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Government Contracts Update

This Summer has been hot for government contractors, as federal agencies, Congress, and the Section 809 panel have introduced changes and suggested changes for federal procurement.

Regulatory Developments

Pricing Changes

Guidance on the Exception from Certified Cost or Pricing Data Requirements—Adequate Price Competition. A proposed change to the Federal Acquisition Regulation (FAR) would "provide guidance to U.S. Department of Defense (DoD), National Aeronautics and Space Administration (NASA), and the Coast Guard, consistent with a section of the National Defense Authorization Act for Fiscal Year 2017 that addresses the exception from certified cost or pricing data requirements when price is based on adequate price competition." This guidance eliminates anticipated competition as a basis for providing adequate price competition. Comments are due by August 13, 2018.

Truth in Negotiations Act—OUSD(A&S) increases the TINA Threshold and Sets a Five-Day Deadline for a TINA Certificate. The Office of the Undersecretary of Defense for Acquisition and Sustainment (OUSD(A&S)) issued a Memorandum, "Class Deviation-Threshold for Obtaining Certified Cost or Pricing Data" which raises the Truth in Negotiations Act (TINA) threshold for obtaining certified cost or pricing data from $750,000 to $2,000,000 for prime contracts entered into on or after July 1, 2018, consistent with the FY18 National Defense Authorization Act (NDAA). The Memorandum also includes two attachments.

In identifying "effort necessary to maintain the DoD's position as the world's preeminent fighting force," OUSD(A&S) has targeted contractor pricing certifications and ordered that "[e]ffective immediately, for actions subject to the Truth in Negotiations Act, Contracting Officers shall request offerors execute the Certificate of Current Cost or Pricing Data as soon as practicable, but no later than five business days after the date of price agreement." The goal is to reduce the "timeframe between price agreement and contract award related to some contractors' submission of additional cost or pricing data (referred to as 'sweep data') concurrently with or after the submission of the Certificate of Current Cost or Pricing Data subsequent to price agreement." DoD's focus on the TINA certificate as a cause for delay in procurement and its selection of five days as the requirement reflects a failure to fully understand the need for a "sweep," the liability to contractors if they do not perform a thorough sweep, and where real delays occur in the procurement process.

Specifically, contractors' cost systems may experience a delay between when "cost data" enters their system (for example, when a relevant quote is received), and when it is available to be searched for a TINA certificate. To address this natural time lag, responsible contractors and subcontractors at all tiers that must provide a certificate of certified cost or pricing data should "sweep" or review their systems to determine if any certified cost or pricing data has entered the system since the last production to the government, before executing the certificate. Such sweeps are made more difficult by the breadth of what government auditors consider to be both factual and relevant.

Failure to sweep may result in a strict liability for the contractor under TINA if relevant cost data is discovered that was not produced prior to the certificate—even if the parties negotiated on a bottom-line basis. Moreover, the government or qui tam relators may allege that any data that was not produced prior to execution of the certificate—especially where the contractor failed to perform a sweep—evidences a civil False Claim, 31 U.S.C.A. §§ 3729, 3730. See, e.g., Marsteller for use and benefit of United States v. Tilton, 880 F.3d 1302, 1314 (11th Cir. 2018) (The Eleventh Circuit vacated and remanded a lower court dismissal of a qui tam action that alleged, in part, that violation of Truth in Negotiation Act could support fraud in the inducement, because "the allegations can be read to support the view that the prospective promise to comply with various provisions of law, including the Contractor Code of Ethics and the Truth in Negotiations Act, were false when made.").

Section 809 Panel

In June, the Section 809 panel issued Volume 2 of its Report of the Advisory Panel on Streamlining and Codifying Acquisition Regulations. The report includes many recommendations of interest to contractors, including consolidating the hiring authorities that support the federal acquisition workforce, expanding the applicability of streamlined acquisition procedures, extracting the Cost Accounting Standards Board from the Office of Federal Procurement Policy and making it an independent federal organization, decoupling the monetary threshold for a CAS-covered contract from the TINA monetary threshold and setting it at $25 million, and eliminating the statutory and regulatory distinction between personal service contracts and non-personal services contracts. It also recommends repealing 71 "note" provisions of Title 10 of the U.S. Code which the Panel believes obsolete.

Federal Register and Other Notices

A number of other Federal Register notices related to the FAR have been released as well: the DoD, General Services Administration (GSA), and NASA have issued a Small Entity Compliance Guide (see also Federal Acquisition Circular 2005-99 (Introduction)), an interim FAR rule on Use of Products and Services of Kaspersky Lab, and an another interim FAR rule on Violations of Arms Control Treaties or Agreements with the United States. The GSA has also released two Requests for Information (RFI): one RFI concerns Suppliers Selling on Commercial e-Commerce Portals and the other RFI is on Platform Providers of Commercial e-Commerce Portals.

According to OUSD(A&S), the Federal Procurement Data System (FPDS) must now include solicitation dates to comply with the FY18 NDAA, even where the Request for Proposals was not advertised or competed, and where it was an order under a single-award Indefinite-Delivery/Indefinite-Quantity (IDIQ) contract.

The schedule for the Fiscal Year 2019 Procurement Management Review of the Defense Contract Management Agency (DCMA), a review which takes places approximately once every three to four years, has been released. The goal is to "enhance the performance of contracting personnel in contributing to the success of the agency."

The Federal Trade Commission (FTC) is issuing a consent agreement for Northrop Grumman Corporation's purchase of Orbital ATK, Inc. during an ongoing competition. Comments on the agreement are due July 5, 2018. According to the FTC: "Absent the protections of the Consent Agreement, Northrop would have the ability to disadvantage competitors for future missile prime contracts by denying or limiting their access to Northrop's SRM products and technologies, which would lessen the ability of Northrop's missile system competitors to compete successfully for a given missile system prime contract. The Acquisition would also give Northrop access, through the former Orbital ATK SRM business, to the proprietary information that rival missile prime contractors must share with its SRM vendor."

The U.S. Small Business Administration (SBA) granted a class waiver of the Non-manufacturer Rule (see 13 C.F.R. § 121.406(b)) for Positive Airway Pressure Devices and Supplies Manufacturing.

Legislative Developments

The Payment Integrity Information Act of 2018 (S.2948) was introduced in late May and ordered to be reported without amendment favorably by the U.S. Senate Committee on Homeland Security and Governmental Affairs on June 13, 2018. The bipartisan bill aims to "improve efforts to identify and reduce Government-wide improper payments" and includes provisions related to recovery audits procured by executive agencies by contract.

The Federal Acquisition Supply Chain Security Act of 2018 (S.3085) would "establish a Federal Acquisition Security Council and to provide executive agencies with authorities relating to mitigating supply chain risks in the procurement of information technology."

The Fair Pay and Safe Workplaces Act of 2018 (S.3077) "provide[s] for certain contracting requirements to promote fair and safe workplaces." The bill appears to be a version of the revoked Fair Pay and Safe Workplaces rule (also referred to as the "Blacklisting" rule) about which Venable has written previously.

Introduced in early June, the Keep Our Cities Safe Act of 2018 (H.R.6055) would exempt certain government employees and contractors from Section 274 of the Immigration and Nationality Act ("bringing in and harboring certain aliens") when "acting in accordance with the law of the State or locality in which the employee engaged in conduct which would otherwise violate this section." Rep. Jimmy Gomez (D-CA) indicates that the bill "would shield local and state government officials from federal prosecution for complying with their own public health and safety protections."

Reports

The Defense Contract Audit Agency's (DCAA) FY17 annual report to Congress was publicly released in late May 2018.

The U.S. Congressional Research Service has updated its report, "The Current State of Federal Information Technology Acquisition Reform and Management."

The U.S. Government Accountability Office issued a report, "Defense Industrial Base: Integrating Existing Supplier Data and Addressing Workforce Challenges Could Improve Risk Analysis." According to the report: "DOD is required to maintain a data repository of industrial base suppliers to help provide insight about potential risks to the base, such as relying on foreign suppliers. However, DOD hasn't been able to create this repository, partly due to problems it has accessing sensitive supplier data."

Offices of Inspector General

A number of Inspectors General submitted semiannual reports to Congress in late May and early June, many of which included information on investigations related to government contractors, procurement fraud, and acquisition planning. Agencies issuing such report included the U.S. Department of Defense, the U.S. General Services Administration, the U.S. Department of Justice, the Environmental Protection Agency, the U.S. Small Business Administration, and the Defense Intelligence Agency.

The U.S. Department of Defense Office of the Inspector General also released reports of possible interest to military contractors this month, including "Procurement Quantities of the AH-64E Apache New Build and Remanufacture Helicopter Programs" and "Hotline Allegation Regarding the Actions of a Defense Contract Management Agency Contracting Officer on a Subcontractor's Termination Settlement Proposal."

The U.S. Department of State issued an Audit of the Bureau of Diplomatic Security's Invoice Review Process for Worldwide Protective Services Contracts.

From the Courts

The U.S. District Court for the District of Columbia (DDC) held that the U.S. Government Accountability Office (GAO) is not subject to the Administrative Procedure Act (the "APA," see 5 U.S.C. § 706(2)(A)). As a result, the DDC dismissed a government contractor's complaint under the APA that the GAO had arbitrarily and capriciously divulged commercially confidential information in a public bid protest decision.

The U.S. Court of Appeals for the Sixth Circuit issued a ruling affirming the conviction of a contractor for defrauding the U.S. Department of Defense and submitting false claims. The appeals court refused to re-weigh the evidence, which suggested that the contractor had provided non-conforming parts not because they were actually better than those required under the contract, but because it would save the contractor money.

The DDC held that it had jurisdiction over a case in which a foreign contractor sought to enforce a foreign arbitration award against a foreign government for breach of contract. However, the DDC concluded that it could not award the specific performance requested because it would contravene public policy.

The Supreme Court of Appeals of Virginia issued an opinion involving claims for fraudulent inducement, breach of contract, and unjust enrichment related to a teaming agreement entered into to obtain a government contract. The Court found that the teaming agreement did not create any enforceable obligation. The case serves as a good reminder that in Virginia, contractual provisions that "merely set out agreements to negotiate future subcontracts" are unenforceable.