On December 3, 2013, the Department of Defense (“DoD”) published the second part of a trio of promised regulations regarding efforts contractors must take to prevent the entry of counterfeit electronics into the DoD supply chain.  We previously discussed the first proposed rule here, published on May 16, 2013, which was supposed to provide the foundation for detection and avoidance of counterfeit parts.  The third proposed rule has still not been released, but will address reporting requirements for identified counterfeit parts.

The second proposed rule, by its own admission, “does not directly implement any specific aspect of section 818,” the statute requiring DoD to assess its policies and systems for the detection of counterfeit electronic parts (see our previous blog post here for more details).  Instead, it continues DoD’s focus on contractor’s purchasing systems to stem the impact of counterfeit parts by amending the regulations concerning the use of higher-level quality systems (such as ISO, ASQ, and SAE standards).  According to the proposed rule, its purpose is “to ensure that agencies assess the risk of nonconforming items when determining whether higher-level quality standards should be used by the Government and relied on by contractors.” 
Continue Reading

On April 26, 2013, the Under Secretary of Defense for Acquisition, Technology, and Logistics issued Department of Defense (“DoD”) Instruction No. 4140.67 to further establish policy to prevent counterfeit materiel at any level of the DoD supply chain. As we have previously blogged about, Section 818 of the National Defense Authorization Act of 2012 required DoD to assess its internal policies for detection and avoidance of counterfeit electronic parts by June 28, 2012 and revise the DoD acquisition regulations to address the detection and avoidance of counterfeit parts by September 26, 2012. However, despite the statutory mandate, DoD has not revised its acquisition regulations and this Instruction appears to be another interim measure.

The instruction serves two main purposes – (1) to establish DoD’s policies regarding counterfeit prevention and (2) assign responsibilities for the prevention, detection, and remediation of counterfeit material. Pursuant to the Instruction, it is DoD’s policy not to procure counterfeit material and DoD will employ a risk-based approach to reduce the frequency and impact of such material by applying prevention and early detection procedures within the supply chain and strengthening the oversight and surveillance procedures for critical material. DoD’s policy under the Instruction is to investigate all cases of suspected counterfeit material and document all occurrences of suspected and confirmed counterfeit material. DoD will make information about counterfeiting available at all levels of the supply chain, seek restitution when cases of counterfeiting are confirmed, and notify at the earliest opportunity criminal investigative organizations or intelligence authorities and those who use such materials.
Continue Reading

Finding a court in which to argue the merits of an in-sourcing case is a seemingly never-ending source of hurdles for disappointed contractors. When the in-sourcing initiative began a few years ago, the legal landscape lacked clarity as to which courts possessed jurisdiction over such claims. Litigation theories were divided as to whether this was an administrative matter under the Administrative Procedures Act, to be brought in the district courts, or a procurement matter under the Tucker Act to be brought at the Court of Federal Claims. As those cases unfolded, with near uniformity, the courts have held that this is a procurement matter to be brought at the Court of Federal Claims. But the challenges facing disappointed contractors did not end at the court house doors at the National Courts Building. Standing issues at the Court of Federal Claims quickly emerged. 

The first two in-sourcing cases at the Court of Federal Claims were sharply divided on this standing issue. In Hallmark-Phoenix 3, LLC, Judge Allegra dismissed the in-sourcing case finding that plaintiff lacked prudential standing because the statutes at issue envision enforcement by legislative oversight through reports and requests to Congress – not judicial review. Hallmark-Phoenix 3, LLC v. United States, 99 Fed. Cl. 65 (2011). Judge Firestone, on the other hand, concluded that prudential standing did not apply to bid protests because the Tucker Act provided its own standing requirements and, in any event, certain in-sourcing provisions were enacted, at least in part, for the benefit of the contracting community. Santa Barbara Applied Research, Inc. v. United States, 98 Fed. Cl. 536 (2011).  In Triad Logistics Services Corporation, the next in-sourcing case to emerge from the Court, Judge Horn added a new twist to the standing issues, holding that Triad was not an interested party because its contract had ended and government employees had begun performing the contract functions prior to when the complaint was filed. Triad Logistics Servs. Corp. v. United States, No. 11-43C (Fed. Cl. Apr. 16, 2012). The Triad decision ultimately left observers with more questions than answers, such as what exactly is an interested party and what would happen if a contract ended by its own terms during the litigation.  

 Fortunately, we did not have to wait long for the answer. Readers of this blog know that we have been keeping our eyes on the case of Elmendorf Support Services. In that case, Judge Bruggink held that the Court had jurisdiction over in-sourcing matters and standing was conferred by the Tucker Act and the “rather generous” definition of procurement supplied by the Federal Circuit in Distributed Solutions. Elmendorf Support Services v. United States, No. 12-346C (Fed. Cl. Jun. 22, 2012) (citing Distributed Solutions, Inc. v. United States, 539 F.3d 1340, 1346 (Fed. Cir. 2008)). However, Judge Bruggink denied plaintiff’s motion for a preliminary injunction and, therefore, the contract at issue in the litigation ended by its own terms on June 29, 2012. Shortly thereafter, the Air Force in-sourced the services previously provided by the plaintiff and on July 2, 2012, the United States filed a motion to dismiss the case as moot.


Continue Reading

An interesting development regarding the issues surrounding in-sourcing is unfolding at the Court of Federal Claims, courtesy of Elmendorf Support Services v. United States, No. 12-346C (Crt. Fed. Cl. Jun. 22, 2012). The plaintiff in this case had been providing services to the Air Force since October 1, 2005 with options under the contract through 2015. On February 2, 2011, the Air Force notified the plaintiff that it would not be exercising any further option year periods and would instead be in-sourcing the services provided under the contract. The last option year period executed by the parties ended on June 29, 2012.

Plaintiff filed a bid protest at the Court of Federal Claims on June 1, 2012. As is common with bid protests filed at the Court of Federal Claims, plaintiff also filed a motion for preliminary injunction seeking to enjoin the Air Force from in-sourcing the activities during the pendency of the litigation. Also as expected given recent history, the United States filed a motion to dismiss for lack of subject matter jurisdiction and lack of standing. 

On June 22, 2012, the Court of Federal Claims, Judge Bruggink, denied the government’s motion to dismiss. Judge Bruggink found that because the decision to in-source “necessarily included the process for ‘determining the need for . . . services’ that plaintiff currently provides, the in-sourcing decision-making process was ‘in connection with a procurement or proposed procurement’ within the rather generous definition adopted by the Federal Circuit” in Distributed Solutions, Inc. v. United States, 539 F.3d 1240 (Fed. Cir. 2008). Judge Bruggink also found that plaintiff’s case was not barred by prudential standing concerns and, in this regard, found instructive the Court’s holding in Santa Barbara Applied Research, Inc. v. United States, 98 Fed. Cl. 536 (2011). In a direct rebuke to Judge Allegra, Judge Bruggink also cited a recent Supreme Court decision to conclude that prudential standing was not meant to be especially demanding. See Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians v. Patchak, Nos. 11-246, 11-247, 2012 WL 2202936 (U.S. June 18, 2012).

Continue Reading

Developments continue surrounding the issue of in-sourcing. Turning first to the developments at the Court of Federal Claims, Judge Horn, recently dismissed an in-sourcing claim after finding that Plaintiff was not an interested party. Triad Logistics Servs. Corp. v. United States, No. 11-43C (Crt. Fed. Cl. Apr. 16, 2011).  The Court held that while it has subject matter jurisdiction over in-sourcing claims generally, with regards to the particular in-sourcing claim at issue, the Plaintiff was not an interested party because the contract had already been completed. Accordingly, the Court found that Plaintiff lacked standing and dismissed the case.

To understand the scope of the Triad decision, a brief analysis of the procedural posture presented in the case is required. Plaintiff, Triad Logistics Service Corporation provided vehicle operations and maintenance services to the Air Force. During performance under the third option year, the Air Force informed Triad that it would be in-sourcing the services provided under the contract, and therefore not exercising a fourth option year. Instead, the Air Force modified the contract to extend performance for a brief period, at which time the contract ended by its own terms. Triad initially protested at the Government Accountability Office, which was dismissed on November 24, 2010 for failure to set forth a valid basis of protest. 

Triad then filed it’s first protest at the Court of Federal Claims on November 29, 2010, the same day its extended contract ended. At the initial hearing on Triad’s first protest, the Air Force admitted there were errors in the cost calculation comparing the cost of contracting for the services versus performing the services internally. The Court therefore dismissed that complaint to allow the Air Force to perform a recalculation and make a final in-sourcing decision. On December 16, 2010, the Air Force again concluded that it would be less expensive to in-source the services. 

Triad filed its second protest at the Court, the one at issue here, on January 14, 2011. The Court dismissed the case, holding that Triad was not an interested party because its contract had ended and government employees had begun performing the contract functions prior to when the second complaint was filed. Therefore, the Court found that Triad no longer possessed the required direct economic interest in a contract to qualify as an interested party. The Court seems to suggest that Triad’s claim may be more akin to an out-sourcing claim, which the Appropriations Acts strongly discourage. 

Continue Reading