On Wednesday, April 23rd at 1 PM Eastern, join our government contracts attorneys for a webinar entitled: “Intellectual Property Rules in Government Contracts Legal Update: Know Your Technical Data and Patent Rights.” During this 90-minute webinar, we will provide an overview of the key principles governing the rules and regulations relating to rights in technical data, computer software, and patents. We will include a discussion of recent and impending changes to these rules, particularly as they relate to commercial items and major weapons systems. You will also pick up practical pointers to help contractors avoid traps for the unwary that could inadvertently compromise your intellectual property rights.

Please note that L2 Federal Resources charges a fee for this webinar. Registration information can be found here.

In Kingdomware Technologies, B-406507, May 30, 2012, 2012 CPD ¶ —, GAO sustained a protest alleging that the Department of Veterans Affairs (“VA”) improperly used the Federal Supply Schedule (“FSS”), rather than setting aside the procurement for service-disabled veteran-owned small business (“SDVOSB”) concerns. If this scenario seems familiar, that’s because it is.

In several decisions over the past year, a company named Aldevra successfully protested the VA’s decision to use FSS procedures without first determining whether a set-aside was appropriate. See e.g., Aldevra, B-406205, Mar. 14, 2012, 2012 CPD ¶ 112. Under the Veterans Benefits, Health Care, and Information Technology Act of 2006 (“VA Act”) and implementing regulations, the VA must set aside procurements for SDVOSB concerns where there is “a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.” 38 U.S.C. § 8127(d). In the first Aldevra decision, GAO held that the plain language of the VA Act did not afford the Agency any discretion to use FSS procedures without first conducting market research to determine whether at least two SDVOSB concerns could meet the requirements at a reasonable price. The VA refused to follow that decision; and, as a result, GAO sustained two subsequent protests by Aldevra challenging the Agency’s continued use of FSS procedures before conducting the required market research.   

In Kingdomware, the VA conceded that its own market researched revealed that at least 20 SDVOSB concerns, including the protester, held FSS contracts for the services sought. Nonetheless, the VA declined to set aside the procurement, instead awarding the contract to a non-SDVOSB concern. In defending its continued defiance of GAO, the VA reiterated its prior position that it need not consider SDVOSB set-asides before electing to purchase goods and services using FSS procedures. Citing its March 2012 decision in Aldevra, GAO rejected the VA’s arguments and recommended that the Agency cancel the contract and re-solicit the requirement as a SDVOSB set-aside.

Although GAO recommendations are just that, such agency defiance is rare given the fact that, among other things, GAO is an arm of Congress and agencies are, generally speaking, mindful of the source of their appropriations.  In light of the VA’s repeated refusal to follow GAO’s recommendations, it is not clear why the protesters have not resorted to the Court of Federal Claims, where decisions are binding.  It will also be interesting to see if Congress decides to step-in.  Stay tuned.

On December 2, 2011, the Department of Defense (“DoD”) proposed a new rule that would require contractors bidding on specified solicitations to submit proposal adequacy checklists with their offers. The new proposed DFARS section, § 215.408(3), would give the contracting officer the discretion to include the Proposal Adequacy Checklist solicitation provision in any solicitation that requires the submission of certified cost or pricing data. In solicitations that include the provision, an offeror would be required to (1) complete the proposal adequacy checklist; (2) note which page of its proposal satisfies each checklist requirement; and (3) in the event the required information is not provided, explain why.

The checklist contains 47 requirements, which fall into the following categories of information:

  • General Instructions
  • Materials and Services
  • Subcontracts
  • Commercial Item Determinations
  • Adequate Price Competition
  • Interorganizational TransfersDirect Labor
  • Indirect Costs
  • Other Costs
  • Formats for Submission of Line Item Summaries
  • Other

Interestingly, DoD took many of the listed items directly from DCAA’s existing proposal adequacy checklist. According to DoD, the objective in proposing the rule is “to ensure that offerors submit thorough, accurate, and complete proposals” by allowing them to “self validate the adequacy of their proposals.” Defense Federal Acquisition Regulation Supplement: Proposal Adequacy Checklist, 76 Fed. Reg. 75512 (proposed Dec. 2, 2011) (to be codified at 40 C.F.R. pt. 215, 252). Based on data taken from FY 2008 – FY2010, DoD estimates that there are 905 solicitations per year that satisfy the criteria where the checklist could be used.

The proposed rule is part of DoD’s Better Buying Power Initiatives program, which was launched by Former Defense Secretary Robert Gates in May 2010. The efficiency initiative was introduced to provide better value to taxpayers by improving the way DoD conducts business and aims to, among other things, save $100 billion dollars in defense spending over the next few years. While the proposed rule has the potential to cut down on incomplete proposals – a point of contention in many bid protests – the net benefit is unclear, since it could also increase the period of time between request for proposals and contract award. Further, it remains to be seen whether contracting officers would actually exercise their discretion and include the provision in applicable solicitations. Contractors and other interested persons have been invited to comment on the proposed rule and have until the end of January to do so.

In One Largo Metro LLC et al., B-404896 (June 20, 2011), GAO sustained protests by three disappointed offerors, challenging GSA’s award regarding a lease of office space in suburban Maryland for the Department of Health and Human Services. Crowell & Moring attorneys represented King Farm Associates, LLC (“King Farm”), one of the protesters. 

In sustaining the protests, GAO found that the Head of the Contracting Activity (“HCA”) rejected the lower-level evaluators’ conclusions without articulating an adequate basis for doing so. The Agency’s source selection evaluation board (“SSEB”) had initially recommended award to King Farm. The source selection authority (“SSA”), however, raised concerns about the SSEB’s rationale for its ratings and directed it to reevaluate its recommendation. After a second evaluation that identified numerous technical differences between the proposals, the SSEB again recommended award to King Farm. The SSA, despite disagreement with the SSEB’s conclusion about the relative technical merits of the offerors, adopted the recommendation. The HCA then reviewed the SSA’s source selection decision. Rejecting the ultimate conclusions of the SSEB and SSA, the HCA summarily decided that Fishers Lane presented the best value to the Government.

Although GAO acknowledged the well-settled rule that source selection officials are not bound by the recommendations of lower-level evaluators, GAO found that the HCA failed to meaningfully consider not only a number of evaluated differences between the proposals, but also “considerable disagreement between the SSEB and the SSA concerning the relative merits of the proposals.” Instead, GAO determined that the HCA mechanically compared the percentages of adjectival ratings assigned to each offer by the SSEB and issued a conclusory pronouncement that Fishers Lane represented the best value to the government. GAO concluded: “In the absence of a documented, meaningful consideration of the technical differences between the offerors’ proposals, the HCA could not perform a reasonable tradeoff analysis.” 

GAO also sustained King Farm’s challenge to GSA’s evaluation of proposals under the access to amenities subfactor. The solicitation provided that offerors’ proposals would be evaluated for both the “quantity and variety” of specified amenities within a certain distance of the proposed office space, but GAO found that GSA improperly deviated from this requirement by considering only the amount of amenity categories

On June 2, 2011, the Department of Justice (“DoJ”) announced a $2.7 million settlement of a False Claims Act (“FCA”) case brought against Ultralife Corporation (“Ultralife”). The complaint alleges that Ultralife violated the FCA through the submission of false claims based on “defective pricing” under three contracts with the U.S. Army to provide lithium-manganese dioxide non-rechargeable batteries.  The settlement arose out of a government investigation following a 2005 Defense Contract Audit Agency (“DCAA”) audit suggesting a potential $1.4 million pricing adjustment related to the contracts.

The settlement was first made public in April, 2011, in Ultralife’s Form 8-K filing. The Form 8-K reported that, in light of the possible treble damages and penalties associated with the pricing adjustment, the Company had decided to enter into settlement negotiations with the government. As Ultralife described in further detail: “We had certain ‘exigent’, non-bid contracts with the U.S. government, which were subject to audit and final price adjustment, which resulted in decreased margins compared with the original terms of the contracts.” The DCAA suggested the adjustment based on reductions in the cost of materials prior to the final negotiation of the contracts. This finding prompted a 2007 Department of Defense Office of Inspector General inquiry, which was later consolidated with the DCAA audit by the U.S. Attorney’s Office for the Western District of New York.

In negotiating with the Government, Ultralife took the position that the proposed adjustments could be offset with other cost increases also occurring prior to the final negotiation of the contracts. But, citing its desire to avoid further time and expenses, Ultralife agreed to a settlement with the Government to resolve the matter. In contrast to Ultralife’s description of the inquiry, the DoJ characterized it as a routine defective pricing allegation. According to the DoJ’s press release last Thursday, Ultralife provided government contracting personnel with false certifications regarding the company’s cost and pricing information for the three contracts in question; and thus, “improperly pass[ed] inflated costs on to the American taxpayers . . . .” 

Because of the settlement, the complete details will not be discovered. But Ultralife’s characterization of the matter raises several issues. Most importantly, if the Army’s need to procure the batteries was so urgent that the Army only approached Ultralife, why was it necessary for it to require the company to submit a proposal, including certified cost or pricing data? Also—assuming Ultralife’s characterization is correct—is it possible to provide defective pricing data on a “non-bid” contract? Although the answers are unknown, at the very least, this settlement should serve as a warning to those contractors who enter into such “exigent” contracts with government agencies.