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Government Contracts Update

The month of November brought a number of legal developments that will impact government contractors, including proposed legislation, reports, amended regulations, and judicial decisions. This article provides a brief review of recent noteworthy updates to the legal landscape against which government contracts operate.

Legislative Developments
  • Representative Dave Brat introduced H.R. 7105, the Brian Tally VA Medical Care and Liability Improvement Act, on October 20, 2018. The purpose of the act is to amend Section 7316 of Title 38 of the United States Code, to make healthcare professionals contracting with the Department of Veterans Affairs (VA) subject to the Federal Tort Claims Act (FTCA). Section 7316 would treat health employees under contract with the VA as employees of the VA. Furthermore, any claims against an employee whose employer is subject to civil action would have that claim subrogated to the United States.
  • Representative Pramila Jayapal introduced H.R. 7140, the Anti-Corruption and Public Integrity Act, on November 16, 2018. The purpose of the act includes but is not limited to improving the anti-corruption and public integrity laws. The Freedom of Information Act (FOIA) would expand and apply to federal contractors, such that "[a] record relating to a Federal contractor, including a record relating to a non-federal prison, correctional, or detention facility, produced during fulfillment of [a] Federal contract with an agency with funds provided under the contract shall be . . . subject to [FOIA]." Compliance with this section by federal contractors would be a material term in any contract between the agency and contractor.

Regulatory Developments

  • On November 1, 2018, the Department of Defense (DOD), the General Services Administration (GSA), and the National Aeronautics and Space Administration (NASA) propose to amend the Federal Acquisition Regulation (FAR) to include a new clause for multiple-award indefinite delivery, indefinite quantity (IDIQ) contracts. The proposed clause revises the current requirement for an agency-wide clause in IDIQ solicitations identifying ombudsman contact information. The new clause, implemented through FAR part 52, would require the contracting officer to provide in each solicitation the contact information for the agency ombudsman, explain the responsibilities of the ombudsman, and clarify that contacting the ombudsman does not alter the timeline for any process in the FAR. Comments submitted to the Regulatory Secretariat Division will be accepted until December 31, 2018, for consideration with regard to the final rule.
  • On November 8, 2018, the GSA issued a proposed rule to amend the General Services Administration Acquisition Regulation (GSAR) to include another project delivery method, known as the Construction Manager as Constructor (CMc) approach. Under the CMc approach, the contractor and construction manager are one position with combined duties and with direct control over subcontractors. The CMc approach is commonly used in commercial practice, but the FAR and GSAR have not provided clear guidance on how agencies could implement the CMc approach. This rule attempts to clarify the use and execution of CMc construction contracts. Comments submitted to the Regulatory Secretariat Division will be accepted on or before January 7, 2019, for consideration with regard to the final rule.
  • On November 27, 2018, GSA announced that it will consolidate its 24 Multiple Award Schedules (MAS) into a single schedule. GSA will use MAS, known as the GSA Schedules or Federal Supply Schedules, to establish government contracts with commercial firms for products and services on the same favorable terms as those firms offer to their best commercial clients. Federal, state, and local agencies can order products or services from contractors through MAS. Now that the schedules have been consolidated into one, GSA believes this change will result in improved customer service and make the process easier for both government and industry. MAS Program Management Office Director Stephanie Shutt stated, "[W]e have engaged with and listened to our stakeholders . . . we look forward to the many benefits this solution will bring to federal agencies, industry partners and American taxpayers."

Reports

  • The Government Accountability Office (GAO) issued its annual Performance and Accountability Report for Fiscal Year 2018 (GAO-19-1SP) to assess the GAO's FY2018 accomplishments. During the course of the year, the GAO reported that it saved $75.1 billion through recommendations to prevent payment errors, reduce fraud, and spend federal funds efficiently. The GAO issued more than 600 decisions on the merits and handled about 2,600 bid protests.
  • The GAO issued a report (GAO-19-13), "Improved Performance Analysis and Training Oversight Needed for Contracted Exams." The GAO found multiple areas of improvement for the Veterans Benefits Administration's (VBA) contracted personnel. In 2016, the VBA awarded contracts to private contractors to conduct veterans' disability medical exams, to determine whether veterans are receiving the appropriate disability benefits. The GAO prompted this study after a new system was implemented in 2018. As a result, the GAO recommends the VBA come up with a plan to utilize its new system to track contractor quality and timeliness, analyze the performance of contractors to identify trends, and track whether contractors have completed training and whether it is effective.
  • The GAO issued a report (GAO-19-54), "DOD Should Clarify Criteria for Using Lowest Price Technically Acceptable Process." Section 813 of the Defense Authorization Act for Fiscal Year 2017 mandated that DOD revise its regulations to consider eight factors when using the lowest price technically acceptable method (LPTA) to award. Of these eight factors, the GAO found that contracting officials tend to consider only five, with two factors generally not being considered and no written justification for the use of LPTA. The two factors generally not considered are the following: (1) For procurement of goods, the goods being purchased are predominantly expendable in nature and nontechnical, or have a short life expectancy or shelf life, and (2) the lowest price reflects full life-cycle costs, including operations and support. The study found confusion among some contracting officials about how to apply these two factors. The GAO recommended that DOD clarify the use of these two factors. DOD concurred and plans to implement new regulations by the end of FY2019.

Developments from the Courts, Boards, and the GAO

  • On October 31, 2018, the Court of Federal Claims (COFC) released an unredacted version of its decision between Northrop Grumman Systems Corporation (Northrop) and the United States Postal Service (USPS). Northrop filed suit under the Contract Disputes Act (CDA) alleging USPS breached its contractual obligations. USPS filed a counterclaim asserting the same. The court considered the parties' motions to dismiss, motions for partial summary judgment, and motions for summary judgment on various counts. The following are important takeaways:
    • USPS's motion to dismiss Northrop's claim for a cardinal change to the contract was granted for lack of jurisdiction. Northrop submitted a claim to the contracting officer without a sum certain. COFC reasoned that a contractor cannot circumvent the CDA requirement to submit a claim with a sum certain to a contracting officer by claiming equitable adjustment or declaratory relief.
    • Additionally, Northrop tried to advance a "gestalt" theory for its constructive change claims. Northrop argued that it "provided a compilation of evidence that, read as an integral whole, raises genuine issues of material fact regarding the notice and direction elements of a change." A successful constructive change claim requires both authority to direct the contractor to act beyond the scope of the contract and written notice that the contractor took the direction as a change order. COFC rejected Northrop's "gestalt" theory and addressed the 43 underlying claims looking for specific evidence of (1) authority and (2) notice.
  • On November 5, 2018, the United States Court of Appeals for the Federal Circuit affirmed the Armed Services Board of Contract Appeals' (ASBCA) decision that bonding requirements are included in construction contracts by operation of law. The army awarded K-Con Inc. (K-Con) two contracts for pre-engineered metal buildings. Neither solicitation for the contract included FAR 52.228-15 Performance and Payment Bonds-Construction. The army informed K-Con that it would need to provide performance and payment bonds in accordance with the clause. K-Con met this request and then submitted a request for equitable adjustment (REA). The Contracting Officer denied the REA, explaining that FAR 58.228-15 was incorporated into the contract at the time it was awarded through the Christian doctrine. The Christian doctrine incorporates into a federal government contract all mandatory clauses that express a significant or deeply ingrained strand of public procurement policy. The Federal Circuit agreed with the Contracting Officer and held that the standard payment and performance bond requirements were incorporated through the Christian doctrine.
  • On November 14, 2018, the GAO rejected a protest challenging DOD's decision to use a single-award approach to obtain cloud services. Oracle America, Inc. (Oracle) protested several aspects of DOD's solicitation, RFP No. HQ0034-18-R-0077. Specifically, Oracle argued that: a) the solicitation allowing a single-award IDIQ contract was contrary to statute and regulation, b) the terms of the solicitation were unduly restrictive, and c) the agency did not consider conflicts of interest created by allowing a single-award, in lieu of a multiple-award, approach. First, the GAO held that the agency did not violate any statute or regulation. Rather, the GAO agreed with the agency conclusion that a single-award approach was appropriate because of the presence of these three conditions allowing single awards: (1) favorable terms and conditions, including pricing, were afforded by the single-award approach; (2) the cost of administration of multiple contracts outweighs benefits of multiple awards; and (3) the single-award approach met the best interests of the government. FAR 16.504 (c)(1)(ii)(B). Furthermore, the GAO found that the terms of the solicitation were not unduly restrictive when the agency articulated a reasonable basis for a sub-factor rating on capability prior to award. Establishing a basis for capability allows the agency to determine whether the offeror can meet more stringent requirements later. Finally, Oracle's arguments regarding a conflict of interest were denied because the contracting officer is not obligated to consider conflicts of interest prior to the submission of proposals.