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

On April 22, 2010, DoD issued proposed rules (.pdf) that would implement section 207 of the Weapons Systems Acquisition Reform Act of 2009 ("WSARA"), which requires DoD to provide “uniform guidance and tighten” existing regulations governing organizational conflicts of interest (“OCI”). We have previously published a detailed description and analysis of these proposed rules. Although the proposed rules would apply to DoD procurements only, non-DoD contractors should pay close attention, because it is widely expected that the FAR OCI rules, which are currently under review, will track these DOD rules.

DoD is requesting comments by June 21, 2010 for consideration in the formulation of final rules. As contractors review the proposed rules and think about filing comments, here are a few areas that might benefit from industry comment:

• Instead of being located in Part 9 (relating to contractor qualifications, responsibility, and eligibility), where the current FAR OCI rules can be found, these new rules would be located in Part 3 fo the DFARS (relating to improper business practices and other integrity issues). What is the significance, if any, of the new location of the proposed OCI rules?
• The proposed rules regarding unfair access to non-public information OCIs provide that “not all competitive advantage is unfair,” and – to that end – the rules incorporate the long-standing principle that incumbent contractors (or an offeror that has performed similar requirements in the past) may have a competitive edge over others, but that advantage by itself does not constitute an unfair competitive advantage. The proposed rules do not offer much guidance about what is a permissible "natural advantage of incumbency." At what point does that advantage become unfair (and, therefore, impermissible)?
• Under the proposed rules, if a contracting officer determines that performance of the contemplated work has the potential to create an OCI, the CO must insert a solicitation provision, which includes broad disclosure and certification requirements, including an obligation on the offeror to disclose “all relevant information regarding any organizational conflicts of interest." Further, the offeror must describe “any other work performed on contracts, subcontracts, grants, cooperative agreements, or other transactions within the past five years that is associated with the offer it plans to submit.” What is meant by "all relevant information?" How broadly should an offeror construe "associated with the offer"? Is five years an appropriate length of time?
• The proposed rules, implementing a specific WSARA mandate, provide that a contract for the performance of systems engineering and technical assistance for a major acquisition program must prohibit the contractor, or any affiliate of the contractor, from participating as a contractor or major subcontractor in the development or construction of a weapon system under such program. The proposed rules expressly recognize that an exception is appropriate for highly qualified contractors with domain experience and expertise if the conflict can be adequately resolved. How will DoD implement this exception? What standards will be used? How far in advance will an exception be granted? What does it mean to "adequately resolve" a conflict?

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Almost five years ago, a number of large office products companies with GSA Schedule contracts settled allegations that they had submitted false claims when selling office products to the U.S. Government that were not compliant with the Trade Agreements Act (“TAA”). The allegations came not from a government audit or from employees of these companies, but from employees of a competitor who also sold office products to the Government through its own GSA Schedule contract. The Government investigated the allegations and came away with sizeable settlement amounts from each of the companies involved. Moreover, the competitor’s employees – the qui tam relators – received over a million dollars. 

Now, another competitor has pursued a False Claims Act case against a fellow GSA Schedule holder. In United States ex re. Folliard v. CDW Technology Services, Inc., an employee of a competing reseller filed a qui tam False Claims Act suit against CDW Government Inc. and its parent, CDW Technology Services, Inc., for including products on both its GSA Schedule contract and NASA Solutions for Enterprise-Wide Procurement (“SEWP”) contract that are manufactured in countries other than TAA-designated countries. 

The genesis of the case against CDW is interesting because both CDW and the company for which Folliard, the qui tam relator, works are resellers of Hewlett Packard equipment, and both have GSA and SEWP contracts. According to the court’s decision on CDW’s motion to dismiss, HP provides its resellers with country of origin information for its products. Therefore, Folliard was able to determine which HP products offered for sale on CDW’s GSA and SEWP contracts were not TAA compliant. While the court determined that Folliard did not plead sufficient facts to make out a False Claims Act case against CDW with respect to its GSA contract, Folliard’s allegations that CDW submitted false claims when selling HP products off its SEWP contract survived CDW’s motion to dismiss. 

This case will be instructive to watch as it unfolds, and serves as a reminder for government contractors that your competitors are keeping an eye on how you conduct your government business. Given the potential monetary windfall for False Claims Act relators, your competitors and their employees will be tempted to capitalize on publicly-available information indicating possible violations and noncompliances. And given the success of past relators with TAA-related allegations, combined with GSA’s continued focus on TAA compliance for its Schedule contractors, companies should take a close look at their product offerings on the GSA Schedule and other government wide acquisition vehicles to ensure they comply with the TAA requirements.

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My last post warned that subcontractors on Federal construction projects should be alert to whether the Government designated the prime contract as a "commercial items' contract, rather than a construction contract.  Agencies often assume that in a "commercial items" contract -- even if the contract is for purchase of construction-related services -- the prime contractor is not required to obtain a payment bond. 

Leaving aside whether this assumption is justified, it is almost certainly an unintended -- and ironic -- consequence of the "commercial items" contracting rules.  "Commercial items" contracting was supposed to make Federal contracting simpler and more like commercial contracts, for use when the Government was purchasing items available in the commercial marketplace.  The thought was, for instance, if the Government buys pencils, why load up the contract with a lot of complicated specialized requirements?  So, when a contract is designated as one for the purchase of "commercial items," few of the standard Government clauses apply.  It is the Federal equivalent of ordering from Staples.

Ironically, bonds in Federal construction contracts are also supposed to mimic certain aspects of construction contracts in the commercial marketplace.  In commercial construction contracts, an unpaid subcontractor may lien the property to secure payment from a nonpaying prime.  That protection is unavailable in many public construction projects, because state laws typically prohibit liens on public property.  Congress therefore enacted the Miller Act to require Federal prime construction (and other) contractors to obtain payment bonds to protect their subcontractors.  The bond performs the same function as a lien in the private sector.

Therein lies the rub: if a "commercial items" contract does not require a payment bond, it looks less like -- not more like -- a private sector construction contract.  This may be well and good when the Government buys pencils, but what if it buys construction?  The FAR defines "commercial item" to include "services of a type offered and sold competitively in substantial quantities in the commercial marketplace."  Could construction be a "service of a type offered and sold competitively in substantial quantities in the commercial marketplace?"  It would be fair to say that if there were no wiggle room in that definition, agencies would not have needed the 2003 OFPP guidance warning them against overbroad designation of contracts as "commercial items" contracts.  

Thus, on the knife edge of a hair-splitting definitional choice hangs the subcontractor's rights.  If the agency designates a contract as a "commercial items" contract -- even though it may look like a construction contract, walk like construction contract, and quack like one -- the unwary subcontractor could be left without a payment bond to protect itself from deadbeat primes.

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On Thursday, May 6, from 2:00 pm - 3:30 pm ET, please join Angela Styles, Shauna Alonge, Amy O'Sullivan and Peter Eyre from Crowell & Moring's Government Contracts Group for an in-depth discussion of the final rule amending the FAR to implement the Federal Awardee Performance and Integrity Information System, known as FAPIIS.

As discussed in a previous blog post, on March 23, 2010, the FAR Councils issued a final rule amending the FAR to implement FAPIIS. The stated purpose of the rule, with an effective date of April 22, 2010, is to enhance the government's ability to evaluate for responsibility determinations the ethics and performance of prospective contractors competing for federal contracts and grants. But, most significantly for industry, many contractors will have to submit certified disclosures pertaining to certain criminal, civil, and administrative proceedings and settlements at the federal and state level. Unfortunately, even though these requirements are being rolled out right now, there are many unanswered questions. For instance, what are "administrative proceedings" – does the term include tax assessments, environmental citations, workers' compensation claims, and government claims for contract refunds? Must confidential settlement agreements be reported? What about deferred prosecution agreements? How should contractors respond to a question in CCR if the question is not consistent with the rule? Aside from the challenges relating to interpreting the rule and responding accurately in CCR, there are many other unknowns. How will the government use this vast amount of information? Will it have an impact on bid protests? Will this information be publicly available via FOIA or otherwise? It is essential that contractors are attuned to these traps because of the potential civil and criminal ramifications that exist for the unwary.

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In addition to making specific recommendations for Services contracts, the Multiple Award Schedule (“MAS”) Advisory Panel’s Final Report  (.pdf) recommended a number of actions to be taken by GSA related to the acquisition of Solutions (a specific combination of services and products defined by each customer’s needs). 

The Panel recommended:

• Do not apply the Price Reduction Clause to the acquisition of solutions, and instead require competition at the task and delivery order level;
• Update MAS program guidance to make clear that prices for solutions must be determined to be fair and reasonable at the order level;
• Require orders for solutions to be firm-fixed-price and performance based;
• Evaluate the applicability of the MAS program policies and guidance to the acquisition of solutions.

Throughout the Report, the Panel recognized the difficulty of applying the existing GSA Schedule rules and guidance to the acquisition of Solutions, due to the uniqueness – both to the government and the vendor – of each Solutions acquisition. With the fourth recommendation above, the Panel does not advocate the outright removal of Solutions acquisitions from the Schedule program, but does make clear that the existing regulatory and contractual framework does not fit well with the acquisition of Solutions. Can the GSA Schedule program be modified for Solutions acquisitions to achieve fair and reasonable pricing, competition, and transparency that the Panel desires, and if so, how?

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Tomorrow – April 22, 2010 – is the effective date of the final FAR Rule (.pdf) implementing the Federal Awardee Performance and Integrity Information System, known as FAPIIS. If the expected value of a contract (or grant) exceeds $500,000, agencies must insert a new implementing clause (FAR 52.209-7) that requires certified disclosures from contractors pertaining to certain criminal, civil, and administrative proceedings. We previously posted information (.pdf) about the required disclosures.  Vendors will provide this information through the Central Contracting Registration ("CCR") database.

In anticipation of these new reporting requirements (and because the questions are already “live” in CCR) (.pdf), contractors are wrestling with some very challenging issues, such as:

• The Rule requires disclosure of certain proceedings “in connection with the award to or performance by” the offeror of a Federal contract or grant. The CCR questions broaden the inquiry to include State contracts and grants. How should contractors resolve this inconsistency?
• What does it mean to have proceedings “in connection with” government contracts? Are labor or environmental disputes, which could impact the entire business, reportable? If so, must a contractor list every government contract or grant and report these disputes in connection with each contractor grant?
• Under the new Rule, disclosures must be made about the offeror and/or “its principals.” Although the Preamble to the Rule suggests that principal refers to a “person within the business entity,” the definition incorporated into the clause defines principal as an “officer, director, owner, partner, or a person having primary management or supervisory responsibilities within a business entity.” Does the word inclusion of “owner” cover a situation where one business entity owns another, thereby making a parent corporation’s “proceedings” reportable?
• The new Rule defines an “administrative proceeding” as a “non-judicial process that is adjudicatory in nature in order to make a determination of fault or liability.” If a government agency unilaterally makes a finding and assesses a fine, and the contractor accepts the finding and pays the fine, is that reportable as an administrative proceeding?

OMB has issued proposed guidance (.pdf) to help agencies implement this Rule and the underlying statute, but there will be many challenges and questions in the weeks ahead as this new Rule is rolled out.

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The Multiple Award Schedule (“MAS”) Advisory Panel presented a series of recommendations (.pdf) to the new GSA Administrator on March 10, 2010 related to the structure, use and pricing of the GSA MAS Program.  The Panel’s charge was to focus on the “most favored customer” and price reduction provisions in Federal Supply Schedule (“FSS) contracts (also known as GSA Schedule contracts). The MAS Panel’s recommendations focus on improving vendors’ pricing to the government through increased competition and transparency.

Many of the recommendations focus specifically on the delivery of Services and Solutions (a combination of services and product). For Services contracts, the Panel recommended:

• Eliminate the Price Reduction Clause and require competition at the task and delivery order level;
• Ensure GSA policy is clear that the government’s pricing objective is to pursue the lowest overall cost alternative at the time of contract formation;
• Disclose within the government GSA’s determination that offered prices are fair and reasonable, to enable ordering agencies to better evaluate vendor quotes;
• Explore the use of cost-type contracts.

To what extent the Panel’s recommendations will be implemented by GSA is uncertain. Certainly, competition at the task and delivery order level will be achieved, because, independent of the Panel’s recommendations, Section 863 of the National Defense Authorization Act of 2009 (.pdf) requires such competition – for both defense and civilian agency acquisitions above the simplified acquisition threshold and using multiple award contracts.  The proposal for disclosure within the government of vendors’ pricing information submitted to GSA, for the purpose of enabling ordering agencies to better evaluate quotes for individual orders, should be carefully watched, because the wider the dispersal of this highly-proprietary information, the greater the chance of inadvertent disclosure to competitors. 

Stay tuned for a discussion of the Panel’s recommendations specific to Solutions in Part II of this blog.

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Federal agencies love green building certification.  According to the United States Green Building Council, 14 federal agencies have implemented initiatives supporting LEED certification, a type of green building rating system. 

I had never quite understood why federal agencies were so focused on green building certification for new construction projects. That was, until I read this:

U.S. agencies are required to have 15 percent of their existing building inventory incorporate sustainable elements by 2015 under Executive Order 13423, signed by George W. Bush in 2007.

To comply with the order, the Department of Veterans Affairs aims to have 21 facilities reviewed and rated by third-party green building systems by the close of this year.

"Reaching the goal of 21 third-party certifications in 2010 will make VA a leading example of green achievement," said Secretary of Veterans Affairs Eric K. Shinseki in a prepared statement. "We will proudly reach and surpass the 15 percent requirement before 2015."

In order to demonstrate sustainable elements in its existing building stock and satisfy Executive Order 13423, Veterans Affairs is obtaining Green Globes certification for existing buildings. As we move closer to 2015, obtaining green building certification for a federal building will be an important step towards an agency's compliance with Executive Order 13423.

The consequences are growing for failing to achieve green building certification. Simultaneously, the importance of negotiating a balanced green building contract is also growing.

Related Links:

15 Veterans Affairs Medical Centers Attain Green Globes Certification (GreenerBuildings)

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Surveying the state of American infrastructure in 2008, the Obama administration sought to hit the ground running with the passage of the American Recovery and Reinvestment Act (ARRA).

The ARRA provided approximately $120 billion in direct infrastructure spending, including $48 billion specifically for transportation infrastructure projects (such as bridges and highways).

At the time, however, the American Society of Civil Engineers estimated that an investment of $1.6 trillion over five years would be required to bring the nation’s infrastructure into good condition.  Notwithstanding the infrastructure spending contained in the ARRA, there is simply too much structurally deficient, functionally obsolete, or …missing … infrastructure in the U.S. to be patched up in one piece of legislation. 

In what the President calls the “the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s,” his Administration has laid out ambitious plans for infrastructure improvements that will require significantly more money than what is contained in the recently passed stimulus legislation.

In other words, the stimulus package was intended as a first step. So, what is the next step? 

Though briefly floated, it is evident that there will be no second stimulus package (affectionately referred to as Son of Stimulus by opponents, and conspicuously lacking vocal supporters) in the near future. The Administration will therefore need to look beyond traditional planning and procurement mechanisms if it plans to make a serious attempt to address the country’s substantial infrastructure needs. To this end, two immediate – and related – procurement mechanisms have emerged as potential solutions: Public-Private Partnerships, and a National Infrastructure Bank. 

In the coming weeks, we will discuss these two procurement mechanisms, and what they may mean for the future of American infrastructure. Stay tuned.  

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Subcontractors seeking a piece of the Federal construction spending (pdf) boom beware: you can find yourself with no easy options to collect from a nonpaying prime, if the prime contract -- the one you thought was a construction contract -- is actually a "commercial items" contract, and the prime contractor did not get a payment bond.

The current wave of Federal construction spending, coinciding as it does with a drop in private construction spending (pdf) attracts many contractors new to, or at least inexperienced with, Federal contracting.  Many try subcontracting at first, instead of prime contracts, thinking that through subcontracts, they avoid some of the requirements, traps, and risks inherent in doing business with the Federal Government.

But one of the persistent risks for a subcontractor -- a prime that does not pay its bills -- can loom even larger for the unwary subcontractor working on Federal construction projects.  Under the Miller Act and the FAR, in most construction contracts the Government requires the prime contractor to obtain a payment bond, or other protections for subcontractors and suppliers.  The payment bond is supposed to protect subcontractors and suppliers by providing a means of collecting, if the prime refuses to pay.  The Government generally accomplishes this by including a standard clause, e.g. FAR 52.228-15, in the prime contract, requiring the prime to obtain a bond (or take other measures) to protect subcontractors.

However, if the prime contract is designated by the Government as a "commercial items" contract, agencies have taken the position that they are not required to include FAR 52.228-15 -- or any other protections for subcontractors -- in the prime contract.

Well, one may think, so what?  A construction contract is a construction contract, not a commercial items contract.  If I have a construction contract, the rules for construction contracting apply, and so do the Miller Act and and standard clause FAR 52.228-15.

Not necessarily.  The distinction between "construction" and "commercial items" contracts can be as fine as frog's hair -- a matter of hair-splitting over definitional details.

The FAR defines "commercial item" to include "services of a type offered and sole competitively in substantial quantities in the commercial marketplace."  Might this definition include projects that one normally thinks of as "construction"?   Don't bet that an agency has not tried to fit the "construction" square peg into the "commercial items"  round hole.

Indeed, the Federal Government's chief procurement policy-maker, the Office of Federal Procurement Policy, thought the line was fuzzy enough to confuse agencies.  OFPP encouraged agencies not to overuse commercial items contracting practices for construction work.  In 2003, OFPP issued a memorandum (pdf) warning agency officials that the commercial items rules (FAR Part 12)

"should rarely, if ever, be used for new construction acquisitions or non-routine alteration and repair services." 

Instead, OFPP said, officials should use the rules for construction contracting (FAR Part 36) in those situations.

This is not a new problem, but with the significant increase in Federal spending on construction, there are signs it continues to confuse and surprise unsuspecting subcontractors on Federal construction projects.  In the next post, I will look at the implications for subcontractors suffering under a nonpaying prime. 
 

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A year ago, I predicted that Public-Private Partnerships (PPPs) would emerge as a going concern in U.S. procurement, as states and the federal government sought to shore up infrastructure deficiencies across the country. 

PPPs, or P3s as they are sometimes known, are an alternative procurement method focused on delivering public sector services in a cost-effective manner, through a combination of government incentives, innovative private sector financing, and streamlined project delivery.    

Public-Private Partnerships differ from traditional U.S. public procurements in several key aspects, including financing, operation, and procurement.  PPPs are organizational structures by which the private sector finances, builds, rehabilitates, maintains, and/or operates specific public sector activities in exchange for a contractually specified stream of future returns.  

PPPs can include, for instance, private sector-financed development and operation of infrastructure, whereby a private company builds and operates infrastructure and/or provides services in exchange for commuter fees (such as toll revenue) or a significant share of the revenue stream; or, alternatively, a partnership for private sector-financed rehabilitation and operation of a hospital, prison, airport or energy facility, which is then operated by the private entity and “leased” to the appropriate federal, state or local government authority for a negotiated fee.

So why are PPPs relevant? In this section of The Forum we will be discussing PPPs and their emergence as a potential solution to the looming American infrastructure crisis.

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The Federal Circuit in its March 19, 2010 decision in ATK Thiokol, Inc. v. United States (.PDF), expanded the definition of allowable Independent Research and Development (IR&D) costs. Now, research and development costs are allowable as IR&D costs unless specifically required by the contract.

In ATK, the Federal Circuit addressed the “required in the performance of a contract” phrase in the FAR and CAS definition of IR&D costs. Costs that otherwise meet the definition of IR&D are allowable costs, unless they are “required in the performance of a contract.” This phrase has been the subject of debate for over 35 years. The only other court to specifically address the meaning of this phrase found that the phrase included research and development efforts both expressly required by the contract and implicitly necessary for contract performance. (United States v. Newport News Shipbuilding, Inc.)

In reaching its decision in ATK, the Federal Circuit rejected the Newport News decision and instead ruled that the phrase applies only to efforts “specifically required” by the contract. Thus, costs incurred in performing research and development efforts that might be necessary for successful performance of the contract but are not specifically required by the contract will now be allowable IR&D costs.

How will the ATK decision affect contractors going forward?

• CAS-covered contractors should review their Disclosure Statements to understand their current accounting treatment of IR&D costs and consider whether changes should be made;
   
• When entering into a contract (whether commercial or government), discuss the research and development efforts associated with performing the contract;
   
• To the extent possible, draft the contract to expressly address the research and development efforts that are required by the contract and those that are not.  

Mentioned case citations:

- ATK Thiokol, Inc. v. United States, 2010 WL 987007 (Fed. Cir. 2010)

- United States v. Newport News Shipbuilding, Inc., 276 F.Supp. 2d 539 (E.D. Va. 2003)

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On Monday, I discussed conflicts between military construction and green building certification.  Green building certification was originally created for commercial office buildings, which can create some odd applications in military construction.  While we have have already discussed energy efficiency, bicycle racks and HVAC systems, there is one component of military construction that conflicts directly with many green building components:  anti-terrorism.  

I never imagined someone had completed a study of these conflicts:

"The LEED®-DoD Antiterrorism Standards Tool addresses the security implications of strategies used to achieve each LEED credit with regard to their inter-relationship (i.e., potential conflicts and synergies), from the Department of Defense (DoD) perspective. Information is presented within a color-coded matrix based on the U.S. Green Building Council's Leadership in Energy and Environmental Design Green Building Rating System (LEED-NC Version 2.1) cross-referenced with the applicable standards in Unified Facilities Criteria (UFC) 4-010-01, DoD Minimum Antiterrorism Standards for Buildings. As such, critical areas are easily identified, prompting the project team to work collaboratively, using a 'whole building' approach, to develop successful, efficient solutions for a high performance, secure building."

For a government contracts attorney focused on green building legal and regulatory developments, the Standards Tool is a remarkable discovery.  My eye was immediately drawn to the "conflicting requirements" in the Standards Tool.  According to the Standards Tool, the following LEED credits are in direct conflict with Anti-terrorism Standards: 

•    SS-2 Development Density
•    SS-5.2 Reduced Site Disturbance, Development Footprint
•    SS-6.1 Stormwater Management, Rate and Quantity

In future posts, I will be exploring the conflicts between these LEED credits and the Anti-terrorism Standards Tool.  Have any of you worked with a building trying to comply with both LEED certification and the Department of Defense Anti-Terrorism Standards? 

Related Links:

LEED DoD Antiterrorism Standards Tool (WBDG)

Conflicts Arise Between Military Construction and Green Building (GBLU)

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