Legal Developments for Contractors to Consider

7 min

There have been a number of legal developments in the past month that may affect government contracts, with respect to legislative and executive branch activity, and to notable federal reports. This article gives a brief review of those developments.

Executive Branch Actions That Will Be Affecting Contractors

  • On March 13, 2017, President Trump signed an Executive Order, titled "Presidential Executive Order on a Comprehensive Plan for Reorganizing the Executive Branch," requiring the Director of the Office of Management and Budget (OMB), after receiving individual plans from all agency heads, to submit "a proposed plan to reorganize the executive branch in order to improve the efficiency, effectiveness, and accountability of agencies" through recommendations "to eliminate unnecessary agencies, components of agencies, and agency programs, and to merge functions." The potential effects of this Executive Order could be far-reaching for contractors whose revenue streams are connected to certain programs or agencies that could be affected by any future reorganization.
  • In the wake of the President's Executive Order on the Reorganization of the Executive Branch, on March 16, 2017 the White House and the OMB released "America First: A Budget Blueprint to Make America Great Again"—the proposed budget for 2018. Of note, the budget repeals the defense sequestration and increases the Department of Defense budget by $52 billion and the Department of Homeland Security budget by $2.8 billion; decreases the Department of State and the Agency for International Development budget by 28 percent and the Small Business Administration (SBA) budget by 5 percent; and eliminates funding for 19 independent agencies.
  • On March 27, 2017, the White House established the Office of American Innovation (OAI), headed by the Senior Advisor to the President, Jared Kushner. The mission of OAI will be to "make recommendations to the President on policies and plans that improve Government operations and services, improve the quality of life for Americans now and in the future, and spur job creation." Press Secretary Sean Spicer stated that the office "will have a particular focus on technology and data, hearing back from leaders in the industry," and that Kushner would be focusing on procurement.

Legislative Developments on the Horizon for Contractors to Consider

  • As Venable forecasted in last month's legal developments update, the Fair Pay and Safe Workplaces rule, or "Blacklisting Rule," appeared to be on its last legs with the passage by the House of Joint Resolution 37 in early February 2017. At that time, the White House's Statement of Administration Policy on the rule, which would have required federal contractors to report labor violations, declared that it "would bog down Federal procurement with unnecessary and burdensome processes that would result in delays, and decreased competition for Federal government contracts" and that "[r]olling back this rule will also help to reduce costs in Federal procurement." Joint Resolution 37 passed the Senate in early March 2017, and President Trump signed it into law on March 27, 2017, thus ensuring that the rule will have "no force or effect." On the same day, President Trump subsequently signed an Executive Order revoking President Obama's Fair Pay and Safe Workplaces Executive Order.
  • The Freedom from Government Competition Act of 2017 (H.R. 1339), which has been introduced in the House, provides for a general rule that "each agency shall obtain all goods and services necessary for or beneficial to the accomplishment of its authorized functions by procurement from private sources," unless the agency is required to produce the goods or perform the services or the head of the agency determines that government production or provision of the good or service is necessary for the national defense or homeland security, the good or service is so inherently governmental in nature that it is in the public interest for the Government to produce or perform, or no private source capable of providing the good or service exists. A similar bill was introduced in the Senate (S. 506).
  • The Performance Accountability and Contractor Transparency Act of 2017 (S. 543) has been introduced in the Senate, which requires that the Secretary of Veterans Affairs (VA) ensure that each VA service contract include "[m]easurable metrics to ascertain the performance of the provider of the service, relating to cost, schedule, and fulfillment of contract requirements"; milestones for provision of the service; "[s]afeguards to ensure that the service provided meets a minimum threshold of quality determined by the Secretary," to include a financial penalty if the service provider fails to meet the threshold; and "[m]easurable metrics relating to the use of award or incentive fees."
  • The Small Business Regulatory Flexibility Improvements Act (S. 584) has been introduced in the Senate and seeks to provide additional protections for small businesses during rulemaking. The bill would require that a regulatory flexibility analysis "contain a detailed description of alternatives to the proposed rule which minimize any adverse significant economic impact or maximize any beneficial significant economic impact on small entities."
  • Representative Ed Perlmutter (D-CO) introduced, for the fourth time since 2009, the Foreign Business Bribery Prohibition Act of 2017 (H.R. 1549), which would provide a private right of action under the Foreign Corrupt Practices Act (FCPA) for persons who could prove that a defendant's FCPA violation "prevented the plaintiff from obtaining or retaining business for or with any person" and "assisted the defendant in obtaining or retaining such business."

Federal Reports of Interest to Contractors

  • The Government Accountability Office (GAO) issued its annual "Defense Acquisitions: Assessments of Selected Weapon Program" report, which concluded that the Department of Defense (DoD) had increased its buying power by $10.7 billion since last year, "meaning DOD is able to buy more goods or services for the same level of funding." The GAO asserted that this increase "resulted from some programs finding procurement efficiencies that more than offset inefficiencies in other programs." The GAO also found, however, that, compared to 2016, "more programs this year reported having no plans for competition before or after development start."
  • The GAO issued its "Contracting Data Analysis: Assessment of Government-Wide Trends" report, which found that in fiscal year 2015 federal agencies procured roughly $438 billion in products and services, about a 24 percent decrease from fiscal year 2011 levels. From 2011 to 2015, defense spending decreased by almost 31 percent, whereas civilian agency spending decreased by less than 7 percent (with the largest decrease occurring during the fiscal year 2013 sequestration). The GAO further found that, over the five-year period, about two-thirds of all contract obligations were incurred through competitive contracts and that nearly two-thirds of all contracts were fixed-price contracts. This shows how the government is more likely to place the risk on the contractor by utilizing fixed-price, rather than cost-reimbursement, contracts. Contractors should consider how these figures will likely change if the White House's Budget Blueprint and Reorganizing Plan (discussed above) take effect.
  • The GAO issued a report titled "HUBZone Program: Oversight Has Improved but Some Weaknesses Remain," which found that the SBA, while having made improvements, has not implemented all of the GAO's 11 recommendations since 2008 to improve the HUBZone program. Of note, the SBA still needs to make progress on implementing controls to verify the continued eligibility of firms seeking recertification and on ensuring that currently certified firms are notified of changes in their status that could affect their eligibility in the HUBZone program.
  • The DoD Office of Inspector General (OIG) issued a report—"The Army Needs to Improve Processes for Single-Award, Indefinite-Delivery Indefinite-Quantity Contracts"—that found that, from a sampling of 43 single-award Indefinite-Delivery Indefinite-Quantity (IDIQ) contracts awarded by the army between October 1, 2014 and December 31, 2015, the army relied on a Justification & Approval (J&A) instead of a Determination & Findings (D&F) in one instance, and that the army did not have uniform guidance to prepare, review, and submit D&F documents for single-award IDIQ contracts. The OIG recommended that the Deputy Assistant Secretary of the Army (Procurement) (DASA(P)) issue internal guidance on D&F documents for single-award IDIQ contracts and that contract officials submit D&F documents for certain contracts.
  • The General Service Administration's (GSA) OIG released a report titled "Audit of Price Evaluations and Negotiations for the Professional Services Schedule Contracts," the objective of which was "to determine if the price evaluation and negotiation of contracts and options awarded under [the Federal Acquisition Service's (FAS)] Professional Services Schedule [(PSS)] comply with federal regulations and policies." The OIG found that FAS has not been consistently evaluating and negotiating contracts and options under the PSS in accordance with the Federal Acquisition Regulation (FAR) or FAS policy, including by "consolidat[ing] certain pre-existing contracts into the PSS that resulted in the award of new contracts without establishing price reasonableness" and by using a combined "Pre and Price Negotiation Memorandum" template. The OIG recommended that the Office of Professional Services perform formal price analyses to determine fair and reasonable pricing and discontinue the use of the combined template.