Congressional, Executive, and Legal Developments for Government Contractors to Consider
Executive Actions, Regulations, and Rulemaking
On April 1, 2019, the Department of Defense (DoD) issued a proposed rule that would amend the Defense Federal Acquisition Regulations Supplement (DFARS) to implement the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2017 provision that requires a preference for fixed-price contracts in the determination of contract type. See 84 Fed. Reg. ¶ 12,127. The proposed rule would also require review and approval for certain types of cost-reimbursement contracts in certain situations, and also requires the use of firm fixed-price contracts for foreign military sales, except in limited circumstances. Interested parties may submit comments on the proposed rule until May 31, 2019.
On April 24, 2019, the President enacted Executive Order 13869, Transferring Responsibility for Background Investigations to the Department of Defense. The Executive Order provides that while "the Secretary of Defense has the authority to conduct security, suitability, and credentialing background check investigations for Department of Defense personnel," the FY 2018 NDAA requires that the Secretary, in consultation with the Director of the Office of Personnel Management, "provide for a phased transition to the Department of Defense of the conduct of such investigations conducted by the National Background Investigations Bureau."
On April 30, 2019, Speaker Nancy Pelosi and Senate Democratic Leader Chuck Schumer made public statements regarding their recent meetings with President Trump, which concern a proposed plan to build infrastructure across the U.S., with all parties reaching agreement on a $2 trillion figure to support this effort. While such plans are still only in the early stages, topics discussed include "the roads and the bridges and the highways," which could provide business opportunities for contractors down the line, as well as "a big emphasis on broadband." If brought to fruition, these major projects could present significant opportunities for contractors across various sectors.
On April 30, 2019, the DoD issued a proposed rule to amend the DFARS to address the use of performance-based payments, as set forth in the FY 2017 NDAA. The proposed rule would amend DFARS 232.10, Performance Based Payments, and the corresponding DFARS clauses at 252.232-7012 and -7013, and add a new clause, DFARS 252.232 70XX. These changes would align the DFARS with Section 831 of the FY 2017 NDAA by removing the restrictions limiting performance-based payments to amounts "not greater than costs incurred up to the time of payment." However, contractors must still report costs incurred when requesting performance-based payments, "in order to have the data necessary for negotiation of performed-based payments on future contracts." The proposed rule would also incorporate the eligibility requirements for non-traditional defense contractors and other private sector companies, in addition to requiring representation from each offeror as to their compliance with Generally Accepted Accounting Principles. Comments on the proposed rule must be submitted on or before July 1, 2019.
Relevant Judicial and Administrative Decisions
On April 2, 2019, the U.S. Government Accountability Office (GAO) issued a decision denying a protest and rejecting one of the protester's arguments, namely, that an agency must contact each of an offeror's past performance references where the solicitation does not require such an action. SeeAlexandra Construction, Inc., B-417212, Apr. 2, 2019. Instead, the GAO found this action reasonable, as it did for the agency's decision to contact a third-party firm not listed in the offeror's proposal. Because the Federal Acquisition Regulations (FAR) does not prohibit this action, and instead permits the consideration of any information relevant to the party's past performance, the GAO found this allegation to lack merit. From this, offerors should understand that the universe of information that Contracting Officers consider is not always limited to the four corners of an offeror's proposal.
On April 4, 2019, the GAO dismissed a protest challenging the evaluation of proposals because the underlying procurement involved an "other transaction agreement" or "OTA" issued pursuant to 10 U.S.C. § 2371b. See MD Helicopters, Inc., B-417379, Apr. 4, 2019. While under this statute, the Secretary of the Army is permitted to enter into OTAs, the GAO re-affirmed that "OTAs issued under this authority are not procurement contracts and do not fall under the provisions of the Federal Acquisition Regulation." Additionally, in such cases, the GAO reiterated its position that, with respect to procurements involving an OTA, the GAO's review authority is limited to pre award protests alleging that the agency is improperly using its other transaction authority to procure goods or services.
On April 8, 2019, the U.S. Small Business Administration's Office of Hearings and Appeals (OHA) issued a decision highlighting an often-overlooked characteristic necessary to qualify as a woman-owned small business (WOSB) or economically disadvantaged woman-owned small business (EDWOSB): experience. See In the Matter of C & E Industrial Services, Inc., SBA No. WOSB-112 (April 8, 2019). The OHA upheld a determination by the SBA that C & E Industrial Services, Inc. (C & E) did not satisfy the eligibility requirements for a WOSB, in large part because the owners did not possess the "managerial experience of the extent and complexity needed to run the concern" and therefore could not truly control the concern as required by the woman owned programs. See 13 C.F.R. § 127.202(b). For a more detailed discussion of this decision and its implications, please see Venable's coverage and analysis here.
Government White Papers, Reports, and Oversight
The GAO published a Report to Congressional Committees entitled "F-35 Joint Strike Fighter – Action Needed to Improve Reliability and Prepare for Modernization Efforts." The GAO found that while the "F-35 program has made slow, sustained progress in improving the aircraft's R&M [reliability and maintainability]." These aircraft are assessed against eight R&M metrics, which indicate how much time the aircraft will be in maintenance rather than operations. The study found that half of these metrics are not meeting targets. Additionally, while the report acknowledged that the DoD has a plan for improving R&M, the guidance is "not in line with GAO's acquisition best practices or federal internal control standards as it does not include specific, measurable objectives, align improvement projects to meet those objectives, and prioritize funding." If not corrected, this could result in "less reliable" and "more costly aircraft" than the warfighter may have previously envisioned.
In April 2019, the U.S. Department of Justice (DOJ) published a white paper entitled "Promoting Public Safety, Privacy, and the Rule of Law Around the World: The Purpose and Impact of the CLOUD Act." In reviewing the CLOUD Act, which was enacted to "speed access to electronic information held by U.S.-based global providers that is critical to our foreign partners' investigations of serious crime, ranging from terrorism and violent crime to sexual exploitation of children and cybercrime," the report concludes that the CLOUD Act would benefit from a "framework of executive agreements among rights respecting countries under the CLOUD Act," which would "support those countries' efforts to investigate serious crime—efforts that are vital to protecting our societies and keeping our citizens safe." The white paper also includes some Frequently Asked Questions regarding the overall CLOUD Act framework.
On April 15, 2019, the GAO publicly released a report entitled "Women-Owned Small Business Program: Actions Needed to Address Ongoing Oversight Issues." In the report, the GAO found that the SBA has only implemented one of the three changes to the WOSB program authorized by the 2015 NDAA, namely, publishing a rule to implement sole source authority. However, the SBA has not, for example, eliminated the self certification option. Additionally, the GAO determined that the SBA has not undertaken efforts to monitor certifiers charged with overseeing companies' eligibility for the WOSB program. As a result, the GAO recommended that the SBA develop a process for periodically reviewing the extent to which "WOSB program set-asides are awarded for ineligible goods or services and use the results to address identified issues, such as through targeted outreach or training on the WOSB program." SBA agreed with this recommendation, meaning that WOSBs should take special care to ensure they are satisfying all eligibility requirements as stricter review protocols will likely soon be enforced.
On April 24, 2019, the GAO issued a report entitled "2017 Disaster Contracting: Actions Needed to Improve the Use of Post-Disaster Contracts to Support Response and Recovery." The GAO's study focused on the Federal Emergency Management Agency's (FEMA) disaster response to the three hurricanes and various wildfires occurring in 2017, particularly how agencies complied with laws requiring, where practical, that agencies give preferences to local businesses to support the disaster relief efforts. The study found that agencies experienced challenges contracting with local vendors, and also found that there was a lack of comprehensive data concerning 2017 disaster-related contracting due to FEMA's "inconsistent implementation" of the criteria for closing a national interest action (NIA) code. As a result, the GAO provided 10 recommendations, including that agencies obtain greater guidance and training regarding local contracting obligations and gain greater visibility into the use of NIA codes, including ensuring they are properly closed out.
The U.S. Department of Labor's Office of Federal Contract Compliance Programs (OFCCP) submitted a request to the U.S. Office of Management and Budget for approval to conduct compliance checks for construction contractors to ensure such contractors are complying with their Affirmative Action Program and recordkeeping requirements, rather than the current "lengthier and more involved" process of compliance reviews. With the use of compliance checks, the OFCCP would retain the ability to undertake a more in-depth investigation into a contractor's compliance with relevant procedures as necessary, but will impose a smaller burden overall should contractors demonstrate compliance through the more limited compliance check process.