The month of October brought a number of legal developments that will impact government contractors, including proposed legislation, reports, regulatory developments, and judicial and administrative decisions. This article provides a brief review of noteworthy recent updates to the legal landscape against which government contracts operate.
Legislative Developments
On September 28, 2018, Representative Brian J. Mast (R-FL) introduced H.R. 6975, the Reinforced Schools Act, which would "allow States and units of local government to purchase equipment suitable for school security activities through the Department of Defense." Such authority would exist alongside the existing authority under title 10 of the United States Code to procure such materials for the purposes of homeland security, bolstering the overall state and local procurement portfolio. Contractors serving the security market could therefore see increased opportunities to supply critical safety materials to these localities. The bill has been referred to the House Committee on Armed Services.
On October 2, 2018, Senator John Kennedy (R-LA) introduced S. 3539, "No Red and Blue Banks Act", which would prohibit the General Services Administration from "awarding contracts to certain insured depository institutions that avoid doing business with certain companies that are engaged in lawful commerce based solely on social policy considerations." If passed, this bill could dramatically decrease the contracting opportunities for such institutions. The bill has been referred to the Committee on Homeland Security and Government Affairs.
On October 5, 2018, Congressman Louie Gohmert (R-TX) introduced the Adam S. Lovinger Whistleblower Reprisal Act of 2018 (H.R. 7032), which seeks to offer additional protections for whistleblowers possessing a security clearance. In particular, H.R. 7032 would serve to protect whistleblowers from reprisal through the denial, suspension, or revocation of their security clearance. While the Whistleblower Protection Act of 1989 served to protect whistleblowers from reprisal, it did not cover retaliatory actions regarding security clearances. Therefore, the proposed legislation would amend the Intelligence Reform and Terrorism Prevention Act of 2004 (50 U.S.C. § 3341(j)) to remedy the lack of protection for this category of whistleblowers, and would serve as a deterrent for officials seeking to misuse the security clearance system by engaging in retaliatory conduct. The proposed amendment details that officers or employees involved in unlawful reprisal activities would face significant consequences, including being subject to suspension without pay for at least 14 days, reduction in grade pay, revocation of security clearance, removal from federal service, or debarment from federal service not to exceed 10 years. H.R. 7032 has been referred to the House Committee on Oversight and Government Reform.
On October 19, 2018, the house referred H.R. 6080, the Worker's Freedom to Negotiate Act of 2018, to the Subcommittee on Workforce Protections. The bill, introduced on June 13, 2018 by Representative Robert Scott (D-VA), would amend several sections of the National Labor Relations Act, the Labor Management Relations Act of 1947, and the Labor-Management Reporting and Disclosure Act of 1959. In particular, the proposed legislation expands the section on unfair labor practices which include, but are not limited to, the following: protections for employees participating in a strike, protection from requiring or coercing employees to engage in political activities, and protection from employees entering into agreements with employers to not engage in litigation or support any collective legal claim. Further, the bill reiterates that charges of unfair labor practices will be given priority in the office where the charge is filed, and if a petition for relief is filed, the district court shall grant such request unless it finds that the Board is unlikely to succeed on the merits. If passed, contractors should familiarize themselves with the obligations and restrictions under these amended sections, and implement appropriate protocols to avoid enhanced penalties.
Reports and Investigations
On September 26, 2018, the Congressional Research Service updated a report, "Selected Legal Tools for Maintaining Government Contractor Accountability." The report provides an overview of the legal tools at the Government's disposal to "help ensure a contractor adequately performs a contract or, if warranted, to hold a contractor accountable for performance failures or misconduct." These include, but are not limited to (1) contractual rights and remedies, including requiring contractors to perform corrective actions to ensure strict compliance with contract requirements, offering incentive fees to motivate exceptional contract performance, and utilizing payment and performance bonds which both serve to protect the Government but also incentivize contractor accountability; (2) contractor performance evaluations, which include responsibility determinations and the assignment of qualitative ratings that can be considered in future negotiated procurements; and (3) other legal tools including suspension and debarment, and civil liability, including under the False Claims Act. Contractors should consider these avenues the Government employs to ensure successful contract performance and proactively work to achieve compliance with performance requirements short of these measures being invoked.
On October 9, 2018, the U.S. Department of Defense (DoD) Office of Inspector General issued a Project Announcement, "Audit of DoD Service-Disabled Veteran-Owned Small Business Contract Awards" (Project No. D2019-D000AX-0019.000). The objective of the audit, which was slated to begin in October, "is to determine whether the DoD award Service-Disabled Veteran-Owned Small Business (SDVOSB) set-aside and sole-source contracts to eligible contractors." Contractors holding such contracts should expect scrutiny to their SDVOSB status and keep in mind that properly representing a company's small business status remains a ripe area for investigation.
On October 11, 2018, the U.S. Small Business Administration (SBA) Office of Inspector General (OIG) published its Report on the Most Serious Management and Performance Challenges Facing the Small Business Administration in Fiscal Year 2019. For government contractors—and particularly small business concerns and companies that have recently outgrown their small business status—this report highlights key areas to watch for policy updates in the coming year, including the methods for tracking procurement data to reliably measure agencies' achievement of small business contract goals in accordance with the Small Business Act. For a further discussion of this report, please see Venable's Government Contracts Update published earlier this month.
Regulatory Developments
On October 4, 2018, the DoD withdrew the proposed rule – 83 Fed. Reg. 42,831 – regarding performance-based payments and progress payments. The proposed rule would have sought to "increase DoD's business effectiveness and efficiency" and "provide an opportunity to both small and other than small entities to qualify for increased customary progress payment rates and maximum performance-based rates based on whether the offeror/contractor has met certain performance criteria."
On October 5, 2018, the U.S. Department of Labor's Office of Federal Contract Compliance Programs (OFCCP) submitted to the Office of Management Budget (OMB) a proposed contractor recognition Program, titled Leadership in Equal Access and Diversity Award (LEAD). Currently, the OFCCP is in charge of administering and enforcing three equal opportunity laws that attempt to prevent workplace discrimination: Executive Order 11246, Section 503 of the Rehabilitation Act of 1973, and the Vietnam Era Veterans' Readjustment Assistance Act of 1974. This award will go to non-construction contractors who have developed and successfully implemented equal opportunity and nondiscrimination programs. The focus of the award will concentrate on whether there has been fair treatment in the workplace regardless of sex, religion, national origin, disability, sexual orientation, color, or status as a protected veteran. The purpose of the initiative is to reward those contractors who have exemplary policies while fostering a collaborative environment with the community.
Developments from the Courts, Boards, and GAO
In Development Alternatives, Inc. On Behalf of ERSM (Afghanistan) Limited, dba Edinburgh International v. Agency for International Development, CBCA Nos. 5942, 5943, et. al. (Sept. 27, 2018), the Civilian Board of Contract Appeals addressed the issue of prime contractor certification of a sponsored subcontractor claim when it cannot verify the specific costs claimed. Here, the Board dismissed the claims for lack of jurisdiction where the certification lacked all of the necessary elements required by the Contract Disputes Act, seemingly placing the prime contractor in the untenable position of needing to certify data that it may be unable to independently review.
On October 11, 2018, the U.S. Government Accountability Office (GAO) dismissed as premature a protest filed before the close of the debriefing period under the DoD's enhanced debriefing rules. See Celeris Sys., Inc., B-416890, Oct. 11, 2018, 2018 CPD ¶ __ at 2. In Celeris, the protester filed its protest at the GAO prior to receiving the agency's answers to its written questions, the question and answer period being provided under the new enhanced debriefing procedures. However, given that the debriefing period remains open until the agency responds to any questions submitted, any protest filed prior to the close of the debriefing is considered premature, and not properly before the GAO. This decision adds another consideration to the numerous concerns applicable to a protester's timeliness assessment in filing before the GAO.
On October 17, 2018, the U.S. Court of Appeals for the Federal Circuit ruled that the requirement for the U.S. Department of Veterans Affairs (VA) to give preference to veteran-owned small businesses (VOSBs) trumps other statutory preferences, such as contracting preferences for the blind and severely disabled under the Javits-Wagner-O'Day Act (JWOD), 41. U.S.C. § 8504. PDS Consultants, Inc. v. U.S., --- F. 3d ---, 2018 WL 5019735 (Fed. Cir. Oct. 17, 2018). The panel first found that the U.S. Court of Federal Claims properly exercised jurisdiction over the original lawsuit, given that PDS Consultants' claims fell within the Tucker Act's interested party definition, and concerned a "procurement" under the Tucker Act's broad limitations. On the merits, given that both the Rule of Two requirement and statutory preference for procurement of products and services from the JWOD list are mandatory, the Federal Circuit utilized the tenet of statutory construction that "a specific statute takes precedence over a more general one," which resulted in a finding that the VA's Rule of Two requirement took precedence over the JWOD requirements. Id. at *10 (quotation omitted).