Posted on Thursday, June 22 2017 at 2:32 pm by

Small Business Payment for Performance Act Unanimously Leaves Committee – Will SBC Construction Contractors be able to reduce their financial exposure?

By: Lawrence M. Prosen

Currently pending in the House of Representatives is H.R. 2594, the “Small Business Payment for Performance Act of 2017” (the “Bill”). This Bill unanimously passed the House Committee on Small Business earlier today. While not yet a law, passage out of committee is the first step towards enacting this legislation.

In substance this Bill is intended to amend the Small Business Act currently “on the books” to allow small business construction contractors (“SBCs”) to receive interim partial payments based upon a request for equitable adjustment where a unilateral change is issued by the agency under construction contracts.

While the FAR Changes Clause allows and recognizes the ability to request an equitable adjustment (“REA”), payment is only allowed once a formal change order/modification is issued or a claim/REA is otherwise resolved, whether through negotiation or litigation, and a change/modification is issued. Many times, where the parties cannot agree on the cost or scope of a change, the Agency will issue a unilateral change in which the Government sets forth the scope and what it sees as the value for a changed condition. This often results in significant financial hardship to contractors, small and large alike, as they and their subcontractors must effectively finance the changed work until the agency agrees to the cost of that unilateral change. If passed and signed into law, the Bill would allow a small business (not large business) performing a construction contract to submit an REA where the agency’s “…contracting officer directs a change in the terms of the contract performance without the agreement of the small business concern.” Bill §15A. That REA must be timely made and “specify the estimated amount required to cover additional costs resulting from such change….” Id. Upon receipt of the REA, the agency is required to provide the small business concern with “…an interim partial payment of the amount that is at least 50 percent of the estimated amount” provided for in the submitted REA. Id. at (b). A key additional positive in this Bill is that it precludes the partial payment from being used as evidence of the definitized amount of the REA (in other words, the Agency cannot pay 50% of the value and then claim that this was all the Contractor agreed to receive).

The Bill also requires that where such an REA partial payment is made, the small business must “…pay to a first tier subcontractor or supplier the portion of each interim partial payment received that is attributable to the increased costs of performance incurred by the first tier subcontractor or suppler due to the change…” Id. at (d). In turn, the first tier sub must pay relevant portions to lower tier subcontractors and suppliers at any tier.

The Bill does not provide timing for these payments, but it is fair to assume that the Prompt Payment Act periods would apply equally to these interim REA payments. While limited to Construction, one can see a scenario where this opens the door to expansion for other, non-construction SBCs. It also bears noting that accuracy in the claimed amount is a must as failure to properly account for damages could expose contractors to False Claims Act liability. This is nothing different than before but now this “upfront” interim payment increases the potentiality for liability. The Bill also does not modify the process for finalizing the value and scope of the REA or create any time limits on such actions. As a result, the SBC is receiving a partial payment for the REA based on the 50% value estimated, but the time and breadth of negotiating the balance of the REA and “truing up” those costs can still take time.

Passage of this Bill into law would be a tremendous improvement for Construction SBCs. While not perfect, it is a significant improvement over the status quo.

Posted on Thursday, June 8 2017 at 4:10 pm by

LOOK OUT VA, is the Kingdomware loop hole about to end?

By: Larry Prosen

If you have followed our blog and client alerts, recall that last year the Supreme Court rendered a unanimous decision relating to Kingdomware Technologies, in which the VA was found to have violated laws intended to require the VA to use veteran-owned contractors by its using a loophole. That loophole involved utilizing GSA Federal supply schedule contracts to get around a statutory requirement to award contracts to service disabled veteran-owned small businesses and veteran owned small businesses.

Yesterday, a bill was submitted in congress entitled the “Ensuring Veteran Enterprise Participation in Strategic Sourcing Act”, H. R. 2781. If passed, this bill would require the VA to increase the number of veteran-owned (VOSB) or service disabled veteran-owned small businesses (SDVOSB) that participate in GSA directed government wide contracts or alternatively, to stop using those GSA federal supply service contracts in their entirety. In effect, the VA would be required to work with GSA to try to alleviate this issue and the underlying loophole.

Recall that the Supreme Court unanimously ruled in the June 2016 Kingdomware case that the VA was required to give the VOSBs and SDVOSBs a preference for all contracts rendered by the VA and that the department cannot selectively make awards by relying on the “rule of two” – namely that at least two such positioned businesses would likely bid on the contract and offer a reasonable price. By utilizing the GSA contract vehicles, the VA effectively skirted this requirement, by arguing that competition had already occurred through the GSA, and therefore that, by using those vehicles, competition through the use of veteran-owned businesses was not necessary.

The bill is sponsored by representatives Neil Dunn, a Republican and California Democrat Jimmy Panetta.

Personally, rationale dictates that the VA should always consider making awards to its charges, namely veterans and service-disabled veterans. This is a situation that has always confounded me, and now it appears that, hopefully, this bill will place this issue in its grave once and for all.

 

Posted on Friday, May 26 2017 at 9:07 am by

A Gov’t Contractor’s Guide To Trump Cybersecurity Order

By Christian F. Henel

Our recent post — “’No Ransom, No Cry’ – Trump’s Latest Executive Order on Cybersecurity and Preventing the ‘Next WannaCry’ Virus” – caught the eye of Law 360. One of their editors asked us to expand on the blog post and go deeper on the issues being addressed. We accepted their offer. Please click here to read Chris Henel’s expert analysis in Law 360: “A Gov’t Contractor’s Guide To Trump Cybersecurity Order.” Thanks!

Posted on Wednesday, May 17 2017 at 12:53 pm by

“No Ransom, No Cry” – Trump’s Latest Executive Order on Cybersecurity and Preventing the Next “WannaCry” Virus

By Christian F. Henel

On Thursday, May 11, 2017, President Trump signed a new Executive Order on Strengthening the Cybersecurity of Federal Networks and Critical Infrastructure. The new Order came out just one day before last week’s “WannaCry” ransomware attack wreaked coordinated havoc across information systems – and in particular, government systems – in over 100 countries.

Although the new Order has no direct relationship with WannaCry, its clear intent is to bolster the U.S.’s cyber defense capabilities to protect federal networks and data from future cyber attacks.

The Order covers several topical areas from broad cybersecurity priorities (including a section on critical infrastructure that builds upon President Obama’s E.O. 13636) to specific strategies and procedures. But two takeaways matter most for government contractors.

First, the Government’s overall cybersecurity strategy is about to undergo a top-down review. Observing that the executive branch “has for too long accepted antiquated and difficult-to-defend IT,” the Order requires that each agency head employ NIST’s Framework for Improving Critical Infrastructure Cybersecurity and provide a risk management report within 90 days of the date of the Order (a) documenting the agencies current risk mitigation and acceptance choices (and the reasoning behind those choices) and (b) the agency’s plan to implement the OMB framework going forward. The Order tasks OMB and the Secretary of Homeland Security with evaluating the agency reports and advising the executive branch on cybersecurity risks and strategy within 60 days of receiving the reports. The Order also charges the executive branch with developing defense and response strategies to multiple types of common vulnerabilities and attack scenarios, such as automated distributed attacks (like WannaCry) and attacks that threaten widespread power outages and other crucial infrastructure failures.

Second, the Order may drastically change the architecture of Government networks and Government priorities in acquiring IT services. Seeking to “build and maintain a modern, secure, and more resilient executive branch IT architecture,” the Order requires Agency heads to “show preference” for “shared IT services,” such as shared cloud-based solutions. The Order tasks OMB, the Secretary of Homeland Security, and the Administrator of GSA, in consultation with the Department of Commerce in preparing a report on the feasibility of adopting more consolidated network architectures and shared (e.g., cloud-based) services. This part of the Order calling for uniformity and shared IT solutions departs significantly from the current IT landscape, where an individual agency determines its needs for cloud and shared IT services. An agency seeking cloud-based solutions could procure those services from contractors and subcontractors certified through GSA’s FedRamp program. Alternatively, agencies could avoid the cloud and build within their or the contractor’s existing local networks. Moving all (or most) agency IT services to the cloud would likely result in (a) significant regulatory changes as agencies update their information security clauses; and (b) a significant market shift to cloud service providers as Agencies increase cloud-based IT acquisitions. Given the highly sensitive nature of some Government data, we would also expect increased demand for higher-baseline FedRamp capabilities (e.g. FedRamp Moderate and FedRamp High).

Although these changes may signify new opportunities for federal contractors, we recommend treading carefully – changes as significant as moving most federal IT infrastructure to the cloud en masse could have unintended consequences from both a cost and risk standpoint. We will continue to monitor new developments and update this post as we learn more.

Posted on Thursday, April 27 2017 at 3:03 pm by

New Case Lends Support to the Position that Public Universities Are Immune from False Claims Act Liability

New Case Lends Support to the Position that Public Universities Are Immune from False Claims Act Liability By: Gunjan Talati

Public universities have a new case to add to their defense arsenal should they find themselves as a defendant in a False Claims Act (FCA) case. On April 11, 2017, in United States et al v. Oregon Health and Sciences University, an Oregon federal judge dismissed a FCA case that had been brought by a relator and where the government had intervened. In Oregon Health and Sciences University, a former Oregon Health and Sciences University (OHSU) employee had filed a qui tam action alleging FCA violations on federal research grants. The Government decided to intervene in the case and filed a complaint in intervention alleging FCA violations, a claim for payment by mistake, and a claim for unjust enrichment relating to federally-sponsored projects. In response, OHSU filed a motion to dismiss arguing that OHSU is “an arm of the State” and therefore not a “person” upon whom liability can be imposed under the FCA. The court granted the motion to dismiss.

In its decision, the court looked to previous cases involving OHSU where courts had determined that OHSU was entitled to sovereign immunity because of its nexus to the state of Oregon. Additionally, the court applied a five factor test set forth by the United States Court of Appeals for the Ninth Circuit for determining whether an entity is “an arm of the state” for purposes of sovereign immunity:

  1. Whether a money judgment would be satisfied out of state funds;
  2. Whether the entity performs central governmental functions;
  3. Whether the entity may sue or be sued;
  4. Whether the entity has the power to take property in its own name or only in the name of the state; and
  5. The corporate status of the entity.

 

The court concluded that based on these factors and previous decisions regarding OHSU’s status, that it was “an arm of the state.” The Supreme Court has ruled that the definition of “person” for FCA liability purposes does not include states or arms of a state. Accordingly, the court dismissed the case against OHSU (but did grant plaintiffs leave to file an amended complaint on their unjust enrichment/payment by mistake claims to the extent they were not related to express contracts already addressed).

While this decision was at the district level and may still be appealed, public universities should evaluate the holding to determine whether they can use the principles in their own FCA cases. Doing so might reveal a powerful shield against the Government’s FCA sword.

 

Posted on Monday, April 17 2017 at 1:07 pm by

AEIOU and Sometimes IDIQ – Indefinite Delivery/Indefinite Quantity Contract Use Remains Proportional.

AEIOU and Sometimes IDIQ – Indefinite Delivery/Indefinite Quantity Contract Use Remains Proportional. By: Lawrence M. Prosen

As we previously discussed both on this blog and elsewhere, observational and indirect evidence told us that the use of Indefinite Delivery/Indefinite Quantity (“IDIQ”) contracts was expanding. As it turns out, from 2011-2015, IDIQ usage actually remained flat, but the amount of dollars spent is still staggering. GAO, in response to a request by Senator Claire McCaskill, Ranking Member of the Committee on Homeland Security and Governmental Affairs issued a report on April 13, 2017, with metrics and insight into Agency use of IDIQ contracts. See GAO-17-329 at https://www.gao.gov/products/GAO-17-329.

IDIQ contracts, defined under FAR Subpart 16.5, are contracts under which a government agency issues a Request for Proposals and awards one or more contracts for the order of products or services where it may not know its full needs at the time of award. What is purchased spans the full panoply of goods and services the government purchases, from construction to commercial, off-the-shelf products and technical services. The only real limitation associated with IDIQ contracts is that, for purposes of contractual consideration, the Agency must guarantee a certain minimum amount of purchasing and the contractor must meet its obligation up to a stated maximum. IDIQ contracts first came into vogue in the mid-1990’s but saw a significant uptick in use in the 2000’s. We saw that uptick continue into the second decade of this century, but then flatten, as GAO has now confirmed.

GAO found that between 2011 and 2015 over $130 billion was obligated annually to IDIQ contracts, with the Departments of Defense, Homeland Security, Health and Human Services and Veterans Affairs being the lead users of these contract vehicles.

For the period observed, GAO found that roughly 2/3s of government-wide IDIQ obligations related to services, with the remaining 1/3 related to products. One concern about the use of IDIQs is the large number of IDIQ contracts that are “single-award”, meaning that only one contract is awarded under a given IDIQ solicitation. This is distinguished from the “multiple-award” situation where more than one award is made. Under this latter scenario, the Agency seeks to “prequalify” a competitive range of offerors. Those offerors who are successful are then awarded a contract under which future Deliver or Task Order Contracts (“Order Contracts”) are issued, allowing an agency to reduce the likelihood of bid protests when it solicits and awards those future Order Contracts due to statutory limitations on GAO Bid Protest jurisdiction relating to such Order Contracts.

While the Report does not reach any conclusions, and is primarily statistical, it does provide a good overview and insight into some of the reasons why contracting officers prefer the use of IDIQ contracts. This may provide potential offerors some valuable assistance in developing bidding/proposal strategies on a going-forward basis.

Posted on Thursday, April 13 2017 at 9:31 am by

The All Small Mentor-Protégé Program List Published by SBA Can Provide Competitive Insight

The All Small Mentor-Protégé Program List Published by SBA Can Provide Competitive Insight By: Gunjan Talati & Scott Davidson, The GCO Consulting Group

Small businesses that have historically participated in the Small Business Administration’s (SBA) 8(a) program have long known the benefits of an 8(a) mentor-protégé agreement. The 8(a) protégés got to receive substantial development assistance from and team and joint venture with their mentors free from traditional affiliation considerations. The other types of small businesses were left out in the cold as the mentor-protégé program was previously limited only to 8(a) concerns. Last summer, SBA amended its regulations to let all the small business types in from the cold. Accordingly, all small business concerns including HUBZone, women-owned, and service disabled veteran-owned small businesses can now participate in what’s known as the “All Small Mentor-Protégé Program” or ASMPP.

Since opening up the mentor-protégé program to all small businesses, SBA has received a number of applications (that’s right, even though all small businesses can participate, the parties still have to submit an application). SBA has published the list of those companies with active ASMPP agreements. As of April 5, 2017, there are 90 such agreements. A few observations from that list:

  • The protégés (and their corresponding mentors) operate in a variety of industries, from construction to cybersecurity;
  • There are many well-known mentors participating indicating that large businesses are keen to participate so they can have a piece of the pie; and
  • There’s room for more to participate. While 90 companies is an impressive number for a program that is only months old and there is no doubt a slew of applications working their way through the SBA application process, we’re surprised that the list isn’t longer, particularly given the relative low risk of participating versus the potential reward.

The published list also serves as a reminder that very little in government contracting can be hidden from the public eye. Companies applying to the program should keep in mind that their arrangement will be made public. This can impact your other relationships, particularly where you might have a teaming agreement or joint venture with another party. There could also be legal repercussions for example where non-competes are involved for an organization or employee. Additionally, your competitors know who you are working with and will examine the relationship to find out if they can use that relationship to trip you up by for example raising organizational conflicts of interest allegations in bid protests. From a capture/business development perspective you should analyze the list to see if your competitors are listed as a part of the program. If they are you need to take into consideration that if your competitor is a small business you will potentially have to compete with the past performance of the large business mentor behind them in set aside competitions as well as if you are a large business be wary of your large business competitors who are mentors as they may be strategically positioning opportunities to be released under a specific socioeconomic competition.

Analyzing these issues before you submit your application can prevent a lot of headaches down the road. We’ll report back on additional observations as the list grows.

Posted on Tuesday, April 4 2017 at 12:14 pm by

Food the Next Frontier in the CFIUS Battles?

Food the Next Frontier in the CFIUS Battles? By: Gunjan Talati

A few weeks ago we told you about the Congressional efforts underway to combat China’s increased investment in the United States (see here). Well, those aren’t the only efforts to revamp the authority of the Committee on Foreign Investment in the United States (CFIUS). In mid-March, Senators Chuck Grassley (R-IA) and Debbie Stabenow (D-MI) introduced legislation to broaden the scope of CFIUS by including the impact to food safety as part of CFIUS’ purview. (For those new to the world of CFIUS, our client alert from last summer includes a primer on CFIUS and its authority.)

The proposed bill is titled “Food Security is National Security Act of 2017” and would change the make-up of CFIUS by adding the Secretary of Agriculture and the Secretary of Health & Human Services as full-time CFIUS committee members. Additionally, the proposed legislation would identify “the potential effects of the proposed or pending transaction on the security of the food and agriculture systems of the United States, including any effects on the availability of, access to, or safety and quality of food” as an express CFIUS consideration.

CFIUS has long had broad authority to consider many different areas as a function of its national security review. As such, it’s likely CFIUS has already been considering food security issues during its reviews. This proposed legislation however would formalize the elements of food security review as part of the CFIUS process. Also, it would add two more agencies that have to clear the transaction potentially making the process longer and opening the door for additional inquiries during the review process. Food companies should follow this proposed legislation and evaluate these issues when considering taking in foreign investments

Posted on Friday, March 31 2017 at 9:25 am by

General Services Administration Professional Services Schedule Holders May Soon Have to Lower Prices and Face Post-Award Audits

General Services Administration Professional Services Schedule Holders May Soon Have to Lower Prices and Face Post-Award Audits by Gunjan Talati & Scott Davidson, The GCO Consulting Group

Editor’s note: From time to time we will co-author articles with industry professionals to bring you comprehensive viewpoints on a topic. Today’s co-author is Scott Davidson, Managing Principal of The GCO Consulting Group (formerly Vets GSA). The GCO Consulting Group provides GSA Schedule consulting services, audit support, and proposal writing services. You can visit their website at: http://www.govconops.com/.

If you’ve been following the GSA for the last few years then you know the agency has been committed to reforming its Multiple Award Schedule (MAS) program. This reform included combining seven professional services schedules into a new Professional Services Schedule (PSS) back in 2015. The merger of these schedules into the PSS was aimed at reducing administrative burdens and bringing efficiency to professional services schedules. The migration was challenging for both GSA and contractors alike but when it was completed, over 700 professional services contracts had been consolidated into under 400. On March 21, 2017, the GSA Office of the Inspector General (IG) issued an audit report determining that GSA got the migration wrong. Specifically, the IG report criticized GSA for awarding PSS contracts without determining price reasonableness; missing vital information on the Pre-Negotiation and Price Negotiation Memorandum templates; and lacking details to support awarded labor category rates.

Indeed, out of the 45 contracts sampled by the IG, 44 involved situations where the contracting officer either failed to conduct a required price analysis or hold negotiations. Additionally, the IG report found fault with GSA’s “Pre and Price Negotiation Memorandum” template. Under existing GSA requirements, the agency is supposed to use distinct pre-negotiation and price negotiation templates in order to document pre-negotiation objectives and capture the substance of the actual negotiations. The combined template failed to capture pre-negotiation objectives. As if those issues weren’t enough, the IG report further determined that contracting officers did not appropriately conduct price analyses. Specifically, the IG could not validate price reasonableness findings because contracting officers failed to identify what labor categories they compared rates to in existing comparison databases or provide another analysis of the source data.

GSA had provided a template with the following specific written instructions (“Migrations Instructions Sheet “) to vendors who were to combine current proposal price lists “Submit a copy of the Proposed Price List (PPL) and your awarded labor category descriptions. This document will serve to represent the pricing of the migrated Consolidated Schedule contract. It should consist of rates previously awarded under the single Schedule contract(s) only.

NOTE 1: This is NOT an opportunity to submit new pricing.

NOTE 2: If you have any labor categories that appear duplicative in the individual schedules, you will need to differentiate in this submission or remove.

This pricing exercise that the schedule holders had to provide did not provide for any opportunity for the vendor to support or assist in the determining of price reasonableness as the rates and categories were all accepted “as is” and no changes were discussed or made per these written instructions.

GSA concurred with the IG’s findings and has proposed corrective action that will impact all PSS holders:

  • Contracting officers for each migrated contract will reevaluate the award to ensure fair and reasonable pricing;
  • Review and revise negotiation templates as necessary; and
  • Provide guidance to contracting officers on reviewing labor categories and associated rates and documenting their actions.

As a result of this corrective action PSS holders may have to go through negotiations again, and possibly lower rates. Additionally, GSA may initiate post-award audits to determine if rates have been significantly overpriced. Since GSA is looking at all PSS awards, PSS holders should conduct an internal review themselves to see whether there are any issues with the awards they received. If they are, this proactive review can give the PSS awardee time to figure out how to respond to GSA.

Posted on Wednesday, March 29 2017 at 10:39 am by

Ding-Dong, The Fair Pay & Safe Workplaces Witch is Dead

Ding-Dong, The Fair Pay & Safe Workplaces Witch is Dead By: Lawrence M. Prosen & Gunjan Talati

We’ve covered the Fair Pay & Safe Workplaces rule since it came out last summer. In a series of alerts (see here, here, and here) we told you specifics about the rule and what labor law violations contractors would have to disclose as a result of the rule. As we were covering the specifics, the rule suddenly found itself on life support when a Texas federal court enjoined several parts of the rule, including the disclosure requirements (see here). The court however left in place paycheck transparency requirements which required contractors to issue employees wage statements with details regarding wages.

As the rule lingered on life support, we told you on this blog that it wouldn’t be long until the end (see here). Well yesterday, the end came for Fair Pay & Safe Workplaces. Specifically, President Trump signed both a Congressional Review Act resolution as well as an executive order that rescinded the Fair Pay & Safe Workplaces Executive Order in its entirety. Accordingly, contractors no longer have to worry about either disclosing labor law violations or paycheck transparency. This repeal is welcome news to many contractors that believed the requirements would be burdensome and were worried about how implementation of the rule would be carried out.