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.

Bid Protest Update

Piedmont Propulsion, Sys., LLC v. United States, No. 23-330C (August 21, 2023)

• Court of Federal Claims Judge Somers issued an important decision regarding the standard of review applied when assessing the rationality of an agency’s decision to limit competition.
• Here, the Court found that the United States Coast Guard failed to rationally justify its decision to restrict competition for overhaul and repair work to companies that were licensed by the Original Equipment Manufacturer (OEM).  
• The government argued that the protester needed to show that the OEM license requirement was “so plainly unjustified as to lack a rational basis.” Replying on peculiar language from a Federal Circuit opinion, the government seemed to argue that the Coast Guard’s determination was entitled to even more deference than the Court would typically owe under the rational basis standard.   
• Judge Somers rejected the government’s heightened standard of review, explaining that “[a]lthough the Court does not believe that applying the government’s preferred standard would lead to a different result in this case, the Court will not deviate from the normal rational basis standard based on a few words of a concluding sentence pulled from one Federal Circuit opinion—words the circuit has never quoted again.” 
• Applying the proper standard of review to the record, Judge Somers then determined that the OEM license requirement lacked a rational basis and therefore constituted an undue restriction on competition. Contemporaneous exchanges in the record between the Coast Guard and the OEM indicated that the Coast Guard never really understood the license requirement it was imposing, nor why such a license was necessary to meet the agency’s needs.   

As a general rule, agencies have wide discretion to determine their own requirements. But OEM license requirements like the one at issue here inevitably create tension with CICA’s mandate for full and open competition. Decisions like Piedmont Propulsion are important reminders that the Court of Federal Claims will apply rational basis review with rigor—deference, but not blind deference—when an agency limits competition.

Claims Update

S. Texas Health Sys., Appellant, CBCA 6808 (August 23, 2023)

• The CBCA recently issued a decision reminding contractors that the six-year statute of limitations for claims under the Contract Disputes Act (CDA) starts to run upon claim accrual, and settlement negotiations with the government does not toll the statute of limitations. 
• South Texas Health Systems involved a long-running dispute between the contractor and the VA over medical claims. The claims at issue here, submitted February 3, 2020, involved episodes of care that occurred between November 2009 and January 2014. The VA argued that each claim accrued within 72 hours of each episode of care when the VA provided the contractor with the authorization decision that allegedly breached the contract, and therefore these claims were untimely. The CBCA agreed that the CDA’s statute of limitations barred all claims based on episodes of care that occurred on or before February 3, 2014, 6-years before the contractor submitted the complaint. 
• The Board further rejected the contractor’s contention that even if claims accrued more than six years before claim submission, they were all preserved through equitable tolling because it had been continuously negotiating with the government to resolve the disputes informally. Notably, the Board affirmed the principle that settlement negotiations do not toll the statute of limitations. 

This case is an important reminder that contractors must be mindful both of when a claim accrues and triggers the statute of limitations and that the statute of limitations continues to run even during active settlement negotiations with the government.

Small Business Update

Since our last Roundup discussing a court decision requiring the SBA to immediately stop using the presumption of social disadvantage to administer the 8(a) program, the SBA has provided guidance for 8(a) program participants on how to proceed. Importantly, the SBA is now requiring all 8(a) participants whose program eligibility is based upon one or more individuals who relied upon the presumption of social disadvantage to establish their individual social disadvantage by completing a social disadvantage narrative. Current 8(a) participants are encouraged to submit their narratives as soon as possible; instructions on the mechanics for doing so is available here. However, 8(a) hopefuls will need to sit tight, as the SBA has temporarily suspended new 8(a) application submissions.

False Claims Act

Verizon Business Network Services resolved a False Claims Act investigation into its compliance with cybersecurity requirements by paying more than $4 million to the government. Interestingly, the press release detailed Verizon’s cooperation, noting “after learning of the issues, Verizon provided the government with a written self-disclosure, initiated an independent investigation and compliance review of the issues and provided the government with multiple detailed supplemental written disclosures. Verizon cooperated with the government’s investigation of the issues and took prompt and substantial remedial measures.”

Investigations and Enforcement

Jenner & Block co-chair David Robbins is quoted extensively by Law360 regarding the increasing risk of parallel civil and criminal enforcement actions against government contractors. 

The Department of Justice has been aggressively pursuing criminal prosecutions for sanctions violations. DOJ recently announced its first criminal resolution involving the sale and transport of Iranian oil in violation of US sanctions. The seized 980,000 barrels of Iranian oil are also now the subject of a civil forfeiture proceeding in the District of Columbia. Companies should be prepared that this is the start of what is likely to be a significant uptick in sanctions enforcement as part of this Justice Department initiative.

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

Claims Updates

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

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

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

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

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

Protest Decisions

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

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

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

Small Business Updates

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

8(a) Applications/Eligibility 

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

Investigations and Enforcement

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

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

COVID-19 Relief Fraud Enforcement Results Announced

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

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

Cybersecurity Update

• Four years after first being announced, on July 24, 2023, the Office of Information and Regulatory Affairs (OIRA) formally received the Cybersecurity Maturity Model Certification (CMMC) Program proposed rule from DoD.
• Industry should expect to see the publication of a rule later this fall.
• While contractors will likely have another opportunity to provide comments, this is the clearest indication to date that the CMMC program is continuing to move forward towards widespread implementation.

Protest Cases

RTD Middleburg Heights, LLC, B-421477, B-421477.2, May 31, 2023 (Published July 13, 2023)

• GAO sustained a protest challenging the GSA’s award of a lease but the protester was afforded no relief other than the costs of proposal preparation and litigating the protest.
• In this procurement GSA sought to lease office space in Ohio, with award to be made on a lowest-priced, technically-acceptable basis. The Solicitation required GSA to add certain costs to proposed gross present value costs, including the cost of relocating furniture and telecommunications and other move-related costs.
• GSA awarded the lease to a company proposing new construction on the land next to the property provided by Middleburg, the incumbent vendor.
• GAO sustained Middleburg’s protest alleging that the agency’s price analysis was flawed because it excluded relocation and replication costs as required by the solicitation. Moreover, the agency conceded that it used the wrong rates in a supplemental cost-benefit analysis when assessing the awardee’s rates and determining that it offered the lowest price.

Although the protester here was able to demonstrate that it was competitively prejudiced by the agency’s several evaluation errors, the awarded lease did not contain a standard termination for convenience clause, and in the absence of such a clause, GAO ordinarily does not recommend termination of an awarded lease even where it sustains a protest. Accordingly, the protester’s relief was limited to reimbursement of its proposal preparation costs and costs of litigating the protest. This is a good reminder that companies should be savvy about the type of potential relief available when pursuing a protest.

Claims Cases

Bear Mountainside Realty, LLC v. United States, No. 23-457, Fed. Cl. (July 7, 2023)

Court of Federal Claims Judge Hertling issued a useful and interesting decision applying the rules for supplementing the administrative record in a bid protest. The protester sought to supplement the record with documents obtained through a FOIA request, and further sought discovery from the agencies involved, including depositions of certain agency officials.

• Judge Hertling questioned the protester’s “global approach” to the FOIA documents, seeking supplementation with all documents received through the FOIA request rather than providing document-specific argument as to why each document warranted supplementation. He noted that the government failed to object to the protester’s global approach, and—had it done so—the court may have denied the supplementation motion in full. Because the government waived that argument, the court permitted the protester to present arguments as to specific documents.
• Ultimately, the court admitted some but not all of the FOIA documents. Judge Hertling, however, denied the requests for additional discovery and depositions, explaining that the protester failed to establish an inference of bad faith or that the information sought was necessary for effective judicial review.

The contents of the administrative record often dictate the outcome of a bid protest. The substantive and procedural rules for completing and supplementing the record are major points of distinction between protests litigated at the GAO and the Court of Federal Claims. This opinion provides a good primer on the fundamentals that all protest counsel should master.

False Claims Act Update

• In recent years, there has been an increase in False Claims Act cases based on violations of customs laws and regulations. In Island Industries Inc. v. Sigma Corp., the Ninth Circuit is set to decide whether federal courts have subject matter jurisdiction over customs fraud cases within the context of a False Claims Act qui tam.
• While the defendant argues that the Court of International Trade should have exclusive jurisdiction, the government argues that customs fraud cases can come under the False Claims Act. In late February, the parties submitted supplemental briefing on this issue. We will keep you updated on the impact of this ruling on government contractors.

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

Federal Circuit Cases

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

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

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

FOIA Exemption 4 Cases

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

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

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

Protest Cases

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

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

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

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

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

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

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

Supreme Court Update

The Supreme Court again weighed in on the False Claims Act in U.S. ex rel. Polansky v. Executive Health Resources, Inc., deciding that the government retains broad dismissal authority for False Claims Act actions, even if the government declines to intervene.

Protest Update

Aspire Therapy Services & Consultants, Inc. v. United States, Fed. Cl. No. 23-253 (June 13, 2023) 

• An agency eliminated Aspire from a competition based on a proposal spreadsheet error that created a discrepancy within the proposal documents.
• Court of Federal Claims Judge Davis found that the FAR clarification process could have been used to fix the specific error at issue, and that it was an abuse of discretion for the agency to eliminate the proposal without seeking clarification.  
• Judge Davis ordered the agency to restore the protester back to the competition and permit clarification of the error.  

It is notoriously difficult for a protester to win an argument that an agency should have permitted clarifications or engaged in discussions, particularly at the Government Accountability Office, leading to the impression that such decisions are effectively non-reviewable. In recent years, however, several Court of Federal Claims judges have shown a willingness to scrutinize agency decisions to forego discussions, particularly for DoD procurements valued above $100 million where the DFARS describes discussions as the expected course. Through the Aspire decision, Judge Davis confirmed that the court will meaningfully review an agency’s decision to eliminate a proposal based on minor errors, rather than engaging in the clarification process. The evidence that while agencies certainly have broad discretion when it comes to discussions and clarifications, that discretion is not immune from review.

Claims Cases

Amatea-Grimberg JV, ASBCA Nos. 60426 et. al. 

• The Armed Services Board of Contract Appeals held that a design-build contractor on a Navy laboratory project was not entitled to reimbursement for differing site conditions because the contractor failed to show that on-site conditions differed from what the government represented in contract documents. 
• The contractor sought compensation under a Type 1 differing site condition theory, which is premised on the government misrepresenting conditions at the site and the contractor reasonably relying upon the misrepresentation to its detriment.
• In this case, the soil was too weak to support construction and the contractor incurred almost $200,000 in additional costs to remediate site damage after heavy rains turned the site into a “muddy mess.”   
• The ASBCA rejected the contractor’s arguments, concluding that the Navy had in the RFP’s boring logs sufficiently explained soil conditions. On this point, the Board underscored that the Navy’s borings were not a Navy guarantee the entire project site would consist of the subsurface conditions in each boring sample. Rather, the borings were a baseline for a reasonable contractor to operate from.  
• Indeed, the contractor’s own contractually required geotechnical expert report warned of exactly the kinds of problems encountered at the site: soft or unsuitable soil in places that would need to be identified, removed, and replaced.  
• Finally, the ASBCA concluded that even where the soil was weaker than what the boring logs reflected, the weakness was caused by weather conditions or by the contractor’s own work. The Board found compelling daily reports reflecting ample rain, poor jobsite maintenance, and local flooding caused by water main breaks that the contractor was responsible for maintaining. 

The decision reminds construction contractors that to recover for a Type 1 differing site conditions, they must identify clear evidence that the encountered physical conditions were not foreseeable based on representations in the contract and related documents.  

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

Supreme Court Update

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

Regulatory Update

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

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

Federal Circuit Court Claims Decision

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

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

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

Protest Cases

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

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

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

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

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

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

Small Business Issues

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

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

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

DoD OIG CUI Audit

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

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

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

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

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

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

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

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

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

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

Federal Circuit Court Cases

M.R. Pittman Group, LLC v. United States, Fed. Cir. 2021-2325 (May 22, 2023)

• The Federal Circuit confirmed that the Blue & Gold bid protest timeliness rule is not jurisdictional.
• Although several Court of Federal Claims (COFC) decisions have previously recognized that Blue & Gold does not carry jurisdictional weight, the COFC dismissed the underlying protest for lack of jurisdiction as untimely.
• On appeal, the Federal Circuit confirmed that Blue & Gold is not jurisdictional, but also affirmed that the protest was untimely and therefore properly denied on the merits.

While the bottom-line outcome looks the same in this case, it is important to have clarity from the Federal Circuit as to whether rules like Blue & Gold are jurisdictional. Jurisdictional rules are very special; they cannot be tolled or waived, and courts must go out of their way to independently confirm jurisdiction. If Blue & Gold were jurisdictional, for example, the COFC and Federal Circuit would be required to dismiss a protest sua sponte under Blue & Gold even if no party argued the issue. To be sure, Blue & Gold is still special and demands careful attention. As the Federal Circuit confirmed in this case, Blue & Gold can still be the deciding factor for the merits of a protest. And, even if Blue & Gold is not dispositive, timely prosecution of a protest may also impact the COFC’s assessment of injunctive relief.

Percipient.ai, Inc. v. United States, No. 23-28C (Fed. Cl. May 24, 2023)

• In the latest development in Percipient.ai’s protest of the National Geospatial Intelligence Agency’s alleged violation of FASA’s requirement for agencies to procure commercial or non-developmental solutions to the maximum extent practicable, Percipient.ai recently filed its notice of appeal to the Federal Circuit challenging the Court of Federal Claims’s decision to dismiss its protest for lack of subject matter jurisdiction.
• In March 2023, the court had initially ruled in favor of Percipient.ai in an opinion that asserted that the court had jurisdiction over the protest. Following the defendant and defendant-intervenor’s motion for reconsideration, the court revisited this jurisdictional question and reversed course. Upon further review, the court granted the defendant and defendant-intervenor’s motion to dismiss, concluding that the FASA task order bar applied to divest the court of jurisdiction as Percipient.ai’s protest was directly and causally related to the agency’s issuance of a task order. In so doing, the court rejected Percipient.ai’s argument that the task order bar did not prevent jurisdiction where its protest challenged that the agency had violated the statute after its issuance of the task order.

Percipient.ai’s notice of appeal provides the Federal Circuit with an opportunity to answer important questions on the scope of the FASA task order bar that has been percolating in several recent decisions in the Court of Federal Claims. Contractors should be mindful of how the Federal Circuit may resolve the key jurisdictional issues posed by FASA, especially given the prevalence of task orders as a favored contracting vehicle and its implications on the availability of different protest forums.

Claims Cases

Consorzio Stabile GMG S.c.ar.l., ASBCA No 62753 (May 1, 2023)

• The ASBCA issued a decision converting a termination for default by the Navy to a termination for convenience.
• The default termination stemmed from a task order for the design and construction of a vestibule in a building in Bahrain.
• In terminating for default, the Navy cited the contractor’s failure to perform the required work within the time specified in the contract.
• On appeal, the Navy changed its rationale and tried to justify its termination with the contractor’s failure to make progress on the project.
• The contractor took issue with the change in rationale, but the ASBCA did not. The board determined it was permissible for the Navy to change its rationale as long as the Navy could show that at the time of termination, the contractor had failed to make progress.
• On substance, however, the board agreed with the contractor. The ASBCA held that the Navy could not terminate for default based on the failure to make progress because the Navy had waived the contract completion date and had failed to establish a new one.
• The completion date was important because to justify a default termination for failure to make progress, an agency must show there was no reasonable likelihood the contractor could perform the entire project within the time left on the contract.
• In holding that the Navy waived the completion date, the ASBCA looked at the Navy’s: failure to communicate that time was of the essence; failure to issue a stop work order; issuance of modifications for work that would require months beyond the completion date; and failure to reserve rights or assess liquidated damages.

The decision is a good reminder of what the government must show to substantiate the drastic step of terminating for default.

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

Notable Updates

Biden Administration Ends Contractor COVID-19 Vaccine Mandate

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

The new executive order: 

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

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

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

NIST Revises Cybersecurity Standards

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

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

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

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

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

Federal Circuit Reconsiders CDA Jurisdiction 

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

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

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

Claims Cases

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

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

Protest Cases

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

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

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

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

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

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

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

Notable Headlines

False Claims Act

It used to be rare for the Supreme Court to hear False Claims Act cases. It’s a lot less rare now. On April 18, the Supreme Court heard argument concerning two Seventh Circuit cases: U.S. ex rel. Schutte v. SuperValu, Inc. and U.S. ex rel. Thomas Proctor v. Safeway, Inc. The Seventh Circuit found that subjective intent is not relevant to False Claims Act scienter when the law says the defendant’s actions were objectively reasonable. Jenner & Block attorneys listened to the argument, and it appears likely that the Supreme Court will rule that subjective intent may be considered as part of the scienter analysis. We will follow this case closely and update our readers once the opinion issues.

Percipient.ai, Inc. v. United States, Fed. Cl. No. 23-00028 (January 9, 2023)

As covered in our last Round-Up, Court of Federal Claims Judge Bruggink initially denied motions to dismiss novel and high profile bid protest claims raised by Percipient.ai, which challenge the National Geospatial-Intelligence Agency’s compliance with FASA during the course of administering an IDIQ held by CACI. The government and CACI moved for reconsideration of Judge Bruggink’s Order, arguing that the Court incorrectly analyzed whether the FASA task order protest bar applied. In an unpublished order, the Court vacated its prior decision, reinstated the motions to dismiss, and directed the parties to submit additional briefing and argument. Either way the Court decides, the outcome promises to carry significant implications across the procurement community.

Lockheed Martin Aeronautics Co. v. Secretary of The Air Force, Fed. Cir. No. 22-1035 (April 25, 2023)

In a much-anticipated decision, the Federal Circuit unanimously affirmed the ASBCA’s opinion that the Air Force’s unilateral contract definitization was not an immediately appealable contracting officer final decision on a government claim. The opinion, authored by Judge Reyna, provides clarifying precedent as to the procedures that apply to unilateral definitization, which in most if not all cases will require a contractor claim to initiate the Contract Disputes Act process.

Protest Cases

Rotair Aerospace Corporation, B-421381, B-421381.2 (April 19, 2023) (Published April 26, 2023)

• GAO dismissed a protest as untimely where, following the submission of an objection letter that constituted an agency-level protest, the protester failed to file its GAO protest within 10 days of the adverse agency action.
• The protester challenged the Defense Logistics Agency’s (DLA) award of a sole source contract to the original equipment manufacturer for helicopter weapon system spare parts, alleging that it was capable of producing the parts. Rather than resolve the protest on the merits, GAO held that the protest was untimely.
• Specifically, the protester had submitted a “formal objection” letter to the presolicitation notice raising the same issues and seeking relief. After receiving no response from DLA, and after the solicitation had been issued, the protester followed up with the agency regarding the concerns raised in its formal objection letter. DLA responded the next day and advised the protester that any concerns with the source approval process should be directed to the Army. The protester filed its protest with GAO more than 10 days later.
• Applying its strict timeliness rules, GAO found that the follow-up email to DLA satisfied all the requirements to constitute an agency-level protest: it expressed dissatisfaction with an agency decision and requested corrective action and relief. Moreover, the follow-up email reincorporated all the objections set forth in the initial formal objection letter, and thus must be construed as a challenge to the final solicitation.
• GAO further held that DLA’s response pointing the protester to the Army constituted adverse agency action because it was prejudicial to the protester’s position. Indeed, even though DLA did not directly address the protester’s complaints, DLA informed the protester that it would be unable to compete under the solicitation unless it became an approved source through Army channels. Because the protester did not file within 10 days of this adverse agency action, its protest was dismissed.

Contractors need to understand GAO’s strict timeliness rules to avoid the potential traps for the unwary. Relevant here, where a protest first has been filed with a contracting activity, any subsequent protest to GAO must be filed within 10 calendar days of actual or constructive knowledge of initial adverse agency action. 4 C.F.R. § 21.2(a)(3). Importantly, GAO does not require that correspondence to an agency be formally designated as a protest; rather, so long that the communication satisfies the requirements for an agency-level protest, it will be considered as such. (Disclosure: Jenner & Block represented the intervenor in this protest.)

Peraton, Inc., B-421038.6 et al., April 12, 2023 (Publicly Released April 25, 2023)

• GAO denied a protest asserting, among other allegations, that CACI NSS LLC gained an unfair competitive advantage based on its employment of three former government officials.
• The $5.7 billion “EITaas” Air Force procurement at issue encompassed information technology services, end user devices, enterprise service desk, and organizational change management.
• Peraton (and two other disappointed offerors) had protested previously; the Air Force took corrective action to investigate; and the agency ultimately concluded that CACI’s employment of the officials did not create an unfair competitive advantage, leading Peraton to file another protest.
• To assess whether the contracting officer’s determination was reasonable, GAO analyzed the contracting officer’s findings for each of the three individuals.
• For the first individual, GAO noted that he “had no role in CACI’s oral presentation or quotation, did not have communications or interactions with anyone about the quotation, did not participate in responses to interchange notices, and did not communicate within CACI regarding the interchange notices.” With respect to the second individual, GAO highlighted that the “facts do not establish” that he “had access to any non-public, competitively useful information.” And as for the third individual, he also only had access to “generic, high level, and . . . irrelevant” information that was not competitively useful.
• For these reasons, GAO found the contracting officer’s determination unobjectionable – there was no evidence that CACI benefited from an unfair competitive advantage.
• The responsibility for determining whether an appearance of impropriety exists, and whether an offeror should be allowed to continue to compete, is a matter for the contracting agency. GAO will not disturb the contracting agency’s determination in this regard unless it is shown to be unreasonable, which was not the case here.

Contracting agencies must avoid even the appearance of impropriety in government procurements. In this connection, a firm competing for a contracting opportunity could gain an unfair advantage through its hiring of a former government official, which can result in disqualification of the firm from the competition. GAO has made clear that the assessment of whether an unfair competitive advantage has been created by a firm’s hiring of a former government official is based on a variety of factors, including an assessment of whether the government employee had access to non-public proprietary or source selection sensitive information that was competitively useful. To warrant disqualification, the investigative record must reflect “hard facts” establishing the person’s access to non-public information which could form a basis for competitively improving its proposal, thus providing an unfair competitive advantage over offerors without such information.

SH Synergy, LLC and VCH Partners, LLC, v. United States, Fed. Cl. Nos. 22-cv-1466, 22-cv-1468 (consolidated) (April 21, 2023) (Published April 28, 2023)

• Following a pre-award protest, the Court of Federal Claims considered the solicitation for the General Service Administration’s (GSA) $60 to $100 billion small business set-aside government-wide acquisition contract for information technology services known as the “Polaris Program” and found it violated Small Business Administration (SBA) regulations in several ways. The decision addressed the legality of three solicitations under the Polaris Program, each targeting a small business category pool.
• First, consistent with the mentor-protégé regulations, the court found it permissible that GSA permitted a mentor belonging to multiple mentor-protégé joint ventures (JV) to submit only one proposal for a specific solicitation pool. The court was unpersuaded by the plaintiffs’ argument that this unreasonably limited competition, instead finding such a restriction was required by SBA’s regulations.
• Second, the court held that GSA did not violate SBA regulations or treat offerors unequally by requiring the protégé or mentor-protégé JV to submit an individually performed Relevant Experience Project while at the same time a prime offeror was permitted to rely upon projects performed by its first-tier subcontractors. The court noted that the difference in treatment was the result of competing SBA regulations covering mentor-protégé joint ventures and small businesses.
• Third, the court found that GSA violated SBA regulations by applying the same evaluation criteria to projects submitted by protégé firms and other offerors alike. Specifically, GSA intended to use the same evaluation criteria to assess every Relevant Experience Project submitted for consideration, including that of the protégé. This violated SBA’s regulation that “[a] procuring activity may not require the protégé firm to individually meet the same evaluation or responsibility criteria as that required of other offerors generally.”
• Finally, the Court held that GSA improperly excluded price as an evaluation factor. While generally competitions require price evaluations, Congress carved out a narrow exception for “certain indefinite delivery, indefinite quantity multiple-award contracts . . . . for services acquired on an hourly rate basis” that will “feature individually competed task or delivery orders based on hourly rates.” 41 U.S.C. § 3306(c)(3). Here, the court found that GSA’s interpretation that fixed-price, cost-reimbursement, and incentive contract types qualified as “based on hourly rates” was so broad that it rendered the phrase entirely meaningless. Thus, the court required GSA to amend the solicitation either to clearly feature time-and-materials and labor-hour task orders or to change the evaluation methodology to include price.

As agencies continue to procure goods and services through large-scale government-wide acquisition contracts, winning a coveted spot on the contract is the crucial first step to accessing further work. Contractors should carefully review all solicitation terms and push back where appropriate.

Claims Cases

Crystal Clear Maint., CBCA 7547 (April 13, 2023) 

• Crystal Clear Maintenance (CCM) appealed the GSA’s claim for costs to repair damages allegedly caused by CCM’s negligent performance of its maintenance contract. GSA had sent two letters to CCM demanding repayment for the costs, the first on July 6, 2021, and the second on October 13, 2022. The July 2021 letter stated that “the total cost of damage continues to be assessed, but is currently a minimum of $173,978.19.” The October 2022 letter asserted that the total cost of repairs was $741,797.50. 
• CCM appealed GSA’s claim on October 21, 2022. GSA moved to dismiss because CCM had failed to appeal the contracting officer’s decision within ninety days of receiving the July 2021 decision.
• The CBCA denied GSA’s motion to dismiss because GSA’s July letter to CCM failed to satisfy the sum certain requirement, i.e., the requirement that claim must demand payment in an amount that is readily ascertainable. The CBCA noted that the inclusion of the qualifying language, “a minimum of,” and GSA’s assertion that the total cost was “continu[ing] to be assessed” meant that GSA had neither put CCM on notice of the exact amount sought, nor provided a way for CCM to ascertain that amount until GSA sent the second letter in October 2022. Thus, CCM’s time to appeal did not begin to run until October 13, 2022, when it received the second letter specifying the exact amount of the government’s claim.  CCM’s appeal, filed within 90-days of that second letter, was therefore timely.

This decision affirms that the sum certain requirement applies to government claims as well as to contractor claims. When considering whether the Contract Disputes Act’s 90-day appeal clock is triggered, contractors should keep in mind that the amount demanded in a government claim must be readily ascertainable before the claim must be appealed.

$21.8 Million False Claims Act Settlement Over Allegedly Double-Charging for Parts

• On April 24, 2023, the Department of Justice issued a press release announcing that L3 Technologies, Inc. agreed to pay $21.8 million in order to settle allegations that it violated the False Claims Act by knowingly submitting and causing the submission of false claims to the Department of Defense.
• The allegations stemmed from contract proposals submitted by L3 Technologies from 2008–2011. The government alleged that these proposals included the cost of certain items, such as nuts and bolts, twice. As a result, the government alleged that L3 Technologies knowingly double-charged for these parts. The settlement resolved the government’s allegations, and there was no determination of liability.
• Relatedly, the government also settled a lawsuit filed by L3 Technologies for breach of contract claims. L3 Technologies alleged that in an effort to prevent the company from double-charging, the government improperly prohibited them from charging certain other costs. The settlement was for approximately $8 million.

The L3 Technologies settlement signals, and the Department of Justice press release confirms, that the government is committed to pursuing allegations that a contractor knowingly overcharged for their products. When announcing the settlement, the Head of the Justice Department’s Civil Division stated that “government contractors must ensure that they provide the goods or services that they promised at the proper price.”

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

Supply Chain Regulatory Update

The US Department of Commerce’s National Institute of Standards and Technology (NIST) recently published a proposed rule that defines two clawback mechanisms under the Creating Helpful Incentives to Produce Semiconductors and Science (CHIPS) Act of 2022.

The CHIPS Act provides funding to support investments in semiconductor facilities in the United States. The two clawback mechanisms defined in the proposed rule are the “Expansion Clawback” and the “Technology Clawback.”

• The Expansion Clawback forbids CHIPS funding recipients from entering “significant transactions” involving the “material expansion of semiconductor manufacturing capacity in a foreign country of concern.” The proposed rule defines “significant transaction” as either one or an aggregate of transactions valued at $100,000.00 or greater. The definition of “material expansion” is steps that would increase a semiconductor facility’s manufacturing by “more than five percent.”
• The Technology Clawback provides for the US government’s full recovery of funds if the funding recipient knowingly engages in any joint research or technology licensing effort with a foreign entity of concern, as defined by the Act. A “foreign entity of concern” is defined, in part, as a foreign entity that is located in, or subject to the jurisdiction of, China, Russia, North Korea, Iran, or other countries that are determined to engage in activities detrimental to US foreign policy goals. The rule also covers entities that are designated as foreign terrorist organizations, entities included on the Department of Treasury’s list of Specially Designated Nationals and Blocked Persons (SDN List), and entities owned by, controlled by, or subject to the jurisdiction or direction of one of the countries listed above.

Public comment on this proposed rule is open until May 22, 2023. Interested contractors who are concerned about the implications of this rule are encouraged to discuss the matter with counsel and participate in the public commentary process. 

Protest Cases

Accenture Federal Services, LLC, B-421134.2 et al. (April 12, 2023)

• GAO denied a protest that the awardee possessed organizational conflicts of interests (OCIs) after the Department of Homeland Security Transportation Security Administration (TSA) executed a waiver during the protest.
• TSA issued the solicitation for human capital support services, a broad human-resources category of services previously provided through separate contracts performed by Accenture Federal Services and Deloitte. Additionally, both offerors perform IT support service task orders for TSA, with Deloitte providing IT support to TSA’s human capital office. 
• Accenture alleged that Deloitte had disqualifying unequal access to information and impaired objectivity OCIs.
• Relevant here, the contracting officer found that there was no OCI because even though Deloitte would make recommendations for technology changes that would be implemented by Deloitte under its other IT support service order, TSA would review the recommendations and decide itself whether to adopt any recommended changes. During the course of the protest, GAO held a conference call and “raised questions” about this aspect of the OCI determination.
• Shortly thereafter, the head of TSA’s contracting activity executed an OCI waiver under FAR 9.503, which waived all alleged OCIs. GAO rejected challenges to the waiver, finding it procedurally sound, and denied the protest.

This decision highlights two significant principles in OCI jurisprudence at GAO. First, the fact that the Agency will review the potentially impaired advice does not necessarily resolve concerns of impaired objectivity; after all, it is the provision of biased advice that should be avoided. Second, a properly executed OCI waiver is a powerful response to OCI allegations because the waiver can be executed at any time and GAO’s review of the waiver is limited to compliance with the FAR’s procedural requirements.

Percipient.ai, Inc. v. United States, Fed. Cl. No. 23-28C (March 31, 2023)

• Court of Federal Claims Judge Bruggink denied motions to dismiss a protest by Percipient.ai challenging the National Geospatial-Intelligence Agency’s (NGA) compliance with its obligations under the Federal Acquisition and Streamlining Act (FASA) to procure commercial or non-developmental products to the maximum extent practicable.
• NGA previously awarded the SAFFIRE IDIQ contract to CACI, with the goal of obtaining both a data repository of geospatial intelligence and an AI-driven computer vision system that would allow NGA to analyze the data.
• Percipient.ai engaged with CACI and NGA to have its computer vision software, Mirage, evaluated as an analytical tool to support NGA’s analysis of data collected under CACI’s SAFFIRE contract. When rebuffed, Percipient.ai protested, claiming that CACI and NGA essentially decided to develop a new computer vision software rather than acquire an existing solution like Mirage. Percipient.ai argued that this developmental course of action violates FASA’s mandates, including the requirement to permit competition from offerors of commercial and non-developmental items, and to incorporate commercial services and products as components of items supplied to the agency.
• The Government and CACI quickly moved to dismiss the complaint, raising a host of jurisdictional, standing, and timeliness arguments.
• The Government’s primary arguments attempted to characterize the claims as matters of contract administration that could not be raised in a bid protest, particularly where Percipient.ai did not submit a bid for the SAFFIRE contract and did not claim capability to perform the entire SAFFIRE work scope. Judge Bruggink rejected these arguments based on the unique nature of the rights granted by FASA, which requires agencies to conduct market research to maximize use of commercial products and services even after the award of an IDIQ contract.
• Judge Bruggink also declined to dismiss the case as untimely, concluding that the doctrine of laches is not applicable in bid protests, and finding that the Blue & Gold rule does not apply because the SAFFIRE solicitation did not require a developmental solution.

This litigation is likely to carry significant implications for how agencies incorporate new technologies into existing contract vehicles. Consistent with the arguments for dismissal, many agencies currently operate under the assumption that they are essentially immune from protest risk when deciding what technologies to incorporate under a single award IDIQ like SAFFIRE. If Judge Bruggink’s analysis of the threshold issues hold, that alone will give commercial vendors significant leverage in efforts to enforce agency compliance with FASA.

Claims Cases

Triple Canopy, Inc., ASBCA Nos. 61415, et al. (Published March 23, 2023)

• The ASBCA issued a decision holding that a private security firm was entitled to reimbursement for fees it paid to operate in Afghanistan; the board said the fees were akin to reimbursable after-imposed taxes and did not constitute penalties.
• The contractor held six fixed-price DoD contracts, all awarded in 2009 and 2010, to provide security services on military bases in Afghanistan. The contracts required compliance with local laws and included FAR 52.229-6 (Taxes-Foreign Fixed Price Contracts), which states that the contract price must be increased by the amount of any after-imposed tax the contractor pays. 
• In 2011, the Afghan government issued a directive that required the contractor to pay certain fees for exceeding a 500-person employee cap. The contractor paid the fees and then invoked FAR 52.229-6 to seek reimbursement from the government. 
• On appeal, the government argued that the fees were more like a penalty intended to deter contractors from doing business in Afghanistan, and that the contractor failed to prove that the fees were an after-imposed tax. 
• The ASBCA rejected the government’s arguments and determined that the fee was like a tax because contractors could continue to do business by complying with the fee requirements. In other words, paying the fee made the contractor compliant with local law. 

The Board’s decision is a reminder to contractors holding fixed-price contracts that unanticipated fees of doing business in a foreign country could be reimbursable under FAR 52.229-6.

Small Business Cases

Defense Integrated Solutions, LLC v. United States, Fed. Cl. No. 23-64C (April 5, 2023)

• Court of Federal Claims Judge Solomson affirmed the conclusion from the Small Business Administration (SBA) Office of Hearing and Appeals (OHA) that a mentor-protégé joint venture (JV) agreement requiring unanimous consent to file a claim or initiate litigation did not give rise to impermissible negative control by the mentor.
• In 2020, the SBA promulgated amendments to the small business regulations confirming that while the protégé must be responsible for controlling the day-to-day management and administration of the contractual performance, “other partners to the joint venture may participate in all corporate governance activities and decisions of the joint venture as is commercially customary.”
• Here, the JV agreement for Strategic Alliance Solutions LLC (SAS) (the intended awardee) requires unanimous consent of the partners to file a claim or initiate litigation. Following a size protest by Defense Integrated Solutions, LLC (DIS), OHA originally found that this requirement resulted in a deficient JV agreement that rendered SAS ineligible for award. Following COFC litigation filed by SAS and a remand back to OHA, OHA overturned its prior ruling and determined that entering into litigation is properly seen as part of corporate governance and is thus an area where the other partners to the joint venture may participate.
• In “the litigation version of Freaky Friday,” DIS challenged OHA’s change of heart. But Judge Solomson affirmed OHA’s decision, finding the plain language of the regulation supported this outcome (i.e., a contractor does not engage in contract performance when it files a claim or initiates litigation) and that OHA has deference to interpret its own ambiguous regulations.

This decision settles one question regarding what constitutes “corporate governance activities and decisions of the joint venture as is commercially customary,” but expect more litigation before OHA and COFC to flesh out these “hopelessly ambiguous” regulations.