There have been several legal developments in the past month that may affect government contractors. This article gives a brief overview of those developments.
DoD Acquisition Reform
- RAND Report. The RAND Corporation publicly released its report, "Assessing Bid Protests of U.S. Department of Defense Procurements," which RAND undertook as part of the requirement set forth in Section 885 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2017 for a "comprehensive study on the prevalence and impact of bid protests on Department of Defense acquisitions." Among many observations, the report found that, while bid protest activity for both DoD and civilian agencies had doubled between FY 2008 and FY 2016, with protests of DoD procurements accounting for roughly 60% of total protest actions during that time, the overall percentage of DoD contracts that were protested was only 0.3%. The report also found that protest activity has increased at both the Government Accountability Office (GAO) and the Court of Federal Claims (COFC) and that small businesses filed the majority of the protests filed in both forums. RAND made several recommendations based upon its study, including improving the quality of post-award debriefings, being cautious in reducing the GAO's bid protest timeline and in restricting task order protests at the GAO, and consideration of an expedited process for protests of contracts under $100,000, as well as ways to reduce and improve protests from small businesses.
- Section 809 Panel Volume 1 Report. On January 31, 2018, the Section 809 Panel released its Volume 1 Report on DoD acquisition reform, the first in a series of three volumes that encompass the Section 809 Panel's Final Report. One of the key areas of the report is the concept of the Dynamic Marketplace—"an outcome-based acquisition process for providing DoD simplified access to the global marketplace." The Panel identified five essential attributes that "should be inherent in tomorrow's outcome-based acquisition system," which were: (1) competitive and collaborative, (2) adaptive and responsive, (3) transparent, (4) time-sensitive, and (5) allowed for trade-offs. The Report also makes recommendations regarding commercial buying, contract compliance and audits, defense business systems, earned value management for software programs using Agile, services contracting, small business, statutory offices and designated officials, and statutory reporting requirements. Venable will provide a more in-depth review of the Volume 1 Report soon.
- CRS NDAA Report. The Congressional Research Service (CRS) released a report, "Acquisition Reform in the FY2016-FY2018 National Defense Authorization Acts (NDAAs)," which provides an overview of many of the DoD acquisition reform efforts that Congress has passed as part of the last three NDAAs, including some of the most important provisions of the FY 2018 NDAA, such as the requirement for a three-year pilot program requiring companies to pay DoD costs associated with GAO bid protests when the GAO denies all of a company's protest grounds (which Venable previously covered here).
Small Business Issues
- VA Proposed Rule. On January 10, 2018, the Department of Veteran Affairs (VA) proposed a rule to amend its regulations governing the VA's Veteran-Owned Small Business (VOSB) Verification Program. Section 1832 of the FY 2017 NDAA required the VA to utilize the Small Business Administration's (SBA's) regulations to evaluate VOSB and Service-Disabled Veteran-Owned Small Business (SDVOSB) eligibility. Therefore, the VA is proposing to amend its regulations to use the SBA's definition of small business concern, including its ownership and control provisions. The proposed rule comes on the heels of the Court of Federal Claims (COFC) decision in Veterans Contracting Group v. United States in December 2017, in which COFC characterized the SBA's ownership rules as producing "draconian and perverse results." The proposed rule also expands the meaning of the "good character" eligibility requirement that VOSB and SDVOSB concerns must meet to be in the Verification Program. Rather than simply requiring that concerns must have good character and that debarred or suspended concerns are ineligible, as the current regulation does, the proposed rule states that concerns owned or controlled by a person who is incarcerated, is on parole or probation, or is formally convicted of a crime are ineligible for the program. The VA is accepting comments on the proposed rule through March 12, 2018.
- SBA Proposed Rule. On January 29, 2018, less than three weeks after the VA's proposed rule on ownership and control, the SBA proposed its own rule to implement Section 1832 of the FY 2017 NDAA, which places the responsibility for issuing regulations regarding ownership and control of VOSBs and SDVOSBs on the SBA. The proposed rule would make a number of changes to 13 C.F.R. Part 125. Among other changes, the proposed rule would amend definitions in 13 C.F.R. § 125.11 by adopting language from the VA's and the SBA's 8(a) Business Development program regulations. The proposed rule would add definitions for daily business operations, negative control, participant, unconditional ownership, employee stock ownership plan (ESOP), service-disabled veteran with a permanent and severe disability, small business concerns, and extraordinary circumstances. The SBA is accepting comments on the proposed rule through March 30, 2018.
- SBA 2018 Regulatory Agenda—HUBZone Changes. On January 12, 2018, the SBA released its semiannual regulatory agenda for 2018. One of the items that the SBA will review is the Historically Underutilized Business Zone (HUBZone) program. The SBA characterizes its future proposed rule as constituting "a comprehensive revision of part 126 of SBA's regulations to clarify current HUBZone Program regulations, and implement various new procedures." The SBA indicates that "[t]he amendments will make it easier for participants to comply with the program requirements and enable them to maximize the benefits afforded by participation." This announcement comes in the wake of Section 1701 of the FY 2018 NDAA, which requires certain amendments to the HUBZone provisions of the Small Business Act. The SBA's timetable for the release of the notice of proposed rulemaking with respect to the HUBZone amendments is May 2018. Venable will track this proposed rule and keep readers apprised of the new amendments.
- GAO NAICS Code Report. On January 4, 2018, the GAO publicly released its December 2017 report, "Small Business Contracting: SBA Efforts May Clarify the Assignment of Industry Codes, and Most Code Appeals Were Dismissed." In the report, the GAO analyzed issues relating to North American Industry Classification System (NAICS) codes, including the factors contracting officers consider when assigning a NAICS code to a solicitation or order. Some of these factors were statements of work and market research reports, input from small business specialists, contract writing system requirements, codes assigned to other contracts, and the purpose of the order. The report also discussed how forthcoming updates to the Federal Acquisition Regulation (FAR) would respond to the SBA's 2013 final rule that clarified that, if a multiple-award contract consists of discrete categories, contracting officers may assign a different NAICS code and corresponding size standard to each category. With respect to NAICS code appeals filed at the SBA Office of Hearings and Appeals (OHA), the report found that, of the 62 NAICS code appeals that were filed between 2014 and 2016, OHA dismissed 35, denied 15, and granted 12 of them.
- GSA 2018 Regulatory Agenda. On January 12, 2018, the General Services Administration (GSA) announced its semiannual regulatory agenda, which, among other regulatory matters, included its plans to improve cybersecurity protections and reporting requirements for contractors with access to unclassified government systems and the data stored therein. In particular, GSA explained that it would perform a rulemaking of the GSA Acquisition Regulation (GSAR) to "protect the confidentiality, integrity, and availability of unclassified GSA information and information systems from cybersecurity vulnerabilities, and threats." Furthermore, this rule, among other things, "establishes an explicit time frame for reporting cyber incidents, [and] details the required elements of a cyber incident report." While many may believe that such a rule would not impact them if they do not do business with GSA, contractors should be mindful,- as this rule will likely find its way into GSA Schedule contracts, thereby applying to work that many companies perform with a host of federal agencies. Neither this, nor any of GSA's other planned rules, have yet to be issued for comment, but Venable will certainly track this information and keep our readers apprised as they are issued.
- TDR Pilot Program. On January 23, 2018, GSA contracting officers informed GSA Federal Supply Schedule (FSS) contract holders that it would be initiating a one-time, 90-day opt-out of the agency's Transactional Data Reporting (TDR) pilot program. As discussed in previous articles, the TDR program was viewed as GSA's solution to the much maligned and criticized Most Favored Customer and price reduction clause approach that had been in place for decades. While a change was welcome from this previous approach that often left contractors facing stiff penalties for unwitting noncompliance, the TDR program was rife with problems from the beginning. In light of this, contractors can apply through GSA's e-modification process to a contract modification eliminating the applicability of the TDR and its applicable provisions. In place, contractors will need to complete the traditional Commercial Sales Practices (CSP) form, which requires a disclosure of all pricing practices, and agree to the terms of the price reduction clause (GSAR 552.238-75). At this time, it is not clear if GSA is completely abandoning the TDR program or if the agency is considering other alternatives to the traditional Most Favored Customer approach.
- Final Rule on Order-Level Materials. On January 24, 2018, the GSA announced its final rule amending the GSAR to incorporate Order-Level Materials (OLM) into its Multiple Award Schedule (MAS), or FSS, program. OLMs are "supplies and/or services acquired in direct support of an individual task or delivery order placed against an FSS contract or [Blanket Purchase Agreement (BPA)], when the supplies and/or services are not known at the time of contract or BPA award." Through this final rule, vendors will be permitted to include OLMs on individual task orders. The final rule became effective immediately.
- Section 846 Meeting. Section 846 of the FY 2018 NDAA,"Procurement Through Commercial e-Commerce Portals," directed the Administrator of General Services to establish a program to procure commercial products through commercial e-commerce portals "for purposes of enhancing competition, expediting procurement, enabling market research, and ensuring reasonable pricing of commercial products." Section 846 requires GSA and the Office of Management and Budget (OMB) to submit an implementation plan to Congress within 90 days. In order to facilitate engagement with external stakeholders, in December 2017 GSA and OMB announced that it would hold a public meeting on January 9, 2018. The transcript of that meeting is now available for those who are interested.
- GAO CIO Report. The GAO released a report, "Information Technology: Agencies Need to Involve Chief Information Officers in Reviewing Billions of Dollars in Acquisitions." The FY 2015 NDAA included the Federal Information Technology Acquisition Reform Act (FITARA), which requires, among other requirements, that the Chief Information Officers (CIOs) of major civilian agencies review and approve Information Technology (IT) contracts. In conducting a study on agencies' compliance with FITARA, the GAO found that 14 of 22 agencies did not involve the acquisition office in identifying IT acquisitions for CIO review and also did not fully satisfy the requirement that the CIO review and approve IT acquisition plans and strategies. As a result of these failures, the GAO determined that "agencies may award IT contracts that are duplicative, wasteful, or poorly conceived."
- CRS Bid Protest Report. CRS released a report, "Government Contract Bid Protests In Brief: Analysis of Legal Processes and Recent Developments," which provides an overview of bid protests before the procuring agencies, GAO, and COFC, as well as an analysis of the legal distinctions between all three. The report also discusses some of the recent NDAA reform efforts, including the RAND report and the three-year DoD pilot program, which are mentioned above.
- BuyAmerican.gov. On January 9, 2018, Senator Rob Portman (R-OH) introduced S. 2284, the "BuyAmerican.gov Act of 2018," which requires the Administrator of General Services to establish a publicly available and free website—BuyAmerican.gov—which would "include information on all waivers of and exceptions to Buy American laws that have been requested, are under consideration, or have been granted by executive agencies and be designed to enable manufacturers and other interested parties to easily identify waivers." The bill would further require agencies to submit waiver requests to be made available for public comment on the website for 15 days prior to making a finding on the request. The bill also states that "public interest waivers from Buy American Laws shall be construed to ensure the maximum utilization of goods, products, and materials produced in the United States." The bill contains several reporting requirements from agencies, the Secretary of Commerce, the Comptroller General, and others regarding the implementation of and compliance with the Buy American laws. On January 17, 2018, Rep. David Cicilline (D-RI) introduced a similar bill—H.R. 4812, the "21st Century Buy American Act"—which also establishes the BuyAmerican.gov website and further sets forth required criteria for use of the overseas and public interest exceptions in 41 U.S.C. § 8302.
- Chinese Telecommunications Equipment and Services. On January 9, 2018, Rep. K. Michael Conaway (R-TX) introduced H.R. 4747, the "Defending U.S. Government Communications Act," which provides that the head of an agency "may not procure or obtain, may not extend or renew a contractor to procure or obtain, and may not enter into a contract . . . with an entity that uses any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system." "Covered telecommunications equipment or services" includes equipment or services produced or provided by an entity that the head of the agency reasonably believes to be an entity owned by, controlled by, or connected to the government of the People's Republic of China.