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On March 22, 2022, the Department of Defense (DoD) issued a final rule requiring contracting officers to consider supplier risk assessments in DoD’s Supplier Performance Risk System (SPRS) when evaluating offers. SPRS is a DoD enterprise system that collects contractor quality and delivery performance data from a variety of systems to develop three risk assessments: item risk, price risk, and supplier risk. The final rule introduces a new solicitation provision, DFARS 252.204-7024, which instructs contracting officers to consider these assessments, if available, in the determination of contractor responsibility.

SPRS risk assessments are generated daily using specific criteria and calculations based on the price, item, quality, delivery, and contractor performance data collected in the system.  Although compliance with cybersecurity clauses DFARS 252.204-7012, -7019, or -7020 are not currently used to generate supplier risk assessments, the potential cybersecurity implications are evident. Under DFARS -7019 and -7020, DoD requires contractors to demonstrate their compliance with cybersecurity standard NIST SP 800-171 by scoring their implementation of 110 controls and uploading their score to SPRS.

Some believe that DoD could incorporate the NIST 800-171 Basic Self-Assessment score into the supplier risk assessment at any time. If SPRS scores are incorporated into supplier risk assessments, this solicitation provision will make the accuracy and veracity of contractors’ SPRS scores significantly more important. Inaccurate SPRS scores could open contractors to legal risk, including False Claims Act (FCA) liability. Under the Department of Justice’s Civil Cyber Fraud Initiative, FCA actions regarding inaccurate cybersecurity representations have increased. Because these assessments will now influence award decisions, accuracy will become key.

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In General Atomics Aeronautical Systems, Inc., ASBCA Nos. 61633, 61731 (Feb. 8, 2023), released March 14, 2023, the Armed Services Board of Contract Appeals (ASBCA) considered, but declined to answer, the existential question of whether intracompany lease payments are “costs.”  The ASBCA denied the Government’s motion for summary judgment, finding that material facts about the contractor’s intracompany lease payments remained in dispute.  Further, the ASBCA held that because the Government failed to respond to the contractor’s affirmative defense that the Government’s claim was barred by the statute of limitations, the Government was not entitled to summary judgment.

The dispute involved a Contracting Officer’s final determination that the contractor failed to comply with Cost Accounting Standards (CAS) 405, 410, and 420.  The Government alleged that the contractor improperly excluded from its General and Administrative (G&A) expense base portions of intracompany lease payments that were in excess of the “normal costs of ownership” of the property.  The Government argued that the entire amount of the lease payments must be treated as cost input and included in the G&A base, even to the extent they were unallowable under FAR 31.205-36(b)(3), which makes allowable “[c]harges in the nature of rent” for related entities “to the extent that they do not exceed the normal costs of ownership.”  The contractor’s noncompliance, so said the Government, diminished the G&A base, resulting in an artificially high G&A rate.  The contractor countered that the excess portions of the lease payments were not “costs” and were therefore properly excluded from the G&A base.  The contractor supported its position with declarations stating that because the contractor’s parent company also controlled the landlords, the contractor’s right to occupy the rental properties was not, in fact, contingent on payment of the portions of the leases exceeding the normal cost of ownership. 

Although the CAS do not define “cost,” the Board looked to how courts have defined the term, which include the “outlay incurred in the operation of a business enterprise,” “an economic sacrifice,” a “price paid,” or something “surrendered” in order to obtain something else.  Based on the contractor’s declarations, the ASBCA held that a triable question of fact existed as to whether “the excess amounts [the contractor] paid above the cost of ownership were a price or economic sacrifice necessary to acquire and retain the leaseholds.”

Like the ASBCA’s decision in Cellular Materials International, Inc., which analyzed when a cost is “incurred,” the instant decision underscores the fact-intensive inquiry that may be necessary to determine whether certain types of payments are, in fact, “costs” for purposes of government contract cost accounting. 

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This week’s episode covers the National Cyber Security Strategy, a final DFARS clause requiring disclosure of use of workforce and facilities in the China, the Department of Commerce’s first Notice of Funding Opportunity under the CHIPS and Science Act of 2022, and congressional inquiries about financial conflicts of interest and ethically questionable behavior by senior government officials across the executive branch, and is hosted by Peter Eyre and Yuan Zhou. Crowell & Moring’s “Fastest 5 Minutes” is a biweekly podcast that provides a brief summary of significant government contracts legal and regulatory developments that no government contracts lawyer or executive should be without.

Listen: Crowell.com | PodBean | SoundCloud | Apple Podcasts

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Last week, on March 9, 2023, in Percipient.ai, Inc. v. United States, the Court of Federal Claims held that Percipient.ai, Inc. (“Percipient”) had standing to protest a National Geospatial-Intelligence Agency (“NGA”) procurement called “SAFFIRE” intended to improve the agency’s production, storage, and integration of geospatial intelligence data.  Percipient’s complaint, filed in January of this year, argued that SAFFIRE violates the statutory mandate at 10 U.S.C. § 3453 to procure commercial items “to the maximum extent practicable.”  The Court’s conclusion that Percipient had standing to protest is notable because (1) NGA issued the SAFFIRE solicitation in January 2020 (over three years ago); (2) NGA awarded the SAFFIRE contract to CACI, Inc. – Federal (“CACI”) in January 2021 (over two years ago); and (3) Percipient never submitted a proposal in response to the solicitation. 

The Government and CACI moved to dismiss Percipient’s complaint, arguing, among other things, that Percipient lacked standing to protest because it had not submitted a proposal and therefore was not an “interested party,” and because the protest—filed two years after contract award—was in fact a challenge to NGA’s administration of the SAFFIRE contract.  The Government and CACI also argued that the protest was untimely under the Federal Circuit’s decision in Blue & Gold Fleet, L.P. v. United States, 492 F.3d 1308 (Fed. Cir. 2007), which generally requires that protests challenging the terms of a solicitation be filed before the proposal due date.

Continue Reading Court of Federal Claims Holds Non-Bidder Has Standing to Protest Two Years After Contract Award
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On March 9, 2023, President Biden released his fiscal year (FY) 2024 budget request outlining the administration’s priorities, including a nearly 10 percent increase in discretionary spending over the current enacted funding levels. The President’s budget requests a total of $6.9 trillion federal spending for FY 2024. Of this amount, $4.2 trillion would be in mandatory spending and $1.9 trillion would be in discretionary spending. Defense spending would receive an approximately 3 percent increase from FY 2023 for a total of $885 billion in discretionary spending, while non-defense spending would receive a nearly 4 percent increase from FY 2023 levels for a total of $1.02 trillion in FY 2024. The President’s budget request proposes a 7 percent increase over current non-defense spending level and tax increases among other proposed revenue raisers designed to lower the national deficit by $3 trillion over the next 10 years. 

The President’s budget request is the first step in the annual appropriations process. As the U.S. Congress holds the power of the purse, the next step is for Congress to pass a budget resolution, which provides a blueprint for all budget-related legislation, including the topline numbers governing discretionary spending for the upcoming fiscal year. The Appropriations Committees in the House and Senate will spend the next couple of months holding hearings on the budget request in preparation of their work on appropriations bills for government departments and agencies. The current divided government – with Democrats controlling the White House and the Senate, but with Republicans in the majority in the House of Representatives – and escalating partisan rhetoric on the debt ceiling raises questions about whether the political parties can navigate their way to an agreement before the current funding law expires on September 30. One thing is clear, the President’s budget priorities stand in stark contrast with the emerging House Republican agenda, and the final FY 2024 appropriations law will vary significantly from President Biden’s request.

The following summary, based on a review of the budget request and accompanying Fact Sheet and Analytical Perspectives, provides highlights from each section of the President’s budget proposal. Please reach out to the Crowell Government Affairs Group for more detail in any given area.

Continue Reading President Biden Outlines White House Priorities in FY 2024 Budget Request
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On March 8, 2023, the Biden Administration announced a further opportunity for companies to take advantage of significant federal funding intended to promote clean manufacturing and reduce greenhouse gas emissions in federal procurement.  In line with the Biden Administration’s push to implement a clean energy economy (as we have previously covered, for example, here and here), the Department of Energy (DOE) will provide $6 billion in grants through the new Industrial Demonstrations Program to “accelerate decarbonization projects in energy-intensive industries and provide American manufacturers a competitive advantage in the emerging global clean energy economy.”  Funding for these grants will come from the recently passed Infrastructure Investment and Jobs Act and Inflation Reduction Act.

This initiative is specifically geared towards identifying new manufacturing technologies and methods for decarbonization and reduction of greenhouse gas emissions from the industrial sector, including the production processes for iron and steel, aluminum, cement and concrete, glass and industrial ceramics.  DOE seeks to prioritize a portfolio of “first-of-a-kind or early-stage commercial-scale projects” that will lead to “follow-on investments for widespread adoption of the demonstrated technologies” while simultaneously enabling new markets for cleaner products and creating quality jobs in the surrounding communities.  DOE will provide up to 50% of the cost for each eligible project, with concept papers due by April 21, 2023, and full applications due by August 4, 2023.

The Administration also announced the launch of the Federal-State Buy Clean Partnership, which is intended to support the use of lower-carbon infrastructure materials in state-funded projects. The Partnership is comprised of 12 states, including, California, Colorado, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, New Jersey, New York, Oregon, and Washington. While the details are still limited regarding how this partnership will roll out, state level commitment to the procurement of “clean” industrial products would, if realized, further drive demand for emerging technologies and provide new opportunities for contractors.

Crowell will continue to monitor and provide updates on the Administration’s climate sustainability measures and funding opportunities.

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The Department of Transportation’s Federal Highway Administration has issued final standards for the installation, operation, and maintenance of electric vehicle (EV) charging stations paid for with federal funds pursuant to the Infrastructure Investment and Jobs Act (IIJA) and other federal authorities. The standards, which go into effect on March 30, 2023, regulate the types of chargers that may be installed, as well as payment processing, labor, cybersecurity, and data privacy practices for EV charging infrastructure on federal highways.

The IIJA established the National Electric Vehicle Infrastructure (NEVI) Formula Program to provide $5 billion in funding to states, local governments, transportation authorities, and tribes for the acquisition and installation of EV charging infrastructure. The IIJA allows recipients of NEVI Formula Program funds to partner with private entities to operate the EV charging infrastructure, but the new rule limits how income from EV charging stations can be used.

Although the purpose of the NEVI Formula Program is to support the build out of interconnected EV charging infrastructure along federal highways that have been designated as Alternative Fuel Corridors, the standards apply to all projects that install EV charging infrastructure using Title 23 federal funds. The IIJA directed the Secretary of Transportation, in consultation with the Secretary of Energy and stakeholders, to issue minimum guidelines and standards concerning the installation, operation, or maintenance by qualified technicians of electric vehicle charging infrastructure; the interoperability of electric vehicle charging infrastructure; network connectivity of electric vehicle charging infrastructure; and publicly available information about locations, pricing, real-time availability, and accessibility through mapping applications.

Continue Reading DOT Releases Final Standards for Federally Funded EV Charging Stations
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March 2, 2023, marked the 160-year anniversary of the enactment of the False Claims Act (FCA). Signed into law by the sixteenth president, the statute known as “Mr. Lincoln’s Law” was passed in response to the actions of contractors that sold rancid food, faulty rifles, and shoddy uniforms to the Union Army.  Eight score after the law’s passage, the FCA has become the government’s primary enforcement tool in cases involving allegations of fraud, and today the Civil War era statute is applied in cases involving industries and federal programs that would have exceeded Lincoln’s wildest imagination.

Continue Reading Lincoln’s Law Turns 160
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2022 was a busy year for the False Claims Act.  While recoveries were down, new cases reached a record mark, and settlements addressed multiple important and developing enforcement areas, from cybersecurity to small business fraud, bid rigging, Trade Agreements Act compliance, pandemic fraud, and more.  Of particular note, the U.S. Supreme Court held argument concerning the Government’s authority to dismiss qui tam actions, and it will soon hear consolidated cases as to the critical element of scienter.  And circuit courts issued key decisions involving pleading standards and merits issues.  These highlights and more are discussed by C&M attorneys in a “Feature Comment” published in The Government Contractor. 

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As of the morning of March 8, 2023, SAM.gov is experiencing an unexpected outage and the system also appears to be generating false emails. Until this issue is resolved, companies and administrators should consider refraining from clicking on any links or email addresses within any SAM.gov email received until the system is confirmed as fully operational.

At this time, the Federal Service Desk website has confirmed both the outage and mistaken emails:

The emails described above appear to have at least in some instances identified various registration changes made by a foreign email address to one of the recipient’s SAM registration.

Updates on the status of the SAM email and outage issues will be provided through the Federal Service Desk.