Government Contracts Legal Forum

Government Contracts Legal Forum

Providing Legal Insight for Government Contractors

Department of Defense Releases Proposed “Counterfeit Electronic Part” Acquisition Regulations

By Tiffany Wynn on Posted in Counterfeit Part
Tiffany Wynn

On May 16, 2013, the Department of Defense (“DoD”) published long awaited proposed regulations regarding efforts contractors must take to prevent the entry of counterfeit electronics into the DoD supply chain. As previously discussed on this blog, Section 818 of the National Defense Authorization Act for FY2012 required DoD to revise its acquisition regulations to address the detection and avoidance of counterfeit parts. This blog discussed the scope of one interim measure, DoD Instruction No. 4140.67, earlier this month.

So what’s new? Thursday’s proposed regulations represent the self-described “partial implementation” of Section 818. Nevertheless, the revised regulations purport to accomplish several key changes to the Defense Acquisition Regulation Supplement in response to Section 818.

Definitions. First, the regulations propose several new definitions, including those of “counterfeit part,” “electronic part,” “legally authorized source,” and “suspect counterfeit part.”

Applicability. These proposed regulations extend only to contracts that are subject to the Cost Accounting Standards.

Contractors’ counterfeit electronic part avoidance and detection systems. The new proposed regulations (and corresponding DFARS clauses) outline the various required elements of an acceptable counterfeit electronic part avoidance and detection system. All such systems must, at a minimum, address the following items: the training of personnel; electronic part inspection and testing; processes to abolish counterfeit part proliferation; traceability of parts to suppliers; use and qualification of trusted suppliers; reporting and quarantining of counterfeit and suspect counterfeit electronic parts; methodologies to identify suspect counterfeit parts and to quickly determine if a suspect part is, in fact, counterfeit; the design, operation, and maintenance of systems to detect and avoid counterfeit and suspect counterfeit electronic parts; and the flow down of counterfeit detection and avoidance requirements to subcontractors. In the event a contractor fails to maintain an adequate purchasing system (which includes the detection and avoidance system requirements outlined above if applicable), the contracting officer is entitled to withhold payments, assuming the rule is implemented as proposed.

Unallowability of costs. Finally, the proposed regulations explain that contractors cannot recover the costs incurred for any rework or corrective action resulting from the inclusion of counterfeit electronic parts or suspect counterfeit electronic parts. Although a safe harbor exclusion exists, that exclusion is narrow, and limited to situations where the contractor has a DoD approved system to detect and avoid counterfeit and suspect counterfeit electronic parts, the counterfeit or suspect counterfeit electronic parts are Government-furnished property, and the contractor provides timely notice to the Government. Given the narrow scope of this exception, this so-called safe harbor is likely to raise some questions.

This blog will continue to discuss these new regulations and their impact on contractors in the coming weeks.

Virginia Law Questions the Enforceability of Teaming Agreements

By Tiffany Wynn on Posted in Legal Developments
Tiffany Wynn

When pursuing government work, contractors frequently team together and combine resources in order to create the most appealing proposal. These arrangements are often memorialized in teaming agreements that set forth terms, including but not limited to, the purpose of the agreement, the relationship between the parties (e.g., prime versus subcontractor), and other general provisions. Importantly, a teaming agreement will often include a provision stating that the parties will execute a subcontract or other document, pending the successful outcome of the proposal. According to a recent decision decided under Virginia law, however, such a teaming agreement may not be enforceable, and a would-be subcontractor could be left without recourse.

In Cyberlock Consulting, Inc. v. Information Experts, Inc., the United States District Court for the Eastern District of Virginia assessed the second of two teaming agreements entered into by the same two parties. The teaming agreement provided that Cyberlock would perform 49 percent of the work awarded to Information Experts in connection with a potential Office of Personnel Management (OPM) contract. In fact, the agreement explicitly provided “that ‘[i]n the event [Information Experts] is awarded a prime contract for the Program, [Information Experts] agrees to execute a subcontracting agreement to provide [Cyberlock] 49 percent of the prime contract for the work anticipated to be performed by Subcontractor.” Despite this language, the court held that the teaming agreement was an “unenforceable agreement to agree” under Virginia law because, when “read as a whole,” the language “was not meant to provide a binding obligation but rather to set forth a contractual objective and agreed framework” for future negotiation. As justification for this conclusion, the court highlighted other terms in the agreement which suggested that: (1) that the award of any work would require the negotiation and execution of a future subcontract; (2) award of any work was subject to the success of such future negotiations; (3) any future subcontract was subject to OPM’s approval; and (4) allocation of work in a future subcontract “could change as it merely was based on the work anticipated to be performed by Cyberlock as then-presently understood by the parties.” As part of this assessment, the court also explicitly corrected one of its prior rulings in the litigation that “failed to take account” of the agreement’s integration clause, and used extrinsic evidence to find that Cyberlock and Information Experts meant the agreement to be more than an “agreement to agree.” In light of this ruling, companies considering a teaming agreement should look carefully at choice of law, dispute resolution, and integration provisions.

GAO Implies Presumption of Price Realism Evaluation in Fixed-Price Solicitation

By Rob Sneckenberg on Posted in Bid Protest
Rob Sneckenberg

Fixed-price contracts allow the government to purchase goods and services for set prices and allocate the cost risk of performance to the contractor—if the contractor offers to perform the work for too low of a price, then it may reap little profit, or even take a loss. Thus, the government’s primary concern in evaluating fixed-price proposals is the reasonableness of the offeror’s price—i.e., whether the fixed price is too high. See FAR 15.402(a) (requiring contracting officers to purchase supplies and services “at fair and reasonable prices”). The government may, at its discretion, also perform a price realism evaluation of a fixed-price proposal to assess whether the proposed price is too low—“whether an offeror’s low price reflected its understanding of the contract requirements or to avoid the risk of poor performance from a contractor that is forced to provide services at little or no profit.” Esegur-Empresa de Seguranca, SA, B-407947 et al., Apr. 26, 2013, 2013 CPD ¶ __; see also FAR 15.404-1(d)(3).

Previously, the Government Accountability Office (GAO) had held that even when an agency “reserves the right” to conduct a price realism evaluation of fixed-price proposals, the agency is not required to conduct such an analysis where “the RFP did not expressly state that the agency would” do so. Guident Techs., Inc., B-405112.3, June 4, 2012, 2012 CPD ¶ 166 at 13 n.9 (emphasis added). In limited circumstances, the GAO had imposed an obligation on agencies to perform price-realism evaluations for fixed-price proposals, but only where “[a] reasonable reading of the solicitation” was that the agency would conduct such an evaluation. Halfaker & Assocs., B-407919 et al., Apr. 10, 2013, 2013 CPD ¶ __ at 9 n.5; Waterfront Techs., Inc., B-401948.16 et al., June 24, 2011, 2011 CPD ¶ 123 at 15 n.16. Continue Reading

Department of Defense Tightens Counterfeit Prevention Policy

By Grant J. Book on Posted in Legal Developments
Grant J. Book

On April 26, 2013, the Under Secretary of Defense for Acquisition, Technology, and Logistics issued Department of Defense (“DoD”) Instruction No. 4140.67 to further establish policy to prevent counterfeit materiel at any level of the DoD supply chain. As we have previously blogged about, Section 818 of the National Defense Authorization Act of 2012 required DoD to assess its internal policies for detection and avoidance of counterfeit electronic parts by June 28, 2012 and revise the DoD acquisition regulations to address the detection and avoidance of counterfeit parts by September 26, 2012. However, despite the statutory mandate, DoD has not revised its acquisition regulations and this Instruction appears to be another interim measure.

The instruction serves two main purposes – (1) to establish DoD’s policies regarding counterfeit prevention and (2) assign responsibilities for the prevention, detection, and remediation of counterfeit material. Pursuant to the Instruction, it is DoD’s policy not to procure counterfeit material and DoD will employ a risk-based approach to reduce the frequency and impact of such material by applying prevention and early detection procedures within the supply chain and strengthening the oversight and surveillance procedures for critical material. DoD’s policy under the Instruction is to investigate all cases of suspected counterfeit material and document all occurrences of suspected and confirmed counterfeit material. DoD will make information about counterfeiting available at all levels of the supply chain, seek restitution when cases of counterfeiting are confirmed, and notify at the earliest opportunity criminal investigative organizations or intelligence authorities and those who use such materials. Continue Reading

The Government’s Continued Assault on Contractor Intellectual Property at the 2013 Ounce of Prevention Seminar (OOPS)

By Jacinta Alves on Posted in Intellectual Property
Jacinta Alves

U.S. Government contractors continue to face increasing challenges when it comes to protecting their intellectual property rights. While there remains uncertainty about how the Department of Defense will implement Section 815 of the fiscal year 2012 National Defense Authorization Act (FY 2012 NDAA), the law itself contains language that could significantly impact contractor rights in, and contractor delivery requirements for, technical data and computer software. Moreover, it appears that the U.S. Government is becoming increasingly assertive in challenging contractors’ claimed intellectual property rights restrictions.

On May 15-16, 2013, Crowell & Moring is hosting its annual Ounce of Prevention Seminar (OOPS), which, for the past 28 years, has provided government contractors with the information they need to stay on top of the latest developments in federal contracting. At this year’s OOPS on May 16, C&M attorneys will describe recent and anticipated changes to the intellectual property landscape in a program called The Pendulum Continues to Swing the Wrong Way for Contractors: The Government’s Continued Assault on Contractor Intellectual Property. John E. McCarthy Jr. will lead a panel featuring Jonathan M. Baker and me. We will discuss updates on the FY 2012 NDAA data rights changes, policy changes impacting contractor intellectual property, and recent case law bearing on intellectual property in the government contracting sphere.

Government contractors can register and find more information on the 29th annual OOPS program, including the complete OOPS agenda, here.

Putting the SEC Spotlight on Corporate Cyber Risks

By Amelia Schmidt, David Bodenheimer and Bryan Brewer on Posted in Cybersecurity
Amelia SchmidtDavid BodenheimerBryan Brewer

As the latest 10-K filing period for corporations draws to a close, the Securities and Exchange Commission (SEC) is expected to intensify its scrutiny on whether companies’ filings adequately disclose both information security breaches that occurred in the past, and the material risks due to cyber threats such companies face in the future.  Since the Senate Commerce Committee focused greater attention upon corporate cybersecurity in a letter to the SEC on May 12, 2011, momentum has been building for expanded corporate disclosure of cybersecurity safeguards and security breaches.  In October 2011, the SEC issued guidance that publicly traded companies have a duty to disclose “material information regarding cybersecurity risks and cyber incidents” where failure to do so would make other disclosures misleading.  Recent developments both inside and outside the SEC show that corporations can expect an even brighter spotlight this year upon their cybersecurity efforts – and shortfalls.  Now more than ever, publicly traded companies need to be prepared to address, whether in responses to SEC comment letters or in preparing future filings, what material risks they may have due to cyber threats and whether they have taken steps to address such risks and vulnerabilities.

Recent Developments:

In its 2013 Examination Priorities, the SEC identified a number of “risk areas” attracting its focus, including enterprise risk management and companies’ “governance and supervision of information technology systems for topics such as operational capability, market access, and information security, including risks of system outages, and data integrity compromises that may adversely affect investor confidence.”  These Examination Priorities were published on February 21, 2013, one week after the President issued an Executive Order on improving critical infrastructure cybersecurity, and several days after the release of the Mandiant report, which tied the Chinese military to cyberattacks on over 140 U.S. and other foreign corporations and entities. Continue Reading

Crowell & Moring Secures Two-Part Victory in Major False Claims Act Case

By Jason Lynch on Posted in False Claims
Jason Lynch

Crowell & Moring recently achieved two substantial victories for its client, Academi Training Center LLC (“ACADEMI”) in a qui tam False Claims Act case in the Eastern District of Virginia . The qui tam relators accused ACADEMI of billing for personnel who did not serve in the labor categories in which they were billed and for personnel who had not been qualified on belt-fed weapons as required under its contract. They also alleged that ACADEMI retaliated against them in violation of the FCA’s whistleblower protections, and sought to advance their claim in federal court instead of in arbitration. The court dismissed the false claim counts and referred the retaliation claims to arbitration.

The court dismissed the false labor billing allegations on two alternative grounds. First, the court held that the FCA’s first-to-file provision barred these allegations. That provision generally precludes a qui tam relator from bringing an action based on the facts underlying a pending case. Because the labor billing allegations had already been made in United States ex rel. Davis v. U.S. Training Ctr., No. 11-2180, 2012 WL 6052051 (4th Cir. Dec. 6, 2012), the court held that the first to file bar applied. Crowell & Moring won a jury verdict in the Davis case in 2011 and that outcome was recently affirmed by the Fourth Circuit. Second, the court also held that the FCA’s public disclosure bar precluded these claims. The court held that the public disclosure bar remained a jurisdictional one and found that the Davis complaint qualified as a public disclosure under the FCA, as did a witness declaration filed in that case. The court ruled that the relators’ knowledge did not materially add to the already disclosed allegations and that therefore they did not qualify under the “original source” exception to the public disclosure bar. The court dismissed the labor billing claims under both the first to file and public disclosure bars.

Continue Reading

False Claims Act Developments at Crowell & Moring’s 29th Annual Ounce of Prevention Seminar

By Mana Elihu Lombardo on Posted in False Claims
Mana Elihu Lombardo

On May 15-16, 2013, Crowell & Moring is hosting its annual Ounce of Prevention Seminar (OOPS). This year’s program, entitled Weathering the Rough Seas of Regulation, will once again provide the government contract community with a comprehensive review of the latest developments in federal contracting.

In the morning session on May 16, attorneys Andy Liu, Robert Rhoad, Mana Elihu Lombardo, and Brian McLaughlin will discuss recent developments under the federal False Claims Act, the government’s principal anti-fraud weapon of choice, as evidenced by last year’s nearly $5 billion in recoveries under the Act.  The presentation panel will cover recent FCA and qui tam enforcement statistics, FCA-related regulatory and legislative developments, the latest FCA enforcement trends, and recent cases and settlements and their impact on compliance and enforcement.

This presentation is geared towards government contractors, and is not limited to legal professionals.  The shared perspectives on current industry topics will be of interest to anyone doing business with the government.

The OOPS agenda, registration information, and additional details are available here: http://www.crowell.com/oops.

Navigating Cyber Landmines at This Year’s Ounce of Prevention Seminar (OOPS)

By Gordon Griffin on Posted in Cybersecurity
Gordon Griffin

The past year has showcased major developments in cybersecurity: unprecedented thefts and attacks, with losses estimated in the hundreds of billions of dollars; expanding sector-specific cybersecurity statutes and regulations; and a sweeping Executive Order on cybersecurity for critical infrastructure followed by a recent push for cyber intelligence sharing from Congress. Expect even more significant developments to follow in the coming months.

On May 15, at Crowell & Moring’s annual Ounce of Prevention Seminar (OOPS), C&M attorneys will describe the recent changes to the cyber landscape, as well as give a preview of things to come, in a program called Navigating Cyber Landmines in the Corporate Boardroom: Why & Where Government Contractors Must Tread Carefully. Jim Regan will lead a panel featuring David Bodenheimer, Bryan Brewer and me. We will discuss the exploding risks, escalating legal requirements, and expanding regulatory and RFP burdens in cybersecurity.

Government contractors can register and find more information on the 29th annual OOPS program, including the complete OOPS agenda, here.

In Case of First Impression, COFC Concludes Single-Source Award in Multiple Award IDIQ Contract Fails to Satisfy FAR 16.504

By Margaret Nielsen on Posted in Bid Protest
Margaret Nielsen

In CW Government Travel, Inc. v. United States, COFC No. 12-708-C (April 11, 2013), the United States Court of Federal Claims (“COFC”) sustained CW Government Travel’s (“CWT”) protest challenging the General Services Administration’s (“GSA”) decision to award a multiple award Indefinite-Delivery/Indefinite-Quantity (“IDIQ”) contract valued in excess of $103 million to a single source as inconsistent with Federal Acquisition Regulation (“FAR”) 16.504(c)(1)(ii)(D)(1) because GSA’s determination that only one offeror was qualified and capable of performing was based on a best-value trade off, instead of on an analysis of the offeror’s individual ability to perform. According to the Court, this was a case of first impression. With this opinion, Judge Sweeney provides guidance to agencies and offerors as to when the government may – and particularly when the government may not – issue a single-source IDIQ contract in excess of the $103 million FAR-based threshold.

In the procurement at issue, GSA awarded a single-source IDIQ contract valued at over $1.3 billion for a next generation of travel management services to Concur Technologies (“Concur”). During the evaluation process, GSA assigned Concur’s proposal an overall rating of “Very Good” and CWT’s proposal a “Marginal” rating. Under the solicitation’s definition for a Marginal rating, the proposal “does not meet Government requirements necessary for acceptable contract performance, but the issues are correctable.” CWT and Concur were the only two competitors in the procurement. However, GSA ultimately concluded that not only was Concur’s proposal was more competitive that CWT’s, but also that Concur was the only offeror qualified and capable of performing at a reasonable price because CWT’s proposal received the “lowest technical rating at the highest price.” Continue Reading