirement that cost-reimbursement contracts greater than $25 million be approved by the head of the contracting activity.

Contractors should be aware of the new obligation under the first rule to cooperate in good faith with “reasonable requests” for data other than certified cost and pricing data. Contractors who fail to do so may be ineligible for award or marked accordingly in CPARS evaluations. Under the second rule, contractors may see an increase in the use of cost-reimbursement contracts, although whether contracting activities make use of this newfound flexibility remains to be seen.

Protest Cases

1. Securitas Critical Infrastructure Services, Inc.--dba Paragon Investigations, B-420908 et al., (October 26, 2022) (Published November 7, 2022)

  • GAO denied a protest from an offeror excluded from the competitive range alleging that the agency failed to conduct meaningful discussions where the agency had in fact not conducted any discussions.
  • Under the solicitation, offerors rated as acceptable under the first two pass/fail factors would be invited to provide oral presentations and address three technical capability subfactors.
  • After each prepared presentation, the agency would conduct an interview during which the offeror would respond to questions for which it had not received advance notice.
  • The agency evaluated the putative protester as unacceptable under the technical capability factor, assigning one deficiency and four significant weaknesses.
  • GAO denied the protest alleging that the agency had failed to engage in meaningful discussions with the protester because the agency had not afforded the opportunity to address the deficiency and significant weaknesses.
  • GAO explained that the interviews were not discussions because the standard questions posed were not reflective of the contents of the oral presentation that was just delivered. Moreover, the interviews were conducted prior to evaluation of proposals, which would have made it impossible to require offerors to address adverse evaluation findings.

As a general matter, where there is a dispute regarding whether an exchange between an agency and an offeror constitutes discussions, the acid test of whether discussions have occurred is whether the offeror has been afforded an opportunity to revise or modify its proposal.

2. Orlans PC, B-420905 (October 25, 2022) (Published November 2, 2022)

  • GAO sustained a bid protest challenging the terms of a solicitation for commercial services where the record did not show that the agency performed adequate market research to demonstrate that the terms were consistent with customary commercial practice.
  • Here, the Department of Agriculture sought to acquire nationwide default management services. Relying upon a sworn affidavit, Orlans contended that certain pricing and payment terms were inconsistent with customary commercial practice and unduly restrictive of competition. In response, the agency claimed that their market research did not identify any customary commercial practices, and that the solicitation provisions were standard with their prior contracts.
  • GAO agreed with Orlans, first finding that the company’s protest provided enough detail to be legally and factually sufficient to meet GAO’s jurisdictional standards. On the substance, GAO concluded that the agency’s market research did not demonstrate either what customary commercial practices are or that no customary commercial practices exist, because the questions asked to potential vendors could not be fairly read to seek—and the responses could not be fairly read to supply—information regarding standard industry practices with respect to the pricing methodology for these services. Moreover, the agency could not rely upon its other government contracts as a basis for establishing customary commercial practice.

3. Cellco Partnership dba Verizon Wireless, B-420911 (November 1, 2022) (Published November 4, 2022)

  • GAO denied a bid protest challenging the terms of a solicitation for commercial services where the record showed that the agency performed adequate market research to demonstrate that the terms were consistent with customary commercial practice.
  • Here, the Department of Veterans Affairs (VA) sought to acquire enterprise-wide mobile communications devices and services. Verizon alleged that certain of the agency’s requirements were inconsistent with customary commercial practice, and that the VA’s market research indicating otherwise was flawed.
  • GAO found that the record showed that the agency exercised due diligence in seeking to establish the commerciality of its solicited requirements through multiple rounds of inquiries to the major commercial communications carriers capable of performing this work. GAO also concluded that the record demonstrated that the solicited products and services were commercially available, as the definition of the terms “commercial product” and “commercial service” do not stipulate any particular market share thresholds for establishing commerciality but provide generally only that the product be sold, leased, licensed, or provided to the general public and that the service is offered and sold competitively in substantial quantities in the commercial marketplace.

When protests challenge solicitations for commercial services, GAO will carefully scrutinize both the industry information set forth by the protester and the validity of an agency’s market research. Protesters are well-served to provide as much detail as possible regarding industry standards to support its contentions.

Claims Cases

1. The Centech Group, Inc. v. United States, COFC No. 19-1752 (November 8, 2022)

  • In this case, the US Court of Federal Claims (COFC) issued another decision reminding contractors about the importance of satisfying the basic requirements of the Contract Disputes Act (CDA).
  • Following the United States Air Force’s (USAF) decision to cancel a contract for installation of communications infrastructure and delivery of related materials, the Centech Group filed suit at COFC on behalf of its subcontractor which was scheduled to do the installation and delivery work.
  • Crucially, however, although Centech filed its certified claim with the USAF contracting officer (CO), which the CO denied, and Centech properly filed its complaint in a timely manner, Centech amended its complaint during the course of the COFC litigation and added claims which never had been properly presented to the CO.
  • The Government moved to dismiss on that basis for lack of subject-matter jurisdiction due to Centech’s failure to satisfy the CDA’s jurisdictional prerequisites and COFC granted the Government’s motion.
  • Notably, in granting the Government’s motion to dismiss, COFC expressly rejected Centech’s argument that “an action brought pursuant to the CDA need only be ‘based’ on the claim presented to the CO and the language of the complaint need not mirror that of the claim” and similarly dismissed the argument that Centech’s additional claims were simply an “enlargement” of its existing claim.
  • Instead, Judge Dietz held that although a complaint filed with COFC or the Boards of Contract Appeals need not be identical to the certified claim, it still must be the same claim that was presented to the CO and cannot be a “new claim . . . based on different factual grounds and seek[ing] different categories of relief based on a different set of operative facts,” as it was in that case. 

This decision serves as another reminder that contractors should pay close attention to the basic CDA requirements when submitting a claim. Although experienced contractors are well-versed in claims basics, recent cases at COFC and the Boards demonstrate that even sophisticated contractors can lose out on substantial recovery efforts due to procedural or other requirements. Jenner & Block’s government contracts attorneys possess deep experience with all aspects of claims and can aid contractors in avoiding procedural and jurisdictional CDA pitfalls. 


Government Signals Contractor Vaccine Mandate Updates Coming Soon

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By: Matthew L. HawsSati HarutyunyanAime JH Joo, and Ishan K. Bhabha

On October 18, 2022, the Eleventh Circuit Court of Appeals entered as its judgment its August 26, 2022 opinion limiting the scope of a nationwide injunction of the Biden Administration’s COVID-19 vaccine mandate for federal contractors, which we previously covered here. Just days prior, on October 14, 2022, the Safer Federal Workforce Task Force issued a website update for Federal Contactors regarding enforcement of the contractor vaccine mandate in light of the anticipated judgment of the court. The update states that the Task Force and the Office of Management and Budget expect to issue at least three new guidance documents on enforcement of the mandate as a result of the Eleventh Circuit’s late-August opinion. With somewhat dramatic foreshadowing, the Task Force said the following are expected to issue:

  1. OMB guidance to federal agencies on how to comply with current injunctions and whether to include the EO 14042 clause in new solicitations and contracts. Hopefully, this guidance will address the complicated issues we have previously identified related to the patchwork quilt of remaining injunctions, such as determining contract “location,” coverage of multi-location contracts, and handling solicitations where some bidders may be covered by an injunction while others are not.
     
  2. The Task Force’s updated substantive COVID-19 safety protocols to be required for contractors. The October 14 website update indicates this piece of guidance will be subject to a determination by the Director of OMB that it promotes economy and efficiency in federal contracting, the legal authority upon which EO 14042 has been argued to rest. This might suggest that the second piece of guidance will substantively change the required safety protocols. At a minimum, a new timeline for the vaccination requirement will be issued. Of course, all eyes will be on whether the vaccine mandate is more broadly modified or abandoned.

  3. OMB guidance to agencies on the timeline for enforcing the clause when present in contracts. One interesting element of prior updates from the Task Force was the statement that agencies could provide notice that they will enforce the Task Force requirements where the clause is already included in a contract. It appears agencies have not generally exercised this authority, and the latest update indicates a desire for a more coordinated approach to such agency notice. Significantly, the October 14 update makes clear that until and unless OMB issues this third piece of guidance, agencies should not: (1) require contractors to comply with previously issued Task Force guidance; or (2) enforce any contract clauses implementing EO 14042.

The timing of this updated information is itself interesting: the Task Force correctly foreshadowed that the Eleventh Circuit would issue judgment from the August 26, 2022 opinion today, October 18, 2022. That likely reflects that the government neither sought panel review of the Eleventh Circuit decision, nor did it seek a stay pending appeal to the Supreme Court. 

This cliffhanger update and the court’s judgment are sure to glue all contractor eyes to the Task Force website for the foreseeable future. 


Government Contracts Legal Round-Up | 2022 Issue 19

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.

Enforcement News

Deputy Attorney General Announces Revisions to DOJ's Corporate Criminal Enforcement Policies and Practices (September 15, 2022)

On September 15, 2022, Deputy Attorney General (DAG) Lisa Monaco issued a memorandum and delivered a speech, announcing several revisions to the Department of Justice's (DOJ)’s corporate criminal enforcement policies and practices. The new revisions reflect input from DOJ’s Corporate Crime Advisory Group, which DOJ convened in late 2021 to review and recommend improvements to DOJ’s approach to prosecuting corporate crimes, and the imprint of DOJ’s compliance-minded leadership. The new revisions, which will apply to current and future corporate defendants, include:

  1. Emphasizing that a corporation’s cooperation with DOJ must be timely and not strategically delayed if the corporate seeks maximum cooperation credit;
  2. Clarifying how prosecutors should evaluate a company’s record of prior misconduct when deciding how to resolve a criminal investigation;
  3. Requiring the development of additional written guidance to govern the Department’s overarching approach to voluntary self-disclosure, the selection of independent compliance monitors, and policies governing mobile devices and ephemeral messaging platforms; and 
  4. Heightened attention to DOJ’s evaluation of the effectiveness of corporate compliance programs, including detailed guidance on how prosecutors should assess employee compensation systems and the impact of compliance programs on corporate culture.

Overall, the new revisions reinforce DOJ’s commitment to the principles announced in DAG Monaco’s October 28, 2021 memorandum, while clarifying areas of potential confusion and promoting consistency across the Department on corporate crime issues. Taken together, they reflect the consistent DOJ trends of broadcasting aggressiveness against corporate crime; developing more guidance for the exercise of prosecutorial discretion; and centralizing departmental attention, if not control, over corporate prosecutions.

To read more about the memo here.

Leonard Francis Update (September 21, 2022)

For those following the Leonard Francis (a.k.a. “Fat Leonard”) saga, he has been apprehended on his way to Russia. U.S. fugitive known as 'Fat Leonard' apprehended in Venezuela after weeks on the run (nbcnews.com)

Supply Chain and Software Developments

NIST Certification for Federal Software Providers (September 14, 2022)

  • The Office of Management and Budget issued a memo titled Enhancing the Security of the Software Supply Chain through Secure Software Development Practices, M-22-18 (Sept. 14, 2022).
  • The key takeaway is OMB’s directive that: “Federal agencies must only use software provided by software producers who can attest to complying with the Government-specified secure software development practices, as described in the NIST Guidance.”
  • The operative term “NIST Guidance” refers to two publications from the National Institute of Standards and Technology (NIST): (1) the Secure Software Development Framework (SSDF), SP 800-213 and (2) the Software Supply Chain Security Guidance.
  • Agencies will be required to obtain a self-attestation of NIST-compliance from software producers before using their software. In order to use software from a producer that cannot make the complete attestation, agencies will need to obtain a Plan of Action & Milestones documenting the practices to which the producer cannot attest and those in place to mitigate any risks.

This is the latest in a long series of steps the federal government is taking to harmonize and improve agencies’ cybersecurity and software licensing practices. The requirement for affirmative certifications from software providers is sure to create all manner of compliance and implementation challenges over the next several years. Stay tuned.

Protest Cases

STG International, Inc., B-420759.4; B-420759.8 (August 24, 2022) (published September 15, 2022)

  • GAO denied a protest alleging that the agency unreasonably excluded the offeror, an incumbent contractor, from the competitive range.
  • The protester raised multiple challenges to the evaluation judgments by the Department of Homeland Security, Immigrations and Customs Enforcement (ICE), in connection with a procurement for medical staffing support services for detainees at ICE Health Service Corps clinic sites.
  • For example, the protester argued that the agency unreasonably evaluated its response to a hypothetical scenario which would be evaluated on, among other things, the extent to which it demonstrated creative and innovative techniques.
  • GAO concluded that the firm did not effectively respond to the scenario promptly, and found unobjectionable ICE’s conclusion that the firm did not articulate “new and innovative techniques,” instead pointing only to existing processes.

GAO will not disturb an agency’s evaluation of proposals where reasonable and consistent with the solicitation’s evaluation criteria, and protesters must demonstrate that protest grounds do not constitute mere disagreement with the agency’s evaluation. In cases such as this one where an agency evaluates a solution under inherently subjective factors (innovation and creativity), that burden is particularly acute. Here, the protester’s proposal had not identified its techniques as “new or innovative,” but even if it had, the protester would have had to demonstrate that ICE unreasonably determined that these new techniques were not innovative or creative. Ultimately, offerors are responsible for submitting a well-written proposal with adequately detailed information that allows meaningful review by an agency.


Government Contracts Legal Round-Up | 2022 Issue 18

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.

COVID-19 Fraud Recovery Bills

The President signed the COVID-19 EIDL Fraud Statute of Limitations Act of 2002, and PPP and Bank Fraud Enforcement Harmonization Act of 2022. Each Act establishes a 10-year statute of limitation for fraud by borrowers who took advantage of these programs during the pandemic.

In United States v. Allergan, Inc. --- F.4th --- , 2022 WL 3652967, The Ninth Circuit held that the False Claims Act’s Public Disclosure Bar has a broad reach—broad enough to cover patent prosecutions by the US Patent and Trademark Office, which qualify as a type of federal “hearing.” The Ninth Circuit reasoned that the information used by relator was publicly disclosed, and large portions of the information were even available on public websites maintained by the government.

In United States v. Honeywell International, Inc., --- F.4th ---, 2022 WL 3723020, the DC Circuit ruled that a dollar-for-dollar (pro tanto) approach to settlement offsets applies to False Claims Act cases. The DC Circuit rejected the proportionate share approach sought by the government.

Fat Leonard Rides Again

Leonard Francis (a.k.a. “Fat Leonard,”), mastermind of a significant Navy procurement fraud scandal relating to Navy ship husbanding services, cut off his GPS monitoring ankle bracelet, and is on the loose. News reports say neighbors witnessed moving trucks coming and going from Mr. Francis’ home in the days before his escape.

Defense Procurement Policy

1. Department of Defense Source Selection Procedures (Aug. 20, 2022)

  • DoD updated its source selection procedures guide, previously issued in April 2016, implementing numerous changes likely to impact acquisition planning, solicitation, and evaluation.
  • Of note, the updated procedures now recognize the regulatory requirement that for “acquisitions with an estimated value of $100 million or more, Contracting Officers should conduct discussions.” This requirement has resulted in significant protest litigation relating to the extent to which Contracting Officers must document and justify a decision to forego discussions.
  • DoD also introduced a brief “Appendix E” dedicated to intellectual property issues. DoD emphasizes that “DoD cannot force contractors to agree to sell the IP that DoD may desire,” while also asserting that “source selection evaluation factors may allow proposals to be evaluated for the impact of proposed restrictions on the Government’s ability to use or disclose IP deliverables such as technical data and computer software.”

DoD updates to its Source Selection Procedures can provide insight into DoD’s policy response to pressing procurement challenges. DoD discretion to make award without discussions in large procurements and DoD’s ability to implement its IP strategy in competitive procurements are two significant policy issues that DoD has been grappling with in recent years. Contractors and their counsel should expect continued litigation and policy developments on both fronts.

Vaccine Mandate Cases

1. Georgia v. Biden, et. al., No. 21-14269 (11th Cir. Aug. 26, 2022)

  • In a split decision, the Eleventh Circuit revived the COVID-19 vaccine requirement for many government contractors by significantly narrowing a nationwide injunction that had been issued by the district court in December 2021 to only the immediate plaintiffs in the case. While striking down the district court’s nationwide injunction for being overly broad and signaling a strong wariness towards nationwide injunctions overall, the Eleventh Circuit nonetheless affirmed the substance of the preliminary injunction.
  • Echoing decisions from its sister circuits enjoining the vaccine mandate, the Court explained that the Federal Property and Administrative Services Act, or Procurement Act, does not grant the President the authority to issue directions of the type found in the vaccine mandate, but rather vests such power in Congress. The Eleventh Circuit specifically rejected the DC Circuit’s expansive reading of the Procurement Act that previously upheld the President’s “particularly direct and broad-ranging authority over those larger administrative and management issues that involve the Government as a whole.” See AFL-CIO v. Kahn, 618 F.2d 784 (D.C. Cir. 1979) (en banc).

The Eleventh Circuit’s decision complicates the vaccine mandate landscape for government contractors by lifting the nationwide injunction that had previously been in place in favor of a patchwork quilt of narrow injunctions issued by several different courts across several different jurisdictions, even while making clear that the Court believes the vaccine mandate exceeded the President’s authority. The decision’s rejection of the DC Circuit’s expansive interpretation of the President’s authority under the Procurement Act also calls into question other executive orders that are not backed by a statutory provision. Contractors should expect continued litigation and development on both fronts. Partners Matthew Haws and Ishan Bhabha and Associate Sati Harutyunyan recently published a Client Alert and Law360 Article exploring the Eleventh Circuit’s decision in greater detail and discussing considerations for government contractors. Matthew Haws was also interviewed on Federal News Network regarding the aftermath of this decision and by Law360 regarding the broader implications of this decision for the Procurement Act.

Protest Cases

1. Selex ES, Inc., B-420799 (Sept. 6, 2022) (Published Sept. 8, 2022)

  • GAO sustained a pre-award protest alleging a solicitation ambiguity regarding when certain requirements must be met in order for proposals to be found technically acceptable.
  • The Department of the Air Force issued a solicitation for development of a portable tactical air navigation system, which included a requirement to perform a successful flight check and meet certain readiness levels.
  • After issuance of the solicitation, the protester requested clarity as to whether these requirements had to be met at the time of proposal submission or after award. The Air Force declined to amend the solicitation, and Selex protested.
  • GAO found that the Solicitation contained obvious conflicting information that created an ambiguity as to when the flight check and readiness level requirements were due. This affected the protester’s ability to prepare a proposal that could respond to the agency’s actual needs. GAO thus sustained the protest and directed the Air Force to clarify its requirements.

When reviewing solicitations, contractors must consider whether there are ambiguities that hinder the ability to compete intelligently and on an equal basis. Any such protest must be filed prior to the time of proposal submission—challenging the terms of the solicitation after award is too late.


Revised Guidance to Help Contractors Manage the Effects of Inflation

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By: David B. RobbinsMatthew L. Haws, and Carla J. Weiss

The Office of the Under Secretary of Defense, Acquisition and Sustainment, Defense Pricing and Contracting (DPC) issued revised guidance last Friday granting DoD contracting officers increased flexibility to help contractors manage the effects of inflation—including for firm-fixed-price contracts.

The new guidance is “[b]ased on feedback from the Department’s acquisition executives about how inflation is presently affecting the Defense Industrial Base and contractors’ ability to perform under existing firm-fixed-price contracts . . .” and notes that “there may be circumstances where an accommodation can be reached by mutual agreement of the contracting parties” to address the “acute impacts on small businesses and other suppliers.” The guidance indicates schedule relief or otherwise amending contractual requirements may be appropriate as long as the government receives “adequate consideration” in return.

It also reminds acquisition staff of the ability to seek Extraordinary Contractual Relief under Public Law 85-804 in the form of an “upward adjustment to the price of an existing firm-fixed-price contract to account for current economic conditions.”

Prior guidance had provided that “under firm-fixed-price (FFP) contracts [contractors] generally must bear the risk of cost increases, including those due to inflation.” This blunt statement led some contracting officers to conclude they had limited room to adjust firm-fixed-price contracts struggling under the weight of inflation. This new guidance is a noteworthy acknowledgement of the significant burden on the defense industrial base and the need for contracting officers to have flexibility in responding to individual circumstances and meeting the government’s needs.

Jenner and Block’s Government Contracts attorneys have significant experience helping contractors negotiate schedule relief, equitable adjustments, and appropriate consideration and we stand ready to assist.


Eleventh Circuit Vacates Nationwide Injunction of Contractor Vaccine Mandate and Injects Significant Uncertainty Back into Government Contracts

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By: Matthew L. HawsSati Harutyunyan, and Ishan K. Bhabha

On Friday, August 26, 2022, the Eleventh Circuit brought back to life complicated legal, management, and labor issues related to COVID-19 vaccine requirements for many government contractors. By significantly narrowing a nationwide injunction, the court left a complicated patchwork quilt of half-a-dozen more narrow injunctions and significant uncertainty for contractors.

The Eleventh Circuit’s decision follows a December 2021 district court order that enjoined nationwide the Biden Administration’s enforcement of the COVID-19 vaccine mandate for federal contractors. The district court’s decision—issued just weeks before the January 18, 2022 deadline for contractor compliance—effectively halted enforcement of the vaccine mandate “for federal contractors and subcontractors in all covered contracts in any state or territory of the United States of America.”

Already dealing with inflation, workforce, and supply chain challenges, many contractors appeared to welcome the reprieve. But the straightforward relief provided by the nationwide injunction disappeared on Friday, August 26, 2022, when a three-judge panel of the US Court of Appeals for the Eleventh Circuit issued an opinion in the Biden Administration’s appeal of the district court’s order.

A divided panel agreed with the court below that the plaintiffs were entitled to an injunction, but it disagreed (unanimously) that a nationwide injunction was appropriate. On that basis, the court “vacate[d] the injunction to the extent that it bars enforcement of the mandate against nonparty contractors through new and existing contracts.” The practical effect for government contractors is that this decision leaves contractors facing a complicated and unwieldy landscape party-specific and state-specific injunctions. 

Here are the three things every government contractor is asking: 

  1. What did the Eleventh Circuit hold? 
  2. What is the status of the contractor vaccine mandate following this decision? 
  3. What should I be doing now?

What did the Eleventh Circuit hold?

The Eleventh Circuit’s substantive holding on the authority of the President to issue a vaccine mandate is what many expected and echoes the reasoning of other courts enjoining the vaccine mandate. Focusing on the first element required for a preliminary injunction—whether the plaintiff is likely to succeed on the merits—the court held the Federal Property and Administrative Services Act, or Procurement Act, does not provide the President with authority to issue direction of the type found in the vaccine mandate. The court began by noting that the federal government has broad power to “fix the terms and conditions upon which it will make needed purchases….But that authority rests in Congress’s hands in the first instance—not the President’s.”[1] It then focused on whether Congress “authoriz[ed] the President to make procurement agreements contingent on Covid-19 vaccination.”[2] The court concluded that Congress granted no such authority to the President.

The Eleventh Circuit directly challenged the expansive interpretation of the Procurement Act by the DC Circuit in a line of cases beginning with AFL-CIO v. Kahn, 618 F.2d 784 (D.C. Cir. 1979) (en banc). In Kahn, the court held that the President could issue an executive order requiring contractors to comply with wage and price standards because the Procurement Act granted the President “particularly direct and broad-ranging authority over those larger administrative and management issues that involve the Government as a whole.”[3] The Eleventh Circuit concluded that Kahn should not be read to give the President a “blank check” or “near-limitless executive procurement authority.”[4] Specifically, the court stated that the broad preamble language does not grant the President authority, but only informs the use of the specific grants of authority elsewhere in the Procurement Act. “The purpose the Act serves is, if anything, a secondary restriction on the President’s authority rather than an expansion.” Finding that nothing in the Act “delegated the power to require widespread vaccination,” the court found that “all signs suggest that Congress retained that power rather than passing it on.”[5]

In so doing, the majority opinion further developed recent law applying the “major questions” doctrine to the Procurement Act: rejecting reliance on the purpose statement of the Procurement Act and demanding a clear substantive grant of authority to the President or a subordinate official. This is one of the first opinions to interpret West Virginia v. EPA, 142 S. Ct. 2587, 2609 (2022), a decision that is expected to have a potentially significant impact on the ability of administrative agencies to act on the outskirts of their authority. (Notably, the concurring opinion concurs only in the result and the dissenting opinion differs markedly both in the outcome and the application of the major questions doctrine).

It is worth noting two additional things:

  • First, the court rejected the argument that it should interpret the Procurement Act broadly because of the history of Executive Orders based on a broad interpretation of their authority. This line of discussion may hint at future challenges to a range of past Executive Orders.

  • Second, the Court noted that “until a final decision is reached on the merits of the challengers’ claims, many other tools for stemming the virus and reducing procurement costs remain at the federal government’s disposal.” The question of whether the federal government would seek to enforce the other requirements of the Safer Federal Workforce Task Force has lingered since the District Court clarified that its nationwide injunction only applied to the vaccine mandate. As the government determines its next move, one option is to focus on enforcement of the non-vaccine provisions of the Task Force Guidance.

Having upheld the substance of the preliminary injunction, the court then dramatically limited its scope: “[T]he district court enjoined the enforcement of the contractor vaccine mandate—against any contractor, anywhere in the United States, plaintiff in this case or not. We are both weary and wary of this drastic form of relief.”[6] The court explained its wariness and weariness as follows: “By cutting off parallel lawsuits, nationwide injunctions frustrate foundational principles of the federal court system. They encourage gamesmanship, motivating plaintiffs to seek out the friendliest forum and rush to litigate important legal questions in a preliminary posture. They disturb comity by hindering other courts from evaluating legal issues for themselves.”[7]

Based on this reasoning and citing the “proper functioning of our federal court system,” the Eleventh Circuit held that “the preliminary injunction in this case must be limited to protecting the parties in this case.”[8] Specifically, the court concluded that “any plaintiff State or member of Associated Builders and Contractors” “need not comply with the vaccination requirement in their capacity as contractors, and they are not responsible for including that requirement in lower-tier subcontracts.”[9]

What is the status of the contractor vaccine mandate following this decision?

While in line with other courts evaluating the scope of preliminary injunctions against the vaccine mandate, the elimination of the nationwide injunction creates practical challenges for many government contractors across the United States. Importantly, the latest decision reignites questions about where and to whom injunctions against enforcement of vaccine mandates apply.

The chart below captures the scope of current preliminary injunctions of the contractor vaccine mandates.

Court Decision

Scope of Preliminary Injunction

Description of Preliminary Injunction

Georgia v. Biden, et. al., Case No. 21-14269

Enjoined as to contracts with plaintiffs.

The decision preliminarily enjoins the Biden Administration from enforcing the mandate with respect to contracts with the six plaintiff states (Alabama, Georgia, Idaho, Kansas, South Carolina, Utah, and West Virginia) or in contracts with members of plaintiff Associated Builders and Contractors.

Louisiana v. Biden, 575 F. Supp. 3d 680, 695–96 (W.D. La. 2021)

Enjoined as to contracts with plaintiffs.

The decision preliminarily enjoins enforcement of the mandate with respect to contracts between plaintiff states Louisiana, Mississippi, and Indiana,and their agencies. It expressly does not extend to “contracts between private contractors and the national government.” An appeal has been filed.

Florida v. Nelson, 576 F. Supp. 3d 1017 (M.D. Fla. 2021)

Enjoined as to contracts in Florida.

The district court entered a preliminary injunctionenjoining the Biden Administration from enforcing the mandate in Florida. An appeal has been filed.

Brnovich v. Biden, 562 F. Supp. 3d 123, 132 (D. Ariz. 2022)

Enjoined as to contracts in Arizona.

The district court entered a preliminary injunction as to contracts in “the geographic boundaries of the State of Arizona” but refused to apply the nationwide scope sought by Plaintiffs.

Kentucky v. Biden, 571 F. Supp. 3d 715, 735 (E.D. Ky. 2021)

 

Kentucky v. Biden, 23 F.4th 585, 589 (6th Cir. 2022)

Enjoined as to contracts in certain locations.

The decision preliminarily enjoins enforcement in “all covered contracts in Kentucky, Ohio, and Tennessee.” The Sixth Circuit subsequently denied the Biden Administration’s request to stay the injunction pending appeal.

Missouri v. Biden, 576 F. Supp. 3d 622, 635 (E.D. Mo. 2021)

Enjoined as to contracts in certain locations.

The decision preliminarily enjoins the Biden Administration from enforcing the vaccine mandate for contracts performed in plaintiff states (Missouri, Nebraska, Alaska, Arkansas, Iowa, Montana, New Hampshire, North Dakota, South Dakota, and Wyoming). An appeal has been filed.

What should government contractors be doing now?

Government contractors are once again faced with complicated questions of whether—or to what extent—they are subject to the contractor vaccine mandate. Contractors will be keeping a close eye on whether the government takes any action—included through revised Office of Management and Budget guidance on application of the mandate pending continued litigation or through revised Safer Federal Workforce Taskforce guidance—to provide clarity on how the government will enforce the clause. The OMB guidance on enforcement says the government will not enforce the mandate, absent further written notice from the contracting agency, where the place of performance identified in the contract is a geographic location subject to an order prohibiting enforcement. That guidance currently identifies all 50 states as subject to an injunction. Does “further written notice” before enforcement mean a contractual communication or just updating the website discussion?

Of course, the next procedural move shifts to the government—whether to appeal the Eleventh Circuit decision to a Supreme Court that already applied similar rationale in its January 14, 2022 ruling striking down the OSHA mandate or whether to voluntarily suspend enforcement of the mandate in a broader fashion.

In the meantime, Contractors should:

  • Evaluate whether they are members of any plaintiff group covered by a preliminary injunction or whether they perform contracts within states covered by another preliminary injunction.

    • The Eleventh Circuit criticized application of preliminary injunctions based on (even more limited) geographic areas—“injunctive relief operates on specific parties, not geographic territories.”

    • Thus, the geographic injunctions issued by other District courts could be subject to revision if other appellate courts follow the Eleventh Circuit ’s lead.

  • Evaluate whether they have already executed contracts with FAR 52.223-99 Ensuring Adequate COVID-19 Safety Protocols for Federal Contractors, the clause requiring compliance with the Safer Federal Workforce Task Force guidance.

  • Alert contracting personnel to be on the lookout for new solicitations and contracts containing the clause.

  • Reinvigorate working groups on these issues to ensure that the contractor is able to monitor developments regarding the mandate and comply with any contractual obligations.

Conclusion

For many government contractors, the Eleventh Circuit’s vacating the nationwide injunction injects them back into complicated legal, management, and labor issues related to the COVID-19 vaccine and related requirements. Contractors must evaluate whether they are within the scope of a half-dozen more limited preliminary injunctions, whether they have existing agreements containing the relevant clause, or whether it is being inserted in solicitations for which they are competing. Companies will need to refocus on these challenging questions in the midst of other significant labor and inflation related challenges.

[1] Opinion at 10.
[2] Id.
[3] Id. at 789.
[4] Opinion at 25.
[5] Opinion at 30.
[6] Opinion at 34.
[7] Opinion at 39.
[8] Opinion at 46.
[9] Id. at 44.


Government Contracts Legal Round-Up | 2022 Issue 16

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

Last week, Senators Warren and Lujan requested that the Department of Justice use the Department’s debarment authority to exclude companies under investigation or that had been convicted/found liable. Such an approach would turn suspension and debarment practice on its head and remove buying agencies (e.g., the customer) from the exclusion process and cause exclusions to be collateral consequences of Justice Department actions. This assumes of course that Justice could clear ISDC coordination and receive lead agency in the first place.

Source material can be found here.

FOIA Exemption 4

1. Siefe v. U.S. FDA, No. 20-4072 (2d Cir. August 5, 2022)

  • The Second Circuit Court of Appeals issued a significant decision discussing the interplay between FOIA Exemption 4, the Supreme Court’s 2019 decision in Food Marketing Institute v. Argus Leader Media, 139 S. Ct. 915 (2019) and the FOIA Improvement Act of 2016 (FIA).
  • The Second Circuit affirmed the district court’s decision, which found that federal agencies had appropriately withheld certain information from public release pursuant to FOIA Exemption 4, which protects confidential commercial information.
  • After the Supreme Court held in Argus Leader that the plain language of FOIA Exemption 4 does not require a showing of competitive harm for information to be deemed “confidential,” district courts have been divided over whether the FIA (which did not apply to the FOIA request in Argus Leader) effectively codifies the requirement that agencies must find a likelihood of competitive harm before withholding information under FOIA Exemption 4.
  • The Second Circuit held that the FIA does require an agency to determine whether release of information otherwise protected by Exemption 4 would harm the submitter, arguably re-imposing a competitive harm standard similar to what the Supreme Court rejected in Argus Leader.

This is the latest of a dense line of decisions interpreting FOIA Exemption 4 in light of Argus Leader and the FIA. Special Counsel Nathaniel Castellano recently published a Briefing Paper discussing these issues in detail. In short, the procedural and substantive standards applicable to FOIA Exemption 4 are currently volatile and require careful, case-by-case consideration. As shown by this decision, even though the Supreme Court in Argus Leader seemed to reject competitive harm as a relevant consideration under Exemption 4, courts may still require a showing of competitive harm based on the FIA.

Bid Protests

1. Hydraulics International, Inc. v. United States, No. 22-364 (Fed. Cl. August 8, 2022)

  • Court of Federal Claims (COFC) Judge Holte issued a significant decision confirming that the COFC can and will exercise jurisdiction over post-award OTA protests.
  • Consistent with prior decisions from the COFC and district courts, Judge Holte explained that the question of whether an OTA protest falls within COFC jurisdiction turns on whether the Other Transaction is sufficiently “in connection with a procurement or a proposed procurement.”
  • While individual judges have approached this fact-based analysis differently, in this case the COFC found that the OTA award was in connection with a procurement or proposed procurement because there was evidence that the agency may issue a follow-on procurement contract for production. Notably, this is a common feature in solicitations for Other Transactions involving prototypes.
  • Consistent with prior OTA protest disputes, the Department of Justice zealously disputed COFC jurisdiction, arguing that Congress intended to insulate Other Transaction awards from COFC protest review. Judge Holte provided detailed analysis rejecting each of the government’s jurisdictional arguments, emphasizing that the statutory OTA provisions are silent with respect to protest jurisdiction.
  • Having found jurisdiction, the Court rejected the protest on the merits.

This is the latest in a series of COFC and district court opinions analyzing when and where judicial review of OTA protests may occur. While each decision is unique in its jurisdictional analysis, so far, they share the common theme of accepting the premise that COFC can review certain OTA protests. However, whether an OTA protest can be heard at COFC or district court will, under current precedent, require a case-specific and fact-intensive inquiry. Any company considering a bid protest relating to an OTA solicitation or award should proceed carefully.

2. ISHPI Information Technologies, Inc., B-420718.2, B-420718.3, July 29, 2022 (Publicly issued August 9, 2022)

  • GAO sustained a protest alleging that the awardee’s proposed Federal Supply Schedule (FSS) labor categories did not meet the solicitation’s minimum qualifications.
  • The solicitation, which sought to establish a Blanket Purchase Agreement with FSS holders, identified three labor categories and required all contractor personnel to meet the minimum educational and experience requirements identified for those positions. Vendors were required to map quoted FSS labor categories to the solicitation’s minimum qualifications for each labor category.
  • After filing an initial protest and gaining access to the awardee’s proposal, the protester timely filed a supplemental protest, which GAO sustained, arguing that the awardee’s quotation failed to identify FSS labor categories that mapped to the solicitation’s required minimum qualifications and that several quoted labor categories lacked the required education and experience.
  • GAO rejected the Agency’s argument that the awardee had implicitly promised to provide personnel meeting the minimum requirements, explaining that when a solicitation requires quoted FSS labor categories to meet minimum requirements, a quotation “must include some kind of affirmative representation or showing that the personnel offered will meet the solicitation’s specified experience and education requirements.”
  • Because the awardee’s quoted FSS labor categories fell “far below” the solicitation’s required qualifications, its quotation was technically unacceptable and could not properly form the basis of award.

GAO decisions in this area continue to evolve but the stakes are high because of the potential for a quotation being found unacceptable. Where a solicitation requires quoted labor categories to meet certain experience or education qualifications, GAO has clarified that the vendor must affirmatively demonstrate its capability to meet the requirements. GAO previously explained that a solicitation may be unduly restrictive of competition where labor categories must “align precisely” with minimum requirements, but where a solicitation requires 12 years of experience and a proposed FSS labor category provides for a minimum of 10 years, the vendor can expressly or implicitly propose to provide personnel with more than 10 years’ experience. Notably, the awardee’s quotation here had not affirmatively demonstrated that several labor categories met the minimum requirements, several labor categories fell “far below” the required qualifications, and the awardee’s FSS catalog did not describe the qualifications as “minimums.”

Claims Cases

1. Textron Aviation Defense v. United States, No. 20-1903C (Fed. Cl. August 12, 2022)

  • Judge Solomson issued an important decision concerning the statute of limitation (SOL) under the Contract Disputes Act (CDA).
  • In 2014, Textron acquired pension assets and liabilities associated with three employee pension plans relating to a bankrupt company, where two of the employee pension plans had been terminated in 2012.
  • In 2018, Textron submitted a payment demand seeking to recover the Government’s share of the adjustment amount for all three pension plans pursuant to CAS 413. The Contracting Officer rejected the request for payment. Textron submitted a certified claim, which the contracting officer denied in September 2020 on the basis that the pension adjustment claim was barred by the CDA SOL. Textron then appealed to COFC, and Judge Solomson granted the government’s motion to dismiss the case, agreeing that the claim was barred by the CDA SOL.
  • Judge Solomson held that Textron was not required to submit a pre-claim payment demand before submitting its claim and that Textron’s claim (or its predecessor’s) accrued no later than February 2013. Because Textron did not file a certified claim until April 2020, its claim was barred by the CDA SOL.
  • Judge Solomson rejected the argument that Textron’s CAS 413 payment demand was a “routine request” akin to a voucher or invoice that could not form the basis of a claim before the government disputed the demand. After sorting through the complex caselaw governing the distinction between routine and nonroutine requests for payment—which Judge Solomson described as a “sticky wicket of epic proportions”—the Court concluded that the request for payment was not required by any FAR provision or otherwise and emerged from the unusual circumstances of bankruptcy, and could not be routine in nature.

This decision provides important guidance for contractors when navigating the CDA claims process. Contractors must be diligent in ensuring that they meet each of the CDA’s prerequisites and seek recovery as soon as is practicable—to steer clear of any statute of limitation concerns. This case underscores the traps awaiting contractors when attempting to recover under the CDA, and why experienced counsel can be invaluable when trying to unpack, as Judge Solomson put it, the CDA’s “jurisdictional minefield of the first order.”


Government Contracts Legal Round-Up | 2022 Issue 15

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

There are a number of noteworthy developments in the investigations and enforcement space:

  • Precision Metals Corp. won injunctive relief preventing DLA from maintaining the company’s debarment. DLA, which is aggressive and takes a more expansive view of suspension and debarment practice than most other federal agencies, is alleged to have denied five requests for in person meetings to address the facts underlying the company’s exclusion and focused on past data rather than current operations.
  • An individual pled to bid rigging and set aside fraud relating to more than $17 million in military contracts as part of a Procurement Collusion Strike Force related matter. Read more here.
  • Numet Machining Techniques, LLC, and affiliated entities paid more than $5 million to resolve allegations of set-aside fraud relating to government contracts won after M&A activity rendered the business other than small. Numet disclosed the misconduct and “received credit” for the disclosure as part of the resolution. This is a notable resolution because, while follow on enforcement action after this type of disclosure is possible, it is comparatively rare. Read more here.
  • And in a lower dollar settlement for procurement related misconduct, McLain and Company paid $137,500 to resolve allegations of falsified inspection documentation relating to inspection vehicles customized for work on bridges. Read more here.

Claims Cases

1. Microtechnologies LLC v. United States Attorney General, No. 2021-2169 (Fed. Cir. July 28, 2022) (nonprecedential)

  • The government contracted with MicroTech to provide commercially available software licenses and maintenance for one base year and two option years. On the first day of the base year, MicroTech purchased the software licenses and maintenance for all three years of potential performance. After accidentally executing the first option year, the government terminated the first option year for convenience on the first day of performance.
  • There was no dispute as to MicroTech’s entitlement for the completed base year of performance. MicroTech, however, sought termination costs for the option year equal to the price that MicroTech paid for a full year of the relevant software license and maintenance, even though the agency never used the software or maintenance during the first option period. MicroTech argued that the commercial software is only sold in one-year increments and cannot be refunded once purchased; therefore, according to MicroTech, once the government executed the first option year, MicroTech was obligated to incur the full year’s worth of licensing and support costs, even if never used.
  • The Civilian Board of Contract Appeals granted the government’s cross-motion for summary judgment, and the Federal Circuit affirmed in a non-precedential opinion: “The Board correctly held that the cost of software maintenance for option year one was not a ‘reasonable charge’ that ‘resulted from the termination,’ as required for recovery under FAR 52.212-4(l),” which governs convenience terminations for commercial item contracts. The panel explained that “MicroTech acknowledges that the cost was not required under any contract when it was incurred,” and therefore “even assuming that the software maintenance could only be purchased in one-year increments and that MicroTech’s purchase was nonrefundable, MicroTech cannot show that the cost of software maintenance for the first option year ‘resulted from’ the government’s termination [of the option year].”

This is the latest in a growing line of important claims decisions relating to software licensing disputes. Contractors providing government customers with access to commercial software licenses must keep in mind the risk that comes with the inherent disconnect between (i) standard FAR clauses (e.g., termination for convenience) and (ii) the terms and conditions that typically apply to commercial software licenses. Software aside, while buying in bulk at the beginning of a base year may allow for cost savings and increased profit, there is always the risk that an agency will not exercise option periods.

Protest Cases

1. KOAM Engineering Systems, Inc., B-420157.2, July 6, 2022 (Publicly issued July 18, 2022)

  • GAO denied a protest alleging that the awardee gained an unfair competitive advantage because one of the awardee’s proposed key persons is married to a Navy contracting officer’s representative (COR) on the protester’s incumbent contract.
  • The protester argued that given the marriage and the fact that both worked in close proximity at home and share a common financial interest, there should be an “irrefutable presumption of impropriety.”
  • The Navy investigated the matter, including by reviewing declarations provided by the husband and wife. Based on this investigation, the Navy found no evidence that the COR participated in the instant procurement, or that the COR disclosed competitively useful information. The Navy also concluded that the specific information for which the COR had access, i.e., historical pricing information from KOAM’s incumbent contract, would not have provided a material competitive advantage to the awardee in light of this RFP’s specific terms.
  • GAO concluded that the agency’s investigation sufficiently rebutted the protester’s allegation of the appearance of impropriety, and sufficiently demonstrated that KOAM’s proprietary or otherwise competitively useful information was not disclosed.

Contracting agencies are to avoid even the appearance of impropriety in government procurements. Where a protester alleges a conflict of interest, including one based on a marital or familial relationship, GAO will not sustain the protest if the contracting agency reasonably investigates the allegations and finds no impropriety. A marital or familial relationship, without more, does not establish that an awardee gained an unfair competitive advantage.

2. Apprio, Inc., B-420627, June 30, 2022 (Publicly issued July 18, 2022)

  • GAO sustained a protest challenging a Federal Emergency Management Agency (FEMA) task order for training services to be performed at the Center for Domestic Preparedness (CDP).
  • GAO first found unreasonable FEMA’s cost realism analysis of awardee Leidos, Inc.’s proposed costs because the contemporaneous evaluation record did not demonstrate any evaluation of the awardee’s direct labor rates and lack of escalation. Moreover, while GAO will take into account credible, post-protest explanations that provide a detailed rationale for contemporaneous conclusions and fill in previously unrecorded details, here FEMA neglected to sufficiently explain how the agency evaluated Leidos’s labor rates or how the specific conclusions of those evaluations were made.
  • For example, while Leidos proposed to staff the task order with its incumbent personnel, the awardee proposed rates for many of these personnel based on the wage determination (WD) rates and not necessarily actual labor costs on the predecessor efforts. GAO sustained the protest because the agency’s cost realism evaluation did not assess whether the WD rates proposed to be paid to the majority of the incumbent workforce would be sufficient to retain those employees.
  • GAO also found objectionable the agency’s use of a standard deviation methodology as a tool to determine realism because the solicitation here contemplated unique technical approaches by offerors, and those unique approaches were not considered when FEMA relied on a common standard deviation to assess realism.
  • And GAO sustained the protest because a weakness assigned to the protester’s proposal under the corporate experience factor was directly contradicted by the contents of Apprio’s proposal.

Where an agency intends to award a contract containing cost-reimbursable line items, an offeror’s proposed costs of performing the cost-reimbursable CLINs are not dispositive because, regardless of the costs proposed, the government is bound to pay the contractor its actual and allowable costs. Consequently, the procuring agency must perform a cost realism analysis to determine the extent to which an offeror’s proposed costs are realistic for the work to be performed, and this analysis must provide a reasonable measure of confidence that the costs proposed are realistic based on information reasonably available to the agency at the time of its evaluation. GAO will sustain a protest where an agency’s cost realism evaluation is not reasonably based.

3. Cellebrite, Inc., B-420371.2, April 28, 2022 (Publicly issued July 18, 2022)

  • GAO found unobjectionable an agency’s decision to not permit revised pricing as part of corrective action.
  • In response to a prior protest, the United States Secret Service (USSS) took corrective action by amending the solicitation to clarify language contained in the corporate experience factor and the management and staffing approach factor. The amendment also revised the curriculum demonstration factor to permit subcontractor instructors to present during the curriculum demonstration presentation, provided they were previously included in the previous key personnel proposal submission.
  • USSS denied the protester’s request that the agency allow it to amend its price because its investment and growth in the interceding 5 months, as a newly listed public company, resulted in increased efficiencies and reduced operating costs.
  • In response to the protest, the agency emphasized that Cellebrite’s request to revise its price was not based on any changes made to its proposal in response to the solicitation amendment.
  • GAO found no basis to object to the agency’s corrective action because the record established that the corrective action was narrowly tailored to clarify the procurement improprieties that the agency sought to resolve during corrective action.

Contracting officers in negotiated procurements have broad discretion to take corrective action where the agency determines that such action is necessary to ensure a fair and impartial competition, and the details of corrective action are within the sound discretion and judgment of the contracting agency. An agency may reasonably limit the scope of proposal revisions permitted during corrective action, provided such limitation is appropriate to remedy the procurement impropriety. GAO generally will not object to the specific corrective action, so long as it is appropriate to remedy the concern that caused the agency to take corrective action.


Government Contracts Legal Round-Up | 2022 Issue 14

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.

Proposed Rule

1. Proposed Nondisplacement Rule (July 15, 2022)

The Biden Administration just issued a proposal to reinstitute the nondisplacement rule, which provides that contractors and subcontractors performing on covered Federal service contracts must in good faith offer to rehire employees supporting the predecessor contract.

  • Under the proposed rule, at least 10 business days before contract expiration, departing contractors must provide the incoming contractor a list of all service employees working on the contract during the last month of performance. The incoming contractor must then give incumbent employees express bona fide offers for employment in positions for which they are qualified. Employees must be given at least 10 business days to accept the offer.
  • There are key differences between the proposed rule and the version of the rule that existed under the Obama Administration, including that the new rule applies to contractors performing work at a different location than the predecessor contractor.

Comments on this proposed rulemaking are due August 15, 2022.

Claims Cases

1. Zafer Construction Co. v. United States, Fed. Cir. No. 21-1547 (July 18, 2022)

  • In a highly anticipated decision, the Federal Circuit discussed the distinctions between claims and Requests for Equitable Adjustment (REA) in Contract Disputes Act (CDA) litigation.
  • The unanimous opinion (authored by Judge Hughes and joined by Judges Newman and Reyna) confirms that a contractor submission qualifies as a claim under the CDA—even when styled as an REA—if it satisfies the definition of “claim”, is properly certified, and sufficiently requests a contracting officer’s decision.
  • The opinion acknowledges that this flexible standard may result in some confusion as to when exactly a claim has been submitted, and “might create room for gamesmanship,” but concludes that “the Government has tools to address this challenge.”

Contractors attempting to submit REAs should pay careful attention to this decision to understand whether their submission may be deemed a formal claim.

Protest Cases

1. ZeroAvia, Inc. v. United States, Fed. Cl. No. 21-1991 (July 11, 2022)

  • Court of Federal Claims (COFC) Judge Dietz dismissed a bid protest complaint for lack of standing based on an apparent failure to plead sufficiently detailed allegations of procurement error and prejudice.
  • While it is common for the COFC to dismiss bid protests based on procedural issues (e.g., timeliness and standing) after the case is fully briefed, it is relatively rare for the court to dismiss a bid protest complaint for lack of sufficiently detailed allegations.
  • The opinion explains that rather than reaching the merits, the COFC found that the plaintiff “has not provided sufficient factual support for its alleged procurement errors to establish that it has standing to bring its protest,” noting that the plaintiff “bears the burden to establish that it has standing as part of its complaint.”

This case is a reminder that threshold pleading standards do apply to bid protest complaints filed at the COFC, and failure to provide sufficiently detailed allegations in a complaint may in some cases warrant dismissal.

2. Quality Technology, Inc., B-420576.3 (June 30, 2022)

  • The agency initially selected QuTech for award, resulting in a GAO protest from disappointed offerors, including Sparksoft. The agency took corrective action and then selected Sparksoft for award.
  • QuTech protested the award to Sparksoft, raising a novel argument that “the agency’s consideration of the arguments presented in Sparksoft’s protest challenging the initial award to QuTech constitute discussions, which the agency conducted unequally with only Sparksoft.”
  • GAO dismissed this novel argument as legally insufficient, emphasizing that there was no evidence “that the agency communicated with Sparksoft about the firm’s proposal—or that the agency permitted Sparksoft to modify its proposal,” and GAO was not aware of any legal authority to support “the contention that the submission of a protest amounts to discussions with the agency.”

The arguments presented in this protest reflect the frustration that follows when a company receives a contract award, only to have the agency take corrective action in response to a protest and change its award decision in favor of the protester. GAO decisions typically treat two award decisions as standing alone and do not second guess the agency’s decision to take corrective action or to select a new awardee. The protester here raised a novel discussions argument in attempt to turn the tables once more, but GAO would not take the bait.