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Government Contracts Update

The month of July has seen several developments in federal procurement practices that may impact government contractors, including various regulatory changes and proposed legislation.

Regulatory Developments

On July 2, 2018, the U.S. Department of Defense (DOD) issued a proposed rule to amend the Defense Federal Acquisition Regulation Supplement (DFARS) to streamline the submission of Summary Subcontract Reports (SSRs) for large contractors. The new rule would allow large contractors with individual subcontracting plans to submit one consolidated SSR at the DOD level, rather than the current practice of submitting multiple SSRs to various departments or agencies within DOD.

The Office of Federal Procurement Policy (OFPP), Cost Accounting Standards (CAS) Board, published a final rule clarifying the types of contracts that are exempt from the application of CAS when acquiring commercial items. Specifically, the final rule amends the language at 48 C.F.R. § 9903.201-1(b)(6) to exempt contracts and subcontracts authorized in 48 C.F.R. § 12.207 for the acquisition of commercial items. The CAS Board issued this rule after consideration of public comments and intends to monitor the effectiveness of the rule. The rule becomes effective August 16, 2018.

DOD, the General Services Administration (GSA), and the National Aeronautics and Space Administration (NASA) are considering an amendment to the Federal Acquisition Regulation (FAR) to establish a standard survey for obtaining voluntary feedback from actual and potential offerors on government contracts and solicitations. "OFPP, DoD, GSA, and NASA believe that establishing a standard process in the FAR for obtaining voluntary feedback following a contract award will provide more meaningful insight on ways to strengthen the contracting process than can be derived by relying on ad hoc or periodic agency satisfaction surveys." The agencies are seeking written comments on the proposed rule by September 21, 2018.

On July 30, 2018, the U.S. Small Business Administration (SBA) announced a temporary decrease in the guarantee fees that the SBA charges all surety companies and principals on each guaranteed bond (other than a bid bond) issued in SBA's Surety Bond Guarantee (SBG) Program. Through the SBG Program, the SBA guarantees bid, payment, and performance bonds for small and emerging contractors who cannot obtain surety bonds through regular commercial channels. SBA intends to decrease the surety fee from 26% of the bond premium to 20% of the bond premium, and decrease the principal fee from $7.29 per thousand dollars of the contract amount to $6 per thousand dollars of the contract amount. The fee decreases will apply to all SBA surety bond guarantees approved during the one-year period beginning October 1, 2018 and ending September 30, 2019. SBA is seeking comments on the fee decreases on or before August 29, 2018.

Legislative Developments

The U.S. House of Representatives passed the Conference Report to accompany the John S. McCain National Defense Authorization Act for Fiscal Year (FY) 2019 (H.R. 5515), by a vote of 359-54. In a statement from the White House, the press secretary stated that, among other things, the Conference Report "takes positive steps that are consistent with the Administration's commitment to maintaining a strong and resilient manufacturing and defense industrial base."

The Matthew Young Pollard Intelligence Authorization Act for FY 2018 and 2019 (H.R. 6237) seeks to remove the sunset provision on intelligence agencies' enhanced procurement authority to manage supply chain risk. Background on this bill can be found in this DOD memo from earlier this year, and in DFARS Subpart 239.73. As noted in the DFARS, the authority would otherwise expire on September 30, 2018.

H.R. 6318, a bill "[t]o amend section 275(a) of the Immigration and Nationality Act to change the first commission of one of the criminal offenses described in that section from a misdemeanor to a felony, and for other purposes," would (among other things) amend 8 U.S.C. § 1324a to require "[a]ny person, employer, or entity that enters into a contract with the Federal Government" to participate in E-Verify. The bill would expand the scope of required participants in the program, which is currently mandatory for employers with federal contracts or subcontracts that contain the FAR E-Verify clause.

The Incentivizing Fairness in Subcontracting Act (H.R. 6367), which was referred to the House Committee on Small Business on July 13, 2018, proposes to "amend the Small Business Act to specify what credit is given for certain subcontractors and to provide a dispute process for non-payment to subcontractors, and for other purposes."

H.R. 6368, Encouraging Small Business Innovators, was introduced on July 13, 2018 to "encourage R&D small business set-asides, to encourage SBIR and STTR participants to serve as mentors under the Small Business Administration's mentor-protégé program, to promote the use of interagency contracts, and for other purposes." Among other changes, the bill proposes amendments to Section 9 of the Small Business Act, 15 U.S.C. § 638, to "provide an increase to the past performance rating of any small business concern that has participated in the SBIR or STTR program that serves as a mentor under section 45 to a small business concern that seeks to participate in the SBIR or STTR program."

The FIT Act (H.R. 6374) was introduced in the House in mid-July, seeking, among other things, "[t]o require the Department of Homeland Security to streamline Federal contractor fitness determinations." The Act would require the Secretary of Homeland Security to "coordinate with the heads of components of the Department to review and consolidate all Federal contractor fitness standards used by the Department and its components in order to issue a uniform set of fitness standards that reflect public trust concerns which correspond to each position risk level," and to publish and apply such consolidated fitness standards "as the basis for fitness determination for a contractor employee."

Reports

On July 2, 2018, the Congressional Research Service (CRS) issued an updated report, "Defense Acquisitions: How and Where DOD Spends Its Contracting Dollars." This report examines how much money DOD obligates on contracts, what DOD is buying, and where that money is being spent. The report also examines the extent to which the data are sufficiently reliable to use as a factor when developing policy or analyzing government operations. Among other findings, the report notes that DOD contracting "was marked by a steep increase in obligations from FY2000 to FY2008 (an increase of $261 billion or 138%), followed by a drop in obligations (a decrease of $131 billion or 29%) from FY2008 to FY2017."

CRS also published a report this month on multiyear procurement (MYP) and block buy contracting (BBC), two special contracting mechanisms that Congress permits DOD to use for a limited number of defense acquisition programs. Under MYP, DOD may use a single contract for two to five years' worth of procurement of a given kind of item without having to exercise a contract option for each year following the year of award. BBC similarly permits DOD to use a single contract for more than one year's worth of procurement of a given kind of item, but differs from MYP in several notable ways that make it more flexible (and less commonly used). CRS found that compared with estimated costs of annual contracting, DOD is able to reduce procurement costs by several percentage points by using either of these special contracting mechanisms.

DOD's Office of the Under Secretary of Defense, Acquisition and Sustainment issued a memorandum on July 9, 2018: "Clarification – Negotiations of Sole Source Major Systems for U.S. and U.S./FMS Combined Procurements." The memorandum emphasizes DOD's policy of encouraging program managers and contracting officers "to use strategies that address more than a single year's procurement requirements, whenever possible, through the use of priced options." The policy aims to reduce costly year-over-year annual procurements and the routine use of undefinitized contract actions for U.S. and foreign military sales (FMS) requirements by encouraging negotiations of major systems to be conducted approximately every three years.

On July 16, 2018, U.S. Government Accountability Office (GAO) published a report concluding that DOD does not know how long it currently takes to award contracts and therefore does not have a baseline it can use to meet its goal of reducing time frames for awarding contracts related to weapon systems. Although certain DOD components collect data on the time frames for awarding contracts, GAO found that there is a lack of consistency in the scope and methods for collection of such data. Thus, GAO recommends that DOD develop a consistent approach for the collection and use of data on award time frames.

The GAO published a report on July 17, 2018 documenting the increase in federal government advertising contracts with small disadvantaged businesses and those owned by minorities and women. In this report, GAO found that approximately 13% of the government's advertising contract dollars in the last five years have gone to socially and economically disadvantaged businesses and to businesses of any size owned by minorities and women. Additionally, advertising contract obligations to all three categories of businesses increased between fiscal years 2013 and 2017, demonstrating an upward trend that is generally consistent with the percentage of all federal contract obligations to these businesses over the same period.

Offices of Inspector General

The Office of the Inspector General for the National Security Agency (NSA) released, for the first time ever, an unclassified version of its Semi-Annual Report to Congress. The report provides information on NSA's oversight of contractors. For example, NSA's Office of the Inspector General "is examining 54 [award fee] contracts in effect during Fiscal Years 2016 and 2017, with a total reported value of several billion dollars over the life of the contracts" to determine "whether governance of the award fee process complies with applicable laws and policies, and is conducted economically and efficiently." It also referred two cases to the U.S. Attorney for the District of Maryland that were accepted for criminal prosecution; both involved "allegations that contractor employees fraudulently charged the Agency for more than 2,400 hours not actually worked."

DOD's Office of the Assistant Inspector General for Audit Policy and Oversight announced this month that it will begin a project focused on "Evaluation of Contracting Officer Actions on Defense Contract Audit Agency Reports that Disclaim an Opinion." The project aims to review contracting officer actions where an auditor is unable to obtain sufficient documentation on a contractor's proposal taken as a whole, and thus DCAA disclaims an opinion.

The Council of the Inspectors General on Integrity and Efficiency (CIGIE) published a "Report on the Government Purchase Card Initiative." GSA administers the purchase card program, which is intended "to streamline the payment process for small purchases, minimize paperwork, and generally simplify the administrative efforts associated with procuring goods and services under certain thresholds." The objective of the report was to analyze purchase card transactions identified as high risk. Although the OIGs did not find evidence of fraudulent behavior, they did identify weaknesses in policies, monitoring, and training that reduced program efficiency and increased the risk of unauthorized purchases. Accordingly, the report recommends that the Office of Management and Budget (OMB) direct agencies to improve controls to mitigate risks.

The DOD OIG issued a report on July 9, 2018, "Evaluation of DoD Hotline Complaint Regarding Defense Contract Management Agency Baltimore's Actions on Audit Findings Reported by Defense Contract Audit Agency." The objective of the investigation was to determine whether the Defense Contract Management Agency (DCMA) Baltimore contracting officer took appropriate action on a Defense Contract Audit Agency (DCAA) Audit Report which identified $1.1 million in indirect costs that did not comply with the FAR. The OIG concluded that the contracting officer failed to document an adequate rationale for not upholding the DCAA findings, and further failed to seek legal advice on the applicability of the 6-year statute of limitations as DCMA policy requires. The report concluded that insufficient training, DCMA procedures, and management oversight contributed to the contracting officer's failure to take appropriate action.

From the Courts, Boards, and the GAO

The Federal Circuit recently published a decision holding that it is not sufficient for a plaintiff to allege "legal violations that only might affect unidentified pending and future procurements" to be an interested party to protest under the Tucker Act. For our analysis of the Court's decision in Geiler/Schrudde & Zimmerman v. United States, No. 2017-2517, 2018 WL 3612564 (Fed. Cir. July 27, 2018), please see our recent Government Contracts Update.

In its July 12, 2018 decision in State Women Corporation (B-416510), the GAO clarified that the recent implementation of the Enhanced Debriefing Rights procedures did not shorten or otherwise alter the existing 10-day window for protest filings. Although it ultimately dismissed the protest as untimely (finding that the protester failed to file within 10 days of learning of the basis for its protest), the GAO rejected the agency's argument that the protester had only 5 days within which to file its protest after the conclusion of an enhanced debriefing. The GAO clarified that "[t]he Enhanced Debriefing Rules, and the underlying statutory basis for them, do not in any way alter or impact the timeliness rules established by our Bid Protest Regulations. Rather, the Enhanced Debriefing Rules, and the underlying statutory changes to the Competition in Contracting Act, relate solely to the agency's obligations with respect to complying with the mandatory stay of contract performance or termination of the awarded contract upon the filing of a protest with our Office."