Government Contracts Legal Forum : Government Contracts Lawyers & Attorneys for Litigation & Counseling

Guaranteed to create uncertainty, the Consolidated Appropriations Act of 2012 (Pub. L. 112-74), which President Obama signed into law on December 23, 2011 (the “Act”), included several little-noticed provisions generally excluding the use of federal funds for any corporation convicted of a felony within the past 24 months. All of these provisions establish a unique procedure whereby the statutory exclusion is only triggered when the awarding agency is “aware of the conviction” and the agency’s consideration of suspension and debarment provides the relief from the statutory exclusion for the contractor. 

And it gets even more curious. The Act is a consolidation of nine different appropriations bills (delineated as Divisions under the Act) appropriating funds for FY 2012. As set forth below, Congress has inexplicably included the exclusion provisions in only five of the nine divisions comprising the Act, and equally inexplicably used different standards in the exclusion provisions. The covered divisions of the Act and the specific language include:

 

DIVISION A—DEPARTMENT OF DEFENSE APPROPRIATIONS ACT, 2012

SEC. 8125. None of the funds made available by this Act may be used to enter into a contract, memorandum of understanding, or cooperative agreement with, make a grant to, or provide a loan or loan guarantee to, any corporation that was convicted of a felony criminal violation under any Federal law within the preceding 24 months, where the awarding agency is aware of the conviction, unless the agency has considered suspension or debarment of the corporation and made a determination that this further action is not necessary to protect the interests of the Government.

DIVISION B—ENERGY AND WATER DEVELOPMENT APPROPRIATIONS ACT, 2012

SEC. 504. None of the funds made available by this Act may be used to enter into a contract, memorandum of understanding, or cooperative agreement with, make a grant to, or provide a loan or loan guarantee to any corporation that was convicted (or had an officer or agent of such corporation acting on behalf of the corporation convicted) of a felony criminal violation under any Federal law within the preceding 24 months, where the awarding agency is aware of the conviction, unless the agency has considered suspension or debarment of the corporation, or such officer or agent, and made a determination that this further action is not necessary to protect the interests of the Government.

(emphasis added).
 

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On December 29, 2011, the Fifth Circuit issued its opinion in Rothe Development, Inc. v. United States Department of Defense, No. 11-50101 (5th Cir. Dec. 29, 2011), affirming the district court’s dismissal of an in-sourcing claim for lack of subject-matter jurisdiction. Under the Tucker Act, the Court of Federal Claims is vested with exclusive jurisdiction over actions by interested parties “objecting to . . . any alleged violation of statute or regulation in connection with a procurement or a proposed procurement.” 28 U.S.C. § 1491(b)(1). The jurisdictional issue raised in in-sourcing cases such as Rothe is whether an agency’s decision to in-source is a decision “in connection with a procurement or a proposed procurement.” The Fifth Circuit concluded that “it clearly is.”

In an attempt to avoid falling under the purview of the Tucker Act, Rothe argued that it was not an interested party as required by that statute. The Fifth Circuit rejected this argument because Rothe’s complaint specifically stated that it was seeking to keep its scope of work as the low cost provider, demonstrating that it has an economic interest as a prospective bidder. The court also held that in-sourcing falls within the broad definition of “procurement” as that term has been defined by the Federal Circuit. In Distributed Solutions, Inc. v. United States, the Federal Circuit held that “the term ‘procurement’ includes all stages of the process of acquiring property or services, beginning with the process for determining a need for property or services and ending with contract completion and closeout.” 539 F.3d 1340, 1345 (Fed. Cir. 2008). Accordingly, the Fifth Circuit held that the process for determining a need necessarily includes “the choice to refrain from obtaining outside services.” Therefore a complaint challenging an in-sourcing decision is an action alleging a violation of statute or regulation in connection with a procurement, for which jurisdiction is exclusively vested in the Court of Federal Claims.

With the Fifth Circuit decision in Rothe, the body of case law continues to develop regarding the proper jurisdiction for in-sourcing claims. The Eleventh Circuit, the only other circuit court to address the issue, also has held that the district courts lack subject-matter jurisdiction over in-sourcing claims. See Vero Technical Support v. U.S. Dep’t of Def., 437 F. App’x 766, 770 (11th Cir. 2011) (unpublished decision). Importantly, both circuit opinions opined on the proper jurisdiction for in-sourcing claims, holding that the claims fall within the scope of the Tucker Act and the exclusive jurisdiction of the Court of Federal Claims.  However, the jurisdictional question still lingers, as the Court of Federal Claims is currently divided on the issue, with one case holding that the Court has jurisdiction, see Santa Barbara Applied Research, Inc. v. United States, 98 Fed. Cl. 536 (2011), and one case holding that the Court does not have jurisdiction over such claims because a disappointed contractor lacks prudential standing, see Hallmark-Phoenix 3, LLC v. United States, 99 Fed. Cl. 65 (2011). As well, one district court in the Western District of Oklahoma found that it had jurisdiction over an in-sourcing claim, see K-Mar Indus., Inc. v. U.S. Dep’t of Def., 752 F. Supp. 2d 1207 (W.D. Okla. 2010). We will continue to monitor developments in this area as new cases provide guidance on this jurisdictional enigma. 

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On Thursday, January 19, 2012, from 2:00 - 3:30 pm EST, please join us for this webinar, "What Will the New Year Bring for Government Contractors? Top Headlines, Headaches, and Legal Developments to Watch in 2012.” As we begin the new year, government contractors are facing significant unknowns that could have a direct impact on the bottom-line:

• How will the continuing budget pressures impact contractors? Will we see more terminations because of these budget realities? How will the shrinking procurement budget impact the number of protests? Will there be more in-sourcing?
• Will the recent uptick in investigations continue? How about suspension and debarment activity?
• Will the SBA crackdown on enforcement continue to impact teaming relationships with small businesses?
• How will the presidential election influence the climate for government contractors? What will the vacancy at OFPP mean for contractors?
• How should contractors prepare for potential revisions to OFCCP’s affirmative action and nondiscrimination obligations regarding veterans and individuals with disabilities? What can contractors expect in an audit under OFCCP’s proposed revised scheduling letter and how should they prepare?
• What do the new personal conflict of interest regulations mean for your company?
• How has the treatment of technical data for major systems changed?

Join Crowell & Moring’s team of government contracts attorneys for a special free webinar that examines the answers to these questions and many more. Our team invites you to participate in a discussion of what we believe are likely to be many of the key issues facing government contractors in 2012, including topics such as terminations, suspension & debarment, bid protests, conflicts of interest, data rights, OFCCP, grants, compliance & ethics, international, small business, cyber security, and procurement fraud. The presenters include some of the most experienced attorneys in the field, and we hope you can make it.

Please click here to register for this free event. 

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On January 3, 2012, the FAR Council issued a final rule to implement a congressional mandate that the public have access to all information (excluding past performance reviews) in the Federal Awardee Performance and Integrity Information System ("FAPIIS"). FAPIIS was created in 2010 as a one-stop shop for contracting officers to review information about contractors' business ethics, integrity, and performance.

In response to concerns raised about the disclosure of a contractor's proprietary and confidential information, the final rule added an immediately effective requirement that contractors be given a seven-calendar-day review period to object to the public release of information on the grounds that such information is exempt from disclosure under FOIA. If a contractor objects, the information will be removed by the Government and the issue will be resolved in accordance with agency FOIA procedures. If there is no objection, the entry will be automatically released to the public part of the FAPIIS site within 14 calendar days after the review period began.
 

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The U.S. Department of Justice reported this week that it recovered $5.6 billion in criminal and civil fraud payments in fiscal year 2011, including more than $3 billion under the civil False Claims Act.  The fraud recoveries set a one-year record for DOJ; the FCA recoveries capped a record-setting three-year period during which DOJ recovered $8.7 billion. The figures underscore the Obama administration’s aggressive pursuit of fraud and false claims.

DOJ said its fraud recoveries were primarily driven by investigations into Medicare, mortgage, grant and contracting frauds. Officials said the recoveries were much-needed revenue generators for the federal government in a time of record debt and deficits.

“These recoveries far exceed the cost of the agents and prosecutors who secured them,” said Deputy Attorney General James M. Cole at a press conference alongside Vice President Joe Biden. “For every dollar Congress has provided for health care enforcement over the past there years, we have recovered nearly seven.”

Health care fraud –including Medicare, Medicaid, and Tricare—accounted for $2.4 billion of the FCA recoveries in fiscal year 2011. Procurement fraud cases accounted for $422 million in fiscal year 2011. 

Qui tam relators filed 638 suits FCA suits in 2011, far exceeding the average annual rate for the past decade. For contractors, these statistics make clear that—now more than ever—timely government contracts counseling is necessary to ensure compliance and avoid becoming a casualty in the government’s escalating war on fraud and false claims.

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     On December 2, 2011, the Department of Defense (“DoD”) proposed a new rule that would require contractors bidding on specified solicitations to submit proposal adequacy checklists with their offers. The new proposed DFARS section, § 215.408(3), would give the contracting officer the discretion to include the Proposal Adequacy Checklist solicitation provision in any solicitation that requires the submission of certified cost or pricing data. In solicitations that include the provision, an offeror would be required to (1) complete the proposal adequacy checklist; (2) note which page of its proposal satisfies each checklist requirement; and (3) in the event the required information is not provided, explain why.

     The checklist contains 47 requirements, which fall into the following categories of information:

• General Instructions
• Materials and Services
• Subcontracts
• Commercial Item Determinations
• Adequate Price Competition
• Interorganizational TransfersDirect Labor
• Indirect Costs
• Other Costs
• Formats for Submission of Line Item Summaries
• Other

     Interestingly, DoD took many of the listed items directly from DCAA’s existing proposal adequacy checklist. According to DoD, the objective in proposing the rule is “to ensure that offerors submit thorough, accurate, and complete proposals” by allowing them to “self validate the adequacy of their proposals.” Defense Federal Acquisition Regulation Supplement: Proposal Adequacy Checklist, 76 Fed. Reg. 75512 (proposed Dec. 2, 2011) (to be codified at 40 C.F.R. pt. 215, 252). Based on data taken from FY 2008 - FY2010, DoD estimates that there are 905 solicitations per year that satisfy the criteria where the checklist could be used.

     The proposed rule is part of DoD’s Better Buying Power Initiatives program, which was launched by Former Defense Secretary Robert Gates in May 2010. The efficiency initiative was introduced to provide better value to taxpayers by improving the way DoD conducts business and aims to, among other things, save $100 billion dollars in defense spending over the next few years. While the proposed rule has the potential to cut down on incomplete proposals – a point of contention in many bid protests – the net benefit is unclear, since it could also increase the period of time between request for proposals and contract award. Further, it remains to be seen whether contracting officers would actually exercise their discretion and include the provision in applicable solicitations. Contractors and other interested persons have been invited to comment on the proposed rule and have until the end of January to do so.
 

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On November 16, hundreds of government contractors joined us for a webinar about the new personal conflicts of interest (“PCI”) requirements and the new implementing FAR provision, 52.203-16. It was a lively discussion and we explored some of the questions and challenges relating to this new requirement. In case you missed it, a recording of the webinar is now available in its entirety, along with a copy of the presentation. Hope you enjoy it.

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It should come as no surprise to those involved in the federal procurement marketplace that, under the Obama administration, the Government has sought to strengthen accountability in government contracting, and, to that end, has resorted to a number of tools in the Government’s arsenal for combating fraud, waste, and abuse. The latest such effort is a new push to enhance the government’s existing suspension and debarment function.

In perhaps a telling sign of things to come, on November 15, 2011, the head of the Office of Management and Budget (“OMB”), Jacob Lew, issued a memorandum requiring the heads of executive departments and agencies to increase management attention on suspension and debarment, consistent with the policies and procedures in the FAR.  In particular, OMB directed departments and agencies to a appoint a senior accountable official, if one has not already been designated; assess the agency’s existing suspension and debarment resources; review internal suspension and debarment policies and procedures; and ensure that contractors on the Excluded Parties List System have not received, and do not receive, grants and contracts, and take corrective action if it is found that an award was improperly made to a suspended or debarred contractor. Further, OMB has directed agencies to increase participation on the Interagency Suspension and Debarment Committee (“ISDC”), which provides a support structure to assist departments and agencies in building and maintaining effective suspension and debarment programs.

On the heels of the OMB memorandum, the U.S. Senate’s Committee on Homeland Security and Governmental Affairs Congress convened hearings on November 16 on “Weeding Out Bad Contractors.” Among others, the witnesses for these hearings include Daniel Gordon, the Administrator for Federal Procurement Policy, and David Sims, the Chair of the ISDC, and Steven Shaw, the Air Force’s debarment and suspension official. The general message from this testimony is that, while some agencies have effective and robust suspension and debarment programs, many others have failed to adequately utilize the suspension and debarment tool. Although it does not appear that there are any new suspension and debarment rules on the horizon, contractors should take note and expect to see a rise in new suspension and debarment matters.
 

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 We invite you to join us on November 16 at 3pm EST for a complimentary webinar, “Understanding and Implementing the New FAR Contractor Personal Conflict of Interest Provisions.” 

On November 2, 2011, the FAR Councils issued a final rule amending the Federal Acquisition Regulation (“FAR”) to include new provisions governing personal conflicts of interest of contractor and subcontractor employees supporting or performing certain government acquisition functions. Click here to find Crowell & Moring’s preliminary analysis of the rule.

These new personal conflict of interest regulations contain numerous contractor compliance requirements which will necessitate careful implementation prior to the December 2nd effective date for the rule. During the webinar, we will address these new compliance requirements, provide implementation tips, and help clarify the confusing picture of who is covered by these new rules. Click here to register.

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