Government Contracts Update
There have been a number of legal developments in the past month that may affect government contractors, with respect to both legislative and regulatory activity as well as notable court decisions. This article reviews those developments.
Hurricane Recovery Contractors
Federal agencies have implemented the following special emergency procurement authority and temporary national interest exemptions to assist with hurricane relief efforts:
- In order to streamline and expedite certain procurements, through acquisition memoranda issued on August 29 and September 7, 2017, the General Services Administration (GSA) increased special emergency procurement authority thresholds. The letters provide for micro-purchases of $20,000 (up from $3,000), increase the simplified acquisition threshold to $750,000 ($13 million for commercial items), and increase GSA's simplified lease acquisition threshold to $750,000. The GSA's memoranda also direct contracting officers to give preference to "local firms in the disaster area" and to "limit competition when needed." The threshold increases will remain in effect until December 31, 2017, unless otherwise rescinded, modified, or extended.
- To further streamline and expedite contracting, on August 31, September 7, and September 20, 2017, the U.S. Department of Labor's Office of Federal Contract Compliance Programs (OFCCP) issued temporary national interest exemptions from certain federal contracting requirements. For a period of three months, subject to possible extension, new federal contracts to provide relief efforts related to Hurricanes Harvey, Irma, and Maria should contain a provision exempting the contractor from having to comply with certain federal contracting requirements, including the development of written affirmative action programs as required by Executive Order 11246; the Vietnam Era Veterans' Readjustment Assistance Act; and Section 503 of the Rehabilitation Act of 1973, as amended.
Legislative Developments for Contractors to Consider
- The Senate passed the National Defense Authorization Act for Fiscal Year 2018 (NDAA) on September 18, 2017. The bill authorizes FY2018 appropriations (including those for procurement) and sets forth policies for U.S. Department of Defense (DoD) programs and activities. Notably, the bill does not include a counterpart to the provisions of the Defense Acquisition Streamlining and Transparency Act, which were incorporated and passed with some modifications in the House version of the NDAA. If approved, the measure would task the GSA to develop online e-commerce portals that the DoD and federal agencies could use to buy basic commercial products, including IT products.
- On September 14, 2017, the House of Representatives passed a package of funding bills (H.R. 3354) to provide all discretionary funding for the federal government for the 2018 fiscal year. The package of bills contains the full legislation and funding for all twelve annual appropriations bills, and totals $1.2 trillion, including $87 billion in funding for the Global War on Terror (GWOT)/Overseas Contingency Operations (OCO). The bill was received in the Senate on September 25, 2017.
- The House Oversight and Government Reform Committee approved Rep. Mark Meadows' (R-NC) Promoting Value Based Procurement Act of 2017 to "require executive agencies to avoid using lowest price technically acceptable source selection criteria in certain circumstances, and for other purposes," and the bill is now headed to the House floor. The Act would strongly discourage agencies from relying on "lowest price technically acceptable" source selection criteria, particularly in the case of procurements that are predominantly for the acquisition of knowledge-based professional services (such as IT, cybersecurity, and audit services), personal protective equipment, or knowledge-based training and logistics services in contingency operations or other operations outside the United States. The Act would also require a government auditor to report for the next three years on each time agencies award contracts valued over $5 million to vendors with the lowest bid and use cost as the primary deciding factor. The bill, which would apply to civilian agencies, mirrors legislation introduced by Rep. Don Beyer (D-VA) last year to revise defense procurement practices.
- New legislation seeks to revitalize the U.S. Small Business Administration's (SBA) Historically Underutilized Business Zone (HUBZone) Program. The government has never reached its goal of awarding 3% of its contracts to HUBZone-certified businesses, and program participation has dropped off since the redesignation of HUBZone areas by the 2010 decennial census. The HUBZone Unification and Business Stability Act of 2017 seeks "to clarify the definitions relating to HUBZones" and increase participation in the program. Under the current laws, income and unemployment numbers used to designate HUBZones are updated annually, causing zones to shift on a yearly basis. This makes it difficult for businesses seeking HUBZone certification to conduct long-term planning to locate their headquarters and hire employees in such a way that will maintain compliance. The new bill aims to solve this problem by instituting a new update schedule, where HUBZones are only reevaluated every five years, starting in 2020.
Regulatory and Compliance Developments Affecting Contractors
- On September 19, 2017, the DoD issued guidance on providing "adequate security" under NIST Special Publication ("SP") 800-171, "Protecting Controlled Unclassified Information in Nonfederal Information Systems and Organizations." The guidance is essential information for contractors as they seek to satisfy safeguarding requirements of DFARS clause 252.204-7012, Safeguarding Covered Defense Information and Cyber Incident Reporting, in advance of DoD's December 31, 2017. The clause requires contractors to provide "adequate security" on all covered contractor information systems. For systems that are not part of an IT service or system operated on behalf of the Government, and which hold or transmit covered defense information ("CDI"), contractors must follow security requirements in NIST SP 800-171.
Under DoD's guidance, Defense Department personnel may consider a contractor's system security plan ("SSP") and related plans of action in determining whether NIST SP 800-171 security requirements have been or will be satisfied under the contract. A SSP, per NIST SP 800-171, requires contractors to "develop, document, and periodically update system security plans that describe system boundaries, system environments of operation, how security requirements are implemented, and the relationships with or connections to other systems." A plan of action requires contractors to "develop and implement plans of action designed to correct deficiencies and reduce or eliminate vulnerabilities in their systems." For a contractor that has not yet fully implemented 800-171 security requirements, having a documented SSP and one or more related plans of action can help demonstrate compliance with NIST 800-171 security requirements, and therefore demonstrate "adequate security" under DFARS clause 52.204-7012. The extent to which a SSP and plan of action is relied upon is still subject to the discretion of the DoD, but it gives contractors with documented SSPs and plans of action some additional flexibility in satisfying NIST 800-171 security requirements, even if the date of full implementation may occur after December 31, 2017. More details on DoD implementation of DFARS clause 252.204-7012 and NIST SP 800-171 are available at the Cybersecurity tab in the DoD Procurement toolbox.
- On September 14, 2017, the SBA's Office of Inspector General (SBA OIG) issued a Final Memorandum Report presenting the results of its evaluation of SBA's purchase cards and risk assessment for SBA's travel card program for fiscal year 2017. The SBA OIG determined that while SBA generally has exercised effective management and oversight of the purchase and travel card programs, SBA personnel did not always comply with federal guidance and SBA policies regarding the pre-purchase, purchase, and reconciliation processes when the government purchase card was used to acquire goods and services. Contractors selling to SBA or other agencies should be aware that OIG is monitoring even these small transactions for waste, fraud, and abuse.
- The DoD is reviewing 716 of their agency rules in response to Executive Order 13777, which requires that agencies reduce and reform regulations by eliminating two regulations for every new regulation issued. Around 350 regulations under review by the DoD are related to acquisition. DoD issued a Federal Register notice in June seeking comments provisions and contract clauses that may be appropriate for repeal, replacement, or modification. The deadline for comments was extended by three weeks to close on September 11, 2017.
- NASA is proposing to amend the NASA FAR Supplement to implement revisions to the voucher and invoice submittal and payment process. As part of NASA's goal to have all contract payments processed electronically by 2018, this proposed rule revises NASA's submission and payment process to require invoices for fixed-price contracts be submitted electronically. NASA is seeking public comment on this rule by November 17, 2017.
- GSA is seeking public comment on the Truth in Negotiations Act (TINA) requirements, including how to reduce the burden on the public. TINA requires the government to obtain certified cost or pricing data from contractors under certain circumstances. GSA seeks public comment concerning "[w]hether this collection of information is necessary for the proper performance of functions of the FAR, and whether it will have practical utility; whether our estimate of the public burden of this collection of information is accurate, and based on valid assumptions and methodology; ways to enhance the quality, utility, and clarity of the information to be collected; and ways in which we can minimize the burden of the collection of information on those who are to respond, through the use of appropriate technological collection techniques or other forms of information technology." Comments must be submitted on or before November 13, 2017.
Notable Court Decisions
- On September 13, 2017, the U.S. District Court for the District of Columbia denied a motion to dismiss in a False Claims Act (FCA) case. The claims arose from a relator's allegations that the contractor routinely falsified records of hours worked by its personnel, in some cases billing the government for "team building" exercises that were, in fact, opportunities for employees to go on hiking, sightseeing, and shopping trips. The Court concluded that the relator had plausibly alleged sufficient factual information to survive the heightened pleading requirements for FCA claims. Contractors should be wary of implementing "creative billing" practices, as doing so may be a recipe for an FCA claim.
- On September 21, 2017, the U.S. District Court for the District of Columbia issued a decision granting Symplicity founder Ariel Friedler's motion for summary judgment, finding that Friedler's debarment was arbitrary and capricious and violated the Administrative Procedure Act (APA), because he was not given notice of all bases for debarment. See generally Friedler v. Gen. Servs. Admin., Civ. Action No. 15-2267 (KBJ) (D.D.C. filed Sept. 21, 2017). In particular, the Friedler court found that GSA ran afoul of FAR requirements by debarring Friedler based on two new factual grounds not included in the Notice of Proposed Debarment. The Friedler court noted that not only were the grounds themselves labeled as "new causes" under the Notice, but that even without that language, such conduct necessarily constituted a new cause because it had not yet occurred at the time the Notice of Proposed Debarment was issued. Furthermore, even if these bases were used only as an aggravating factor to extend the proposed debarment period, notice and an opportunity to respond were still required under 48 C.F.R. § 9.406-4(b) (stating that "the procedures of 9.406-3 shall be followed" to extend the period of a debarment). For more on this case, please see our recent GVC update.
Federal Budget and Appropriations Update
- President Trump signed a stopgap spending measure to maintain the status quo from the beginning of the new fiscal year on October 1 through December 8, 2017. If Congress fails to reach a new deal by December 8 and instead relies on another stopgap measure, sequestration likely will kick in, with across-the-board cuts to federal programs. A Congressional Budget Office review found that continuing the same spending levels for the full fiscal year would likely force the Office of Management and Budget (OMB) to revoke some of the funds that Congress appropriates. About $2.4 billion would be sequestered from defense accounts, and about $2.3 billion would be sequestered from non-defense accounts.