A number of legal developments this past month will affect government contractors, including amendments to the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS), along with notable legislative updates and development of new case law. This article provides a brief review of recent updates to the legal landscape for government contractors.
Regulatory Developments
On April 27, 2018, the U.S. Small Business Administration (SBA) issued a proposed rule outlining its revisions to a white paper explaining how it establishes, reviews, and modifies small business size standards. SBA is soliciting comments on the proposed rule on or before June 26, 2018, the feedback from which SBA intends to apply to its forthcoming five-year comprehensive review of size standards, which is required by § 1344(a)(2) of the Small Business Jobs Act of 2010. Among other topics, SBA seeks comments on whether there should be a single basis for size standards across all industries; whether size standards should vary from program to program, or based on geographic location; and whether there should be a ceiling beyond which a business concern cannot be considered small.
A number of final rules amending the FAR were issued in May 2018 (FAC 2005-98), including:
- Audit of Settlement Proposals – The U.S. Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) issued a final rule amending the FAR to eliminate audits of termination settlement proposals and subcontractor settlements between $100,000 and the threshold for obtaining certified cost or pricing data (currently $750,000). The amendment will save contractors costs associated with the preparation and support for termination settlement audits and will enable faster final settlement payments to contractors. This rule became effective on May 31, 2018.
- Liquidated Damages Rate Adjustment – DOD, GSA, and NASA issued a final rule amending the FAR to adjust for inflation the rate of liquidated damages assessed for violations of the overtime provisions of the Contract Work Hours and Safety Standards Act. The new rate of liquidated damages will be $25 per individual for each calendar day on which there is a violation of the Act. This rule went into effect on May 31, 2018.
- Duties of Office of Small and Disadvantaged Business Utilization – DOD, GSA, and NASA issued a final rule, which went into effect on May 31, 2018, amending the FAR to reflect changes to the Small Business Act providing additional duties for agencies' Office of Small and Disadvantaged Business Utilization, and for DOD's Office of Small Business Programs. These change reflect sections of the fiscal year (FY) 2017 National Defense Authorization Act (NDAA).
- Task- and Delivery-Order Protests – DOD, GSA, and NASA issued a final rule amending the FAR to raise the threshold for task- and deliver-order protests from $10 million to $25 million (applicable to DOD, NASA, and the Coast Guard). This jurisdictional limit was raised in accordance with the FY 2017 NDAA. For civilian agencies, GAO will continue to have jurisdiction over task order protests "valued in excess of $10 million."
- Small Entity Compliance Guide – In connection with the new rules outlined above, DOD, GSA, and NASA issued a rule amending the FAR to incorporate a small entity compliance guide in accordance with the Small Business Regulatory Enforcement Fairness Act of 1996.
Similarly, several proposed and final rules were issued this month amending the DFARS, including:
- Mentor-Protégé Program Modifications – DOD proposes to amend the DFARS to implement sections of the FY 2017 NDAA that provide modifications to the DOD Pilot Mentor-Protégé Program. Specifically, the rule will revise the definition and requirements associated with affiliation between mentors and protégé firms. Comments on the proposed rule must be submitted on or before July 3, 2018.
- Amendments Related to Sources of Electronic Parts – DOD issued a final rule amending the DFARS in accordance with the FY 2016 NDAA to make contractors and subcontractors subject to approval (as well as review and audit) by appropriate DOD officials when identifying a contractor-approved supplier of electronic parts. The rule clarifies that the review, audit, and approval of contractor-approved suppliers by the Government will generally be in conjunction with a contractor purchasing system review or other surveillance of purchasing practices by the contract administration office.
- Promoting Voluntary Post-Award Disclosure of Defective Pricing – DOD issued a final rule, effective May 4, 2018, amending the DFARS to state that, where a contractor discloses defective pricing after contract award, DOD contracting officers have discretion to request a limited-scope or full-scope audit, as appropriate for the circumstances. The purpose of this rule is to promote voluntary contractor disclosures of defective pricing, and to reduce repeated submissions of certified cost or pricing data.
- Statement of Purpose for Department of Defense Acquisition – DOD issued a final rule implementing a section of the FY 2018 NDAA to include a statement of purpose for Department of Defense Acquisition. The new provision, which went into effect on May 4, 2018, reads, in part, "The primary objective of DoD acquisition is to acquire quality supplies and services that satisfy user needs with measurable improvements to mission capability and operational support at a fair and reasonable price."
Legislative Developments
Senators Ben Cardin (D-Md.) and Mike Enzi (R-Wyo.) introduced a bill requiring DOD agencies to pay small prime contractors within fifteen (15) days of receiving an invoice—a change from the current requirement that agencies make payment within thirty (30) days. The bill, which is attached as an amendment to the House version of the FY 2019 NDAA (H.R. 5515), would apply to large prime contractors working with small subcontractors. According to a press release issued by the sponsoring Senators, the bill was modeled after Rep. Steven Knight's (R-Calif.) Accelerated Payments for Small Businesses Act of 2018 (H.R. 5537).
The Service-Disabled Veterans Small Business Continuation Act (H.R. 5044), sponsored by Rep. Steve Chabot (R-Oh.), has passed the House and is awaiting review by the Senate's Committee on Veterans' Affairs. The stated purposed of the bill is to "amend title 38, United States Code, to clarify the treatment of certain surviving spouses under the contracting goals and preferences of the Department of Veterans Affairs."
Reports
The GAO published a report on April 25, 2018, "DHS Program Costs: Reporting Program-Level Operations and Support Costs to Congress Would Improve Oversight." In this report, the GAO found that the Department of Homeland Security's (DHS) budget reporting aggregates costs by mission, rather than by acquisition. Costs used to operate and sustain a program (O&S costs) can account for up to 70% of a program's total cost. To better understand how much DHS spends on each acquisition, the GAO recommends augmenting the level of detail in DHS's budget report to Congress, along with other key financial reports, to show O&S funding requests for major acquisition programs.
The DOD Office of the Under Secretary of Defense issued a memorandum on April 30, 2018 outlining the FY 2018 competition goals for each DOD component. DOD's competition statistics are available on the Defense Procurement and Acquisition Policy website.
The Defense Information Systems Agency (DISA) held its "DISA Cloud Symposium" on May 15-16, 2018. Materials from this meeting are available on DISA's website, and include a presentation on "Acquiring Cloud Services—A Contracting Officer's Perspective." This document covers a number of recommendations to contracting officers for procurement of cloud services, including considerations regarding available cloud services security initiatives.
The GAO published a report on May 23, 2018, "Information Technology: Continued Implementation of High-Risk Recommendations Is Needed to Better Manage Acquisitions Operations and Cybersecurity." This report summarizes agencies' progress in improving IT management and ensuring security of federal IT. As of May 2018, GAO found that agencies have fully implemented about 61% of approximately 800 IT management-related recommendations by GAO, along with 66% of approximately 2,700 security related recommendations. GAO recommends that agencies implement additional recommendations "to improve the implementation of CIO responsibilities, the oversight of the data center consolidation initiative, software license management efforts, and the strength of security programs and technical controls."
Offices of Inspector General
The DOD OIG also published its Semiannual Report to the Congress this month, covering the period from October 1, 2017 through March 31, 2018. The report covers multiple areas of potential interest to contractors, including the DOD OIG’s audit functions related to acquisition and sustainment management, contract management and payments, as well as its contractor disclosure program.
On May 17, 2018, the DOD Office of Inspector General (OIG) published a statement made at a hearing before the House Committee on Small Business regarding "Hotline Truths II: Audit Reveals inconsistencies in Defense Subcontracting." The statement discussed the DOD OIG's audit of Army small business contracting, along with eight recommendations DOD OIG made to the Army to address deficiencies identified during the audit.
On May 22, 2018, the DOD OIG published a memorandum stating that it intends to begin its "Evaluation of Contracting Officer Actions on Penalties Recommended by Defense Contract Audit Agency" in May 2018. The objective of the evaluation is "to determine whether Defense Contract Management Agency (DCMA) contracting officers are appropriately considering Defense Contract Audit Agency (DCAA) penalty recommendations and assessing or waiving penalties in accordance with the Federal Acquisition Regulation (FAR)." DOD will "evaluate DCMA contracting officer actions on a representative sample of DCAA penalty recommendations reported in the last 3 years," and will consider whether to implement additional or revised objectives based on its findings.
From the Courts, Boards, and the GAO
In late April 2018, the Fourth Circuit clarified the scope of sovereign immunity to government contractors under the "Yearsley doctrine." For our analysis of the Court's decision in Cunningham v. General Dynamics Information Technology, Inc., 888 F.3d 640 (4th Cir. 2018), please see our recent Government Contracts Update.
The Armed Services Board of Contract Appeals published an opinion dismissing a contractor's claim for lack of jurisdiction on May 11, 2018. Noting that "[t]he linchpin of the Board's jurisdiction over a contractor claim is the contractor's submission of a proper claim for the [contracting officer] for a decision," the Board dismissed the action—even though the CO purported to render a final, appealable decision—because the contractor failed to certify its claim prior to submitting it to the contracting officer.
On May 18, 2018, the GAO published its decision dismissing the protest of American Relocation Connections, LLC. Citing the Supreme Court's decision in Kingdomware Technologies, Inc. v. United States, the protester challenged the agency's decision not to set aside for small business a solicitation for the establishment of a blanket purchase agreement under the General Services Administration's Federal Supply Schedule. In dismissing the protest, GAO found that Kingdomware did not apply, as the ruling in that case concerned requirements specific to the Veterans Benefits, Health Care, and Information Technology Act of 2006, and thus did not apply. GAO held that the agency was not required to set aside the solicitation under either the Small Business Act or the FAR, and its decision to do so was a discretionary act that did not provide a valid basis for protest.