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

On Wednesday, Congressman Bill Owens (D-NY) introduced the Small Business Growth and Federal Accountability Act of 2012 (H.R. 3779). The bill is designed to ensure that government agencies provide more work for small business concern by authorizing blanket preferences and providing for monetary sanctions for the failure to meet annual goals. Owens is the bill’s lone sponsor. 

A congressionally mandated goal requires that federal government agencies award at least twenty-three percent of all prime contracts to small businesses annually and establishes additional goals for other categories of small business concerns, and each federal agency is allowed to set individual small business contracting goals in consultation with the Small Business Administration (SBA). As it stands, however, there are no existing penalties for agencies that do not meet their annual goals. 

Under H.R. 3779, this would change. The bill would authorize agencies to give “preference” to small business concerns when procuring goods or services to help reach each agency’s small business contracting goals. Although the term “preference” is not defined, arguably it is intended to include the application of status-based evaluation preferences in full and open competitions in addition to the issuance of small business set asides. The bill would also decrease an agency’s procurement budget by ten percent each year it failed to meet its annual goals. By rule the Appropriations Committee is responsible for rescissions of appropriations and unspent balances from federal agencies, and in a statement Owens called on the Committee to use any such lost funding towards paying down the national debt.

Several questions and implications of the bill are (1) how agencies will weigh cost savings from awarding contracts to large business versus any potential penalties for shortcomings on small business goals; (2) since the penalty is a one-size-fits-all approach, will agencies further decrease efforts at awarding small business contracts if they know they will not be able to achieve one of the applicable goals; and (3) will this lead to the imposition of similar monetary penalties for prime contractors who fail to meet their own annual small business subcontracting goals.

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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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