June 1, 2017

Legal Developments for Contractors to Consider

7 min

The month of May saw a number of legal developments that may affect government contractors, ranging from a new executive order to legislative updates, federal reports, and a noteworthy Small Business Administration (SBA) decision. This article provides a brief review of those developments.

Executive Branch Actions

The President's Fiscal Year 2018 Budget, which was released on Tuesday, May 23, 2017, would increase defense, public safety, and infrastructure spending by increasing funding at the U.S. Department of Defense (DoD) and the U.S. Department of Homeland Security (DHS), while cutting funding at agencies such as the U.S. Department of State and the U.S. Environmental Protection Agency (EPA). Additional cuts would be made in education, labor, and arts programs. The various increases and cuts would affect government contractors in numerous and potentially surprising ways: for instance, although DoD spending would increase overall, "redundant" service contracts would be cut. Reductions in, and outright eliminations of, federal programs and independent agencies would also affect grants; while some grant programs would be maintained, others would be eliminated altogether. Although the budget gives some insight into the direction of the federal government going forward, it is up to Congress to determine whether, and the extent to which, the budget will be passed. In addition to monitoring Congress's actions with regard to the President's budget, contractors should remain alert to budget decisions that are made at the agency level, such as the U.S. Department of Labor's budget proposal to merge the Office of Federal Contract Compliance Programs (OFCCP)—which holds contractors and subcontractors responsible for complying with the legal requirement to take affirmative action and not discriminate—into the Equal Employment Opportunity Commission (EEOC) by the end of Fiscal Year 2018.

On May 11, 2017, President Trump signed an executive order on "Strengthening the Cybersecurity of Federal Networks and Critical Infrastructure" that:

  • Directs agency heads to use the National Institute of Standards and Technology (NIST) Cybersecurity Framework for risk management, and to provide within 90 days a risk management report to DHS and the Office of Management and Budget (OMB) on the implementation of the framework and risk management strategies employed by the department or agency;
  • Directs DHS and OMB to assess federal agencies' cybersecurity risk management strategies in order to determine the adequacy of cyber protections across federal networks and identify any unmet budgetary or policy needs;
  • Directs DHS and OMB to provide a plan to the President, within 60 days of receiving the agency reports, on how to protect the executive branch enterprise; and
  • Directs DHS and other agencies to provide the President with a report within 90 days on the technical feasibility of transitioning all agencies to one or more consolidated network architectures and shared IT services.

The executive order affirms the White House's policy of promoting an interoperable, reliable, and secure Internet by:

  • Directing an interagency team to submit a report within 90 days to the President on the nation's strategic options for deterring adversaries and better protecting the American people from threats in cyberspace;
  • Directing an interagency team to submit a report within 45 days on international cybersecurity priorities and, within 90 days of the submission of the priorities report, develop an international cybersecurity engagement strategy; and
  • Directing DHS and the U.S. Department of Commerce to lead coordination with other agencies and submit a report within 120 days on its findings and recommendations for supporting the growth and health of the nation's cybersecurity workforce.

This executive order forecasts further actions that will likely be taken by the Trump administration in its efforts to defend the United States against growing cyber threats. These actions will likely lead to new opportunities and compliance measures that will affect government contractors.

Ongoing Legislative Developments

  • The Senate Subcommittee on Strategic Forces held a hearing on Military Space Organization, Policy, and Programs. The hearing was accompanied by Government Accountability Office (GAO) testimony regarding how "DoD Continues to Face Challenges of Delayed Delivery of Critical Space Capabilities and Fragmented Leadership." The GAO identified "best practices" for DoD to follow, such as prioritizing investments so that projects can be fully funded, matching requirements to resources, and holding program managers accountable for their choices. The testimony of Air Force officials signaled their interest in receiving continued or increased funding to retain a competitive advantage in the space domain.
  • The Committee on Veterans' Affairs (VA) held a hearing on Pending Health and Benefits Legislation—specifically, the Performance Accountability and Contractor Transparency Act of 2017 (S. 543), which was introduced in the Senate in March 2017. Some of the testimony addressed concerns with key sections of the legislation and requested clarity (e.g., regarding which contract modifications would require congressional notification). S. 543 requires that the VA Secretary 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 Committee on Homeland Security and Governmental Affairs ordered the Small Business Regulatory Flexibility Improvements Act (S. 584) to be reported favorably without amendment. S. 584, which was introduced in the Senate in March 2017, 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."

Federal Announcements and Reports

  • OMB announced in a Federal Register notice that it would provide non-federal entities that have been awarded federal grants with an additional one-year grace period to implement changes to their procurement policies and procedures, as required under OMB's Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (the "Super Circular"), which was issued in December 2013. The Super Circular created a number of compliance obligations for grant recipients, such as maintaining written standards of conduct and following specific prescribed procurement methods. OMB's extension permits grant recipients that are non-Federal entities, including colleges, universities, and nonprofit organizations, until December 26, 2017 to comply.
  • The VA's Center for Verification and Evaluation (CVE) published a new VA Verification Assistance Brief, "Understanding Joint Venture and Mentor-Protégé Agreement Eligibility." The brief explains the criteria that make a joint venture eligible for verification and inclusion in the VA VetBiz Information Pages database. Government contractors that are interested in doing business with the VA are cautioned that, while the VA's Assistance Briefs are more informative than the regulations (e.g., 38 C.F.R. Part 74), they are not infallible; companies should still seek the advice of legal counsel regarding questions about JV and mentor-protégé eligibility.
  • The GAO issued a report titled "Service Contracts: Agencies Should Take Steps to More Effectively Use Independent Government Cost Estimates." The GAO found that, even though independent government cost estimates (IGCEs) help the government better understand the potential cost of a contract and can be invaluable to planning service contracts, some of the agencies that spend the most on service contracts may not be taking advantage of IGCEs. To ensure that IGCEs are optimized as a tool in the procurement planning process and contain key information consistent with good cost estimating practices, the GAO issued a number of recommendations for various agencies to follow, such as clarifying guidance and providing additional training.

Noteworthy Decision

  • In Redhorse Corp., SBA No. VET-263 (2017), the SBA Office of Hearings and Appeals (OHA) determined that the Supreme Court's landmark decision in Kingdomware Technologies, Inc. v. United States does not stand for the proposition that new task orders off of a multiple-award contract are independent contracts in themselves. Consequently, disappointed offerors cannot protest the status of a Service-Disabled Veteran-Owned Small Business (SDVOSB) that is awarded a task order, since that status is determined at the time of initial offer for a multiple-award contract.