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Government Contracts Legal Round-Up | 2021 Issue 8

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

Executive Orders

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

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

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

Protest Cases

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

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

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

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

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

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

Claims Cases

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

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

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

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

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

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

Investigations and Enforcement

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


Government Contracts Legal Round-Up | 2021 Issue 7

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

Regulatory Update

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

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

Protest Cases

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

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

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

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

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

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

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

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

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

Claims Cases

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

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

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

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

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

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

Investigations and Enforcement 

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


Government Contracts Legal Round-Up | 2021 Issue 4

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

Executive Actions

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

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

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

Audits

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

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

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

Protest Cases

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

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

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

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

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

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

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

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

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

Claims Cases

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

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

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

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

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

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

FCA Priorities

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