The month of May has seen several developments in federal procurement practices that may impact government contractors, including various regulatory changes and court opinions.
As described in more detail in a recent Venable Government Contract Update, the U.S. Small Business Administration (SBA) is proposing to overhaul its regulations to remove the option for Women-Owned Small Business (WOSB) concerns and Economically Disadvantaged Women-Owned Small Business (EDWOSB) concerns to self-certify their status with the SBA, among other measures. The proposed rule requires that to receive contracts awarded as set-aside or sole-source contracts to WOSBs or EDWOSBs under the SBA's WOSB Federal Contract Program, a small business concern must be certified as a WOSB by "a Federal agency, a State government, the Administrator [of the SBA], or a national certifying entity approved by the Administrator." Comments on the proposed rule will be accepted through July 15, 2019.
On May 7, 2019, the U.S. Department of Justice (DOJ) issued formal guidance that it may grant credit for cooperation during False Claims Act (FCA) investigations. Under the guidance, cooperation credit may be earned by voluntarily disclosing misconduct unknown to the government, cooperating in an ongoing investigation, or undertaking remedial measures in response to a FCA violation. Cooperation credit will take the form of reducing the penalties or the multiple damages sought by the DOJ, although the amount and type of credit remain within the DOJ's discretion, based on the facts and circumstances of each case.
On May 10, 2019, the Federal Acquisition Regulation (FAR) Council issued a proposed rule implementing section 847 of the NDAA for FY 2018. The proposed rule expands the definition of a "commercial item" under the FAR to include certain items sold in substantial quantities to foreign governments, and has the potential to extend commercial item status to defense articles that have been sold to foreign militaries, including sales under the Foreign Military Financing program. Comments on the proposed rule will be accepted through July 9, 2019.
The U.S. General Services Administration (GSA) has announced plans to launch a "proof of concept" portal to test its planned online marketplace system, aiming to issue an RFP by the end of the year for web-based acquisition platforms. The test portal is planned to launch toward the end of 2019 and will be based on an "e-marketplace" model that connects federal customers to a range of competing vendors. GSA expects to award multiple prototype contracts using a multi-award model, and has stated that there is unlikely to be a cap on the number of vendors.
Legislative Developments and Executive Orders
The House Committee on Small Business passed H.R. 2345, Clarifying the Small Business Runway Extension Act, which mandates that SBA implement the Runway Extension Act before the end of 2019. The Runway Extension Act changed the period of measurement used to determine the size of a business from three years to five. The purpose of the bill, according to the House Committee on Small Business report, is to "help advanced-small contractors successfully navigate the middle market as they reach the upper limits of their small size standard." According to Congress, the Act will allow businesses more time to prepare for "graduation" to other-than-small status, and will build in some wiggle room for companies to take on additional revenue in a particularly robust fiscal year. If this bill becomes law, it will become effective immediately.
The House Appropriations Committee approved its FY 2020 defense spending bill on May 15, 2019. In total, the bill provides $690.2 billion in new discretionary spending authority for the U.S. Department of Defense (DOD) for functions under the Defense Subcommittee's jurisdiction, an increase of $15.8 billion above the FY 2019 enacted level, and $8 billion below the president's budget request. The bill would also provide a 3.1% pay hike for service members, fund 90 F-35 fighter jets, and provide $15 million for a U.S. Space Force. The legislation would also block the use of defense funds to build the president's wall along the southern border, and prohibit the transfer of F-35 jets to Turkey. Finally, the legislation also restricts the Pentagon's ability to transfer funding from one program to another. The bill next heads to the full committee for markup.
President Trump issued an executive order on May 2, 2019 to introduce new initiatives and expand existing national efforts intended to "grow and strengthen" the U.S. cyber workforce. The programs laid out in the order are intended to better standardize cross-government language around cybersecurity, incentivize engagement by academia and federal agencies, and accelerate learning to address the nation's urgent need to fill the cyber workforce gap. The order calls on agencies to facilitate the mobility of cybersecurity professionals into and outside of the federal government and industry.
Relevant Judicial and Administrative Decisions
On May 8, 2019, the U.S. District Court for the Eastern District of California, in Markus v. Aerojet Rocketdyne Holdings, Inc., allowed a False Claims Act plaintiff ("the relator") to proceed with claims against Aerojet Rocketdyne for its alleged failure to meet cybersecurity standards. The relator alleges that Aerojet Rocketdyne Holdings Inc. and subsidiary Aerojet Rocketdyne Inc. entered into DOD and NASA contracts knowing they didn't meet the minimum cybersecurity standards required to win those deals. According to the relator, any cyberattack on Aerojet "exposes not only the intellectual property developed by Aerojet but also intellectual property developed by other defense contractors that Aerojet must store on its system to perform the contract." The judge in the case concluded that the allegations are plausible and material to the government's decision to enter into and pay on the relevant contracts. With this decision, cyber-security compliance could become a new focus of False Claims Act litigation.
On May 2, 2019, the U.S. Court of Appeals for the Federal Circuit reversed a U.S. Court of Federal Claims denial of a bid protest in National Government Services, Inc. v. United States, as the Federal Circuit ruled that agency limits on the amount of work that could be awarded to a single Medicare administrative contractor (MAC) violated the over-arching requirement for full and open competition. The Centers for Medicare and Medicaid Services (CMS) designed an award limitations policy applicable to all solicitations that capped awards at 26% of the national workload. The Federal Circuit held that the Competition in Contracting Act is violated when an agency develops "a blanket policy applicable to [a subset of solicitations] that effectively excludes offerors from competing without documenting the need [to exclude] a particular contractor." The court further held that the mere ability to submit an offer does not qualify as full and open competition where such a submission may be futile in light of the solicitation's award limitations.
In a unanimous decision issued on May 13, 2019, the U.S. Supreme Court, in Cochise Consultancy Inc. et al. v. U.S. ex rel. Hunt, ruled that the three-year statute of limitations period applicable in qui tam suits (31 U.S.C. § 3731(b)(2)) runs three years after "the official of the United States charged with responsibility to act in the circumstances" knew or should have known the relevant facts, but not more than 10 years after the violation applies in cases in which the government elects not to intervene. The Court also ruled that the relator in a suit where the government has not intervened is not "the official of the United States" whose knowledge triggers the running of the three-year limitations period.
On April 8, 2019, the SBA, in C & E Industrial Service, Inc., overturned a set-aside award to a woman-owned small construction business, stating that the purported awardee could not show the required "control of the business" because the purported women officers did not have the "managerial experience of the extent and complexity needed to run the concern." These women lacked prior construction experience and failed to hold similar positions in other industries, while their respective husbands, who serve as the firm's secretary and treasurer, had extensive experience in the construction industry. The company job descriptions and organization chart indicated that the women could control the firm, but the SBA found that this use of paperwork, without more, was insufficient to demonstrate "women-owned" control.
A Government Accountability Office (GAO) report released on May 6, 2019 stated that agencies need to do a better job of tracking and reporting the exact amounts of money saved by using cloud services. GAO explained that the lack of consistent reporting makes it difficult for government agencies to make informed decisions about when and whether to use cloud services. For its report, GAO surveyed 16 agencies, including the DOD and the U.S. Department of State, and put forth 34 recommendations to the agencies, as well as a suggestion that the Office of Management and Budget require strict, quarterly savings reporting on cloud investments.
A GAO report released on May 21, 2019 identified 98 new recommended actions for Congress or the executive branch, that could provide potential opportunities for billions of dollars in savings, including in the administration of government contracts. The GAO stated that "[t]he federal government continues to face an unsustainable long-term fiscal path caused by an imbalance between federal revenue and spending," and put forth a number of possible ways to improve the situation.