On April 28, 2022, the DoD issued a final rule that, effective immediately, requires the government to treat a contract previously awarded using FAR part 12 procedures as a prior commercial item determination (“CID”) for the acquired product or service, unless the head of contracting activity determines that the prior use of FAR part 12 procedures was improper or is no longer appropriate. The final rule implements section 848 of the NDAA for 2018, and applies to DoD contracts regardless of dollar value. Note, however, that prior FAR Part 12 purchases made pursuant to 41 U.S.C. 1903 (for supplies or services to be used to facilitate defense against or recovery from cyber, nuclear, biological, chemical, or radiological attack) or 10 U.S.C. 2380a (for supplies or services from nontraditional defense contractors) may not serve as a prior commercial item determination unless the products or services purchased in that prior acquisition otherwise received a CID.
Crowell & Moring’s “All Things Protest” podcast keeps you up to date on major trends in bid protest litigation, key developments in high-profile cases, and best practices in state and federal procurement. In this episode, Crowell attorneys Christian Curran and Zachary Schroeder discuss a recent GAO case (K&K Industries, Inc., B-420422; B-420422.2, March 7, 2022) that highlights timeliness traps with enhanced debriefings.
As Russia’s assault on Ukraine continues, countries around the world are taking action. Relevant to U.S. Government contractors, on April 22, the Defense Logistics Agency (“DLA”) issued a Request for Information (“RFI”) seeking information on companies’ abilities to deliver military and commercial assistance to Ukraine. The RFI states that “the Biden Administration is working around the clock to fulfill Ukraine’s priority security assistance requests,” and explains that “Russia’s unprovoked invasion has highlighted the importance of dialogue between industry and commercial partners and the Department of Defense.” To that end, the RFI seeks to fulfill three strategic objectives:
- Delivering critical commercial and military capabilities to Ukraine;
- Enhancing the preparedness of our own forces; and
- Supporting our allies and partners in bolstering their defense capabilities.
Of particular interest to DOD are options that would accelerate production and build more capacity across the industrial base for weapons and equipment that can be rapidly exported, deployed with minimal training, and that are proven effective in the battlefield. Specifically, the RFI seeks information from industry on weapons systems or other commercial capabilities related to air defense, anti-armor, anti-personnel, coastal defense, counter battery, unmanned aerial systems, and communications (e.g., secure radios, satellite internet). Among other things, the RFI asks respondents to “describe the weapon, product, or system you believe could assist the Ukrainian military” and state what delivery timeframe they could meet.
Responses are due by Noon Eastern on May 6, 2022, and should be submitted in accordance with the instructions outlined in the RFI.
As the war in Ukraine continues, Government contractors should be alert for this and similar opportunities to bolster the United States’ defenses and assist Ukraine. The FY2022 omnibus appropriations bill – signed into law in March 15 – includes a $13.6 billion Ukraine aid package, $6.5 billion of which was earmarked for military support for Eastern European countries, including $3.5 billion in additional weapons for Ukraine. In addition, on April 21, President Biden announced that the U.S. will provide another $800 million in assistance to Ukraine, which will include heavy artillery, ammunition, and tactical drones.
As Congress considers legislation prohibiting government contractors from doing business in Russia, over 20 states have already acted. In this alert, we highlight: (i) how different states are defining Russian business operations, and the corresponding risks to differently situated government contractors; and (ii) unique aspects of certain state actions that contractors need to be aware of as they develop their compliance strategy.
Which Government Contractors are Affected by Which State Actions?
States have taken a wide variety of approaches to determining which contractors and actions to cover with their Russia-related prohibitions. For example:
- Several states, including Ohio and Virginia, are limiting their actions to Russian institutions and/or companies, but have not defined such terms.
- On the other hand, New Jersey and North Carolina are targeting entities that are headquartered or have their principal place of business in Russia, as well as such entities’ subsidiaries (with New Jersey also targeting entities in Belarus). See also proposed Louisiana legislation requiring any public entity to reject the lowest procurement bid if that bidder is “domiciled in Russia.”
- New York is taking yet a third—and much broader—approach and is targeting entities that conduct business operations in Russia, which includes entities: (i) conducting any commercial activity in Russia; (ii) transacting business with the Russian Government; or (iii) transacting business with commercial entities headquartered or with their principal place of business in Russia. See also proposed Alabama legislation encouraging the state “to disfavor Russian products and any economic activity that would benefit Ukraine, to the utmost extent possible.”
- Finally, certain states have not yet determined the precise scope of their restrictions. For example, Missouri currently has two competing bills: its Senate has proposed legislation that targets “companies that have active business operations in strategic industries with the Russian Federation”; whereas its House has proposed legislation that would cover “Russia, Russian entities, or any other country adversely occupying or attacking a North Atlantic Treaty Organization (NATO) member, Ukraine, Finland, Sweden, or Georgia; unless the transaction is authorized under Ukraine General License Number 18 issued on February 21, 2022, by the U.S. Department of Treasury’s Office of Foreign Assets Control.”
Government contractors—especially those doing business in multiple states—must carefully consider this evolving patchwork of prohibitions and restrictions as part of their overall compliance strategy.
What are the States Prohibiting, and How?
In addition to determining whether a given state’s proposed or enacted restrictions apply, government contractors must also closely scrutinize the nature of the prohibitions or restrictions at issue. As we discussed previously, most states are considering or have enacted prohibitions on future contracts with affected companies, and/or would require termination of existing contracts with such companies. However, certain states have passed or are contemplating actions with unique—and potentially extreme—consequences.
Most notably, New Jersey has already enacted legislation that requires a contractor to certify it is not on the Department of Treasury’s list of entities engaged in prohibited activities in Russia or Belarus before a contract is awarded, renewed, amended, or extended. For false certifications, the legislation requires: (1) a civil penalty in an amount that “is equal to the greater of $1,000,000 or twice the amount of the [contract] bid”; (2) “termination of an existing contract [or bid] . . . by the issuing agency”; and (3) exclusion from public contracting with the State for 3 years (and with reinstatement only allowed so long as the entity has ceased its engagement in prohibited activities in Russia or Belarus). These penalties significantly exceed the penalties under New Jersey’s state False Claims Act, and pose significant risk to any contractors that do business in the State. Indeed, they could have far reaching effects even beyond New Jersey, as many other states look to whether a company is banned from contacting in any jurisdiction.
Crowell is continuing to monitor these state actions and will highlight significant developments in future alerts. Government contractors should closely follow these issues and update their compliance practices accordingly.
In an effort to boost the domestic mining industry for critical minerals, on March 31, 2022, President Biden issued Presidential Determination 2022-11, the Memorandum on Presidential Determination Pursuant to Section 303 of the Defense Production Act of 1950, as amended (“Presidential Determination”). The Presidential Determination states that sustainable and responsible domestic mining, beneficiation, and value-added processing of strategic and critical materials for the production of large-capacity batteries, including lithium, nickel, cobalt, graphite, and manganese, are essential to national defense. The Presidential Determination will allow the Department of Defense (“DoD”) to pursue various investment, purchase commitment, and purchase vehicles to support strategic and critical material mining and production in the United States pursuant to Title III of the Defense Production Act (“DPA”).
Defense Production Act Title III
The DPA Title III, Section 303 authorities are intended to provide the President broad latitude in supporting critical domestic industrial base capabilities. While other parts of the DPA concern loans, prioritization orders, and allocation orders, Title III is focused on alternative domestic investment options. It is concerned with the expansion of productive capacity and supply in the United States rather than prioritized procurement or allocation. Under Title III generally, the Government may:
- make provision for purchases of or commitments to purchase an industrial resource or critical technology item for Government use or resale;
- make provision for the development of production capabilities, the increased use of emerging technologies in security program applications, and the rapid transition of emerging technologies;
- make subsidy payments for raw or nonprocessed materials from high-cost sources under certain conditions;
- encourage the exploration, development, and mining of strategic and critical materials;
- make provision for the development of substitutes for strategic and critical materials, components, technology, and other resources to aid national defense;
- procure and install additional equipment, facilities, processes, or improvements to plants, factories, and other industrial facilities owned by the federal government;
- procure and install Government-owned equipment in privately-owned plants, factories, and other industrial facilities;
- provide for the modification or expansion of privately-owned facilities, including the modification or improvement of production processes;
- permit agencies engaged in procurement for national defense to restrict solicitations to reliable and/or domestics sources; to stockpile critical components; and to develop substitutes for critical components or technology.
Title III, Section 303 requires certain determinations to be made by the President before the authorities therein become available.
Effect of Presidential Determination 2022-11
Pursuant to the Presidential Determination, the DoD is to exercise DPA Title III, Section 303 authorities, including purchases, purchase commitments, equipment transfer, and facility modification, among other things, to encourage private industry to meet this government need for domestic production of critical materials. This authority is to be exercised in consultation with the Departments of Interior, Agriculture, and Energy, and other agencies as deemed appropriate. DoD is required to support feasibility studies for the strategic and critical material projects undertaken, which are to address mature mining, beneficiation, and value-added processing projects; by-product and co-product production at existing mining, mine waste reclamation, and other industrial facilities; and mining, beneficiation, and value-added processing modernization to increase productivity, environmental sustainability, and workforce safety.
This action follows a June 2021 report on defense critical supply chain vulnerabilities conducted by DoD and the Departments of Commerce, Energy, and Health and Human Services pursuant to Executive Order 14017, which recommended the Government use the DPA to boost domestic mineral production. The Department of Energy’s June 2021 National Blueprint for Lithium Batteries has called for the United States and its partners to establish a secure supply chain for lithium and other electric vehicle battery components by 2030. And the Presidential Determination comes on the heels of the Administration’s Infrastructure Investment and Jobs Act that also included significant measures such as grants, loan guarantees, and streamlined regulations to address domestic critical minerals supply chain vulnerabilities. The development of domestic supply chains for critical minerals, which are key components in renewable energy applications and electric vehicle batteries, is essential for the Biden administration to meet its goal of having the U.S. government transition to a zero-emission vehicle fleet by 2035 and net-zero emissions economywide by 2050.
You can access Crowell & Moring’s primer webinar here discussing the DPA. Additionally, you can find Crowell & Moring’s summaries of the DPA here and Defense Priorities and Allocations System (DPAS) here.
As we covered in a prior alert, the recently introduced Federal Contracting for Peace and Security Act (H.R. 7185) could have a profound impact on government contractors. The Act would require termination of existing contracts and prohibit awards, extensions, and renewals of prime contracts and subcontracts with companies doing business in the Russian Federation during its ongoing war of aggression against Ukraine.
The Act is progressing through Congress. Specifically, an amended version of the Act was reviewed and approved by voice vote during a Wednesday meeting of the House Oversight and Reform Committee.
The amendment includes significant updates from the original legislation, e.g.:
- Whereas the original bill defined the “covered period” of aggression as retroactively beginning on February 21, 2022, the amendment defines it as 60 days after enactment, and requires an agency to provide advance written notice to a company at least 15 days before terminating its contracts under the Act.
- The amendment contemplates potential “good faith extensions” for contractors that (1) pursue all reasonable steps to comply with the Act; and (2) provide a reasonable, written plan to achieve compliance. Subsequent extensions may also be granted where a contractor continues to pursue reasonable steps to cease operations in the Russian Federation and demonstrates progress with its compliance plan.
- While the original bill would have affected a prime contract that included a subcontract at any tier to procure any product or service from a company conducting business in the Russian Federation, the amendment would apply only to prime contracts and “major subcontracts” for certain prohibited items. To that end, the amendment calls on the Office of Management and Budget to promulgate regulations including:
-“[a] list of equipment, facilities, personnel, products, services, or other items or activities, the engagement with which would be considered business operations, subject to” the Act’s prohibitions;
-“[a] requirement for a contractor or offeror to represent whether such contractor or offeror uses any of the items on the list” just described;
-“[a] definition of the characteristics of any major subcontract that qualifies as a covered contract under this Act”; and
-“[a] description of the process for determining a good faith extension.”
While these revisions may lessen the Act’s impact on certain contractors, the Act still holds the potential to upend federal procurement. Moreover, it must be considered in tandem with the numerous State actions that are moving at an even more breakneck pace. Crowell is continuing to monitor these developments, and will be highlighting particularly significant State actions in the coming days.
On March 30, 2022, the General Services Administration (“GSA”) announced the first-ever national standards for “clean” concrete and asphalt that apply to all new GSA-funded projects using more than 10 cubic yards of concrete or asphalt. Acting in furtherance of the directives set forth in Executive Order 14057, Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability, together with the GSA’s February 2022 requests for information (discussed here and here, respectively), GSA issued standards for “low embodied carbon” concrete and “environmentally preferable” asphalt that will be required “for all GSA projects, both capital and small, regardless of funding source: paving upgrades, modernizations, new construction, customer-funded projects through BA80 Reimbursable Work Authorizations, privately-financed projects such as Energy Savings Performance Contracts, and all Bipartisan Infrastructure Law projects.” Specifically:
- For concrete, contractors will need to provide a product specific cradle-to-gate third-party verified environmental product declaration (“EPD”) verifying the amount of embodied carbon involved in the product’s extraction, transportation, and manufacture. The standard identifies specific limits for allowable embodied carbon based on concrete mix type and strength, which represent a 20% reduction from industry recommended limits.
- For asphalt, contractors will need to provide a product specific cradle-to-gate third-party verified EPD affirming the use of at least two environmentally preferable techniques (based on a menu of approved practices specified by GSA) in the processing and installation of asphalt.
Under both standards, a waiver can be sought in limited circumstances where the only available contractor within the maximum transport range is a small business which has yet to invest in EPDs, or where the “clean” materials specified by GSA are otherwise unavailable. In the event that a waiver is granted, contractors will still need to provide GSA a global warming potential (“GWP”) estimate for the product.
This action by GSA is among the first set of enforceable standards to emerge from the Biden Administration’s “all of government” approach to addressing climate change, and, more specifically, its stated intention of leveraging the procurement function in pursuit of its climate change policy objectives. While much of the recent attention has been focused on higher profile efforts like the Securities and Exchange Commission’s newly unveiled proposed rule regarding mandatory climate-related disclosures (discussed here) for publicly traded companies, as well as potential FAR and DFARS amendments that may require similar and wide-ranging climate disclosure requirements for government contractors (discussed here and here, respectively), these new GSA standards establish a model that may be replicated by a wide range of federal agencies in their procurement activities. More immediately, they are a potential game-changer for federal contractors in the construction arena, as the GSA is poised to oversee $3.4 billion in Infrastructure Investment and Jobs Act (“IIJA”) funding for building and modernizing land ports of entry on the country’s northern and southern borders. With GSA recently announcing the allocation of hundreds of millions of dollars in IIJA funding for new port of entry projects in Alaska, Arizona, Washington, Minnesota, and Vermont, in addition to all other projects on the 370 million rentable square feet that GSA oversees for the federal government, contractors should be prepared to encounter these (and similar) new standards.
What remains relatively unclear about the new GSA standards is:
- Will they only appear as requirements included in the statement of work or contract clauses or will they be used as evaluation criteria?
- If the later, will they be implemented as pass/fail criteria thereby excluding contractors whose products’ embodied carbon is above the prescribed target number, or will they be included as an evaluation criterion for which contractors are scored based on their proposed product but otherwise remain eligible for award based on the remaining solicitation evaluation criteria?
- Will GSA go even further to set-aside certain projects for contractors that meet preferred embodied carbon concrete or environmental preferable asphalt target goals?
Finally, additional questions remain as to how implementation of these new standards might impact small businesses that have yet to invest in calculating these environmental metrics. This is especially important considering that the White House has also made increasing small disadvantaged businesses participation a priority (as discussed here), and GSA recently announced its attention to increase small business disadvantaged participation in federal contracting to 21% for FY2022.
Contractors should follow the implementation of these new GSA standards closely, as they represent merely one small component of the White House’s whole-of-government approach towards carbon reduction, and other agencies should be expected to draw upon this GSA model in other contexts as well.
In ECC Int’l, LLC, ASBCA No. 60167 (Jan. 25, 2022), the Armed Services Board of Contract Appeals (“Board”) held that it had jurisdiction to hear a contractor’s alternate theories of recovery that arose from the same operative facts and sought the same relief requested in its claim. The contractor initially filed a certified claim for damages resulting from the Government’s alleged breach of a design-build contract for construction of military facilities in Afghanistan. The claim alleged that the Government breached the warranty of specifications and the implied duty of good faith and fair dealing by knowingly awarding a construction contract with an impossible deadline. After the Government denied the claim, the contractor appealed to the Board and raised two additional theories of recovery in its complaint: breach of contract by failing to disclose superior knowledge; and commercial impracticability.
More than four years after a hearing on the merits was held, the Government moved to dismiss the appeal entirely, contending that the contractor’s four alternative theories of relief were each supported by different sets of operative facts, and were therefore four separate claims. As separate claims, the Government contended, each had to independently meet the requirements of the Contracts Disputes Act (“CDA”), namely presentation to the contracting officer and separate sums certain.
The Board largely rejected the Government’s arguments, holding that it had jurisdiction to hear three of the contractor’s four theories of relief: the assertions of breach of the warranty of specifications; breach of the implied duty of good faith and fair dealing; and failure to disclose superior knowledge, because all “[arose] from the same operative facts, claim essentially the same relief, and merely assert differing legal theories for that recovery.” Scott Timber Co. v. United States, 333 F.3d 1358, 1365 (Fed. Cir. 2003). The Board reiterated that within these constraints, the CDA permits contractors to assert new theories of relief during an appeal without having to present a new claim to the contracting officer. The Board noted that it expects the parties will add factual details learned through the formal discovery process, and these new factual details do not affect its jurisdiction. However, the Board dismissed the contractor’s argument that it was entitled to relief based on a theory of commercial impracticability, finding that a key element of proof under that theory was never presented to the contracting officer for decision.
The Board’s decision, coupled with the Federal Circuit’s recent decision in Tolliver Group, Inc. v. United States, 20 F.4th 771 (Fed. Cir. 2021) (which we reported on here and here) serve as reminders to contractors to invest in thorough and thoughtful claims assessments to mitigate against potential procedural challenges later in litigation. This case is also another example of the occasional tension between the unique procedural requirements of the Contract Disputes Act, and the Act’s purpose of providing for the fair and efficient resolution of disputes.
On March 23, 2022, a bipartisan group of senators introduced the Preventing Organizational Conflicts of Interest in Federal Acquisition Act. Designed to identify and address potential conflicts of interest in the federal acquisition system, current and prospective government contractors should closely monitor the Act’s progress.
The Act emphasizes the potential for conflicts of interest due to contractor business relationships that could lead to impaired objectivity or undue influence, and would require the Federal Acquisition Regulatory (FAR) Council to take certain actions within 18 months of enactment. Specifically, the FAR Council would be required to identify “contracting methods, types, and services that raise heightened concerns for potential organizational conflicts of interest” beyond those currently addressed in the FAR. The Act would also require the FAR Council to revise the FAR to achieve specific goals, including: (i) addressing organizational conflicts of interest “with sufficiently rigorous, comprehensive, and consistent governmentwide policy and guidance to prevent or effectively mitigate such conflicts of interest;” (ii) providing updated definitions related to conflicts of interest, including “contractor relationships with public, private, domestic, and foreign entities that may cause contract support to be subject to potential conflicts of interest, including undue influence;” (iii) providing solicitation and contract provisions for executive agencies that require contractors to disclose information relevant to potential conflicts of interest and to limit future contracting with respect to potential conflicts of interest; (iv) requiring executive agencies to tailor solicitation and contract clauses to provide specific information required to be disclosed and limitations on future contracting based on potential conflicts; and (v) requiring agencies to establish or update their procedures to implement any FAR revisions made pursuant to the Act.
Crowell will continue to track the Act as it makes its way through Congress.
While there’s no harm in gathering as much information as possible before filing a protest, would-be protesters must pay careful attention to GAO’s timeliness regulations. In K&K Industries, Inc., B-420422; B-420422.2, March 7, 2022, GAO highlighted the risk of attempting to unilaterally extend a debriefing beyond the Department of Defense (DOD) enhanced debriefing window.
Following contract award and a timely request for a debriefing, which included a request for a redacted copy of the Source Selection Decision Document (SSDD), the Army provided the protester (K&K) with an initial written debriefing on October 13, 2021. The debriefing stated:
Should you have any additional questions please submit them to the contracting officer no later than two days after receiving the redacted SSDD. If no further questions are asked after receipt of the SSDD, K&K Industries’ written debriefing will conclude.
Following receipt of the SSDD on Friday, October 22, K&K submitted questions to the contracting officer the next business day. The Army responded to those questions on November 17, 2021, stating “[t]his concludes your written debriefing.” K&K then submitted a second round of questions on November 19, 2021. The Agency responded to K&K’s second round of questions on November 23, 2021, this time informing K&K that:
Any additional questions must be submitted by December 1, 2021. This concludes your written debriefing.
K&K sent the Army a third round of questions on November 24, 2021, which the Army responded to on December 13, 2021. The Army’s final response informed K&K that “This concludes your written extended debriefing.” Following the Army’s final response, K&K filed a GAO protest on December 20, 2021.
The question for GAO was when did K&K’s debriefing actually conclude? K&K believed that the Army’s November 23 response “reopened” the debriefing and that K&K’s protest clock did not start until it received the Army’s December 13 final response. The Army maintained that its November 17 response – which stated, “[t]his concludes your written debriefing” – concluded the debriefing process.
GAO agreed with the Army. Acknowledging that in certain circumstances agency action may extend the time to file a protest by creating an ambiguity regarding whether a debriefing has concluded, GAO found the Army’s statement, “[t]his concludes your written debriefing” to be “clear, unambiguous, and absolute.” Once K&K received that response, it was on the clock to file.
GAO rejected K&K’s argument that the third Army response retroactively created an ambiguity or otherwise reopened the debriefing. The third response did not change the fact that the Army’s prior statement unambiguously confirmed that the debriefing was closed. Additionally, more than ten days had passed between the Army’s second response on November 23 and its third response on December 13, so, in any event, K&K’s 10-day window to file at GAO had run before it received the Army’s final response.
Of note, K&K also filed a supplemental protest based on information first provided in the Agency Report. GAO’s decision on the timeliness of the supplemental protest underscores a second fundamental timeliness concept: if an initial protest is untimely, supplemental protest grounds based upon information first produced in an agency report created in response to the untimely protest will also be untimely. In other words, protesters cannot use information provided in an agency report to retroactively make an untimely protest timely – to avoid dismissal, the initial protest must be timely. On this basis, GAO dismissed K&K’s supplemental grounds of protest.
The decision emphasizes the importance of clarity regarding filing deadlines. Disappointed offerors should engage counsel early in the post-award procurement process to ensure that their protest rights are protected, particularly as it relates to the enhanced debriefing rules.