June 2019

Congressional, Executive, and Legal Developments for Government Contractors to Consider

9 min

Regulatory Developments

On June 24, 2019, the U.S. Small Business Administration ("SBA") finally issued a proposed rule in response to the 2018 Small Business Runway Extension Act, which increased the time period over which receipts are averaged for purposes of calculating a concern's size from three years to five. The proposed rule specifies that it will go into effect only after the effective date of a final rule, confirming SBA's intention to continue to apply the three-year averaging period to any certification submitted prior to the effective date of the final rule.

On May 20, 2019, the U.S. Department of Veterans Affairs ("VA") issued a class deviation from Department of Veterans Affairs Acquisition Regulation ("VAAR") 808.002, Priorities for Use of Government Supply Sources, and VAAR Subpart 808.6, Acquisition from Federal Prison Industries, Inc., the two provisions implementing the FAR Part 8 mandatory source priority of AbilityOne Procurement List and Federal Prison Industries contractors. The class deviation effectively gives Veterans First providers priority over AbilityOne providers in all VA contract opportunities should two or more veteran-owned small businesses ("VOSBs") or service-disabled veteran-owned small businesses ("SDVOSBs") be capable of performing the contract at a reasonable price. The newly implemented class deviation preempts the AbilityOne priority in all VA procurements in favor of a Veterans First priority. However, "if an award is not made to an eligible . . . VOSB under VAAR Subpart 819.70, the priority use of AbilityOne applies, and supplies and services on the Procurement List are mandatory sources." The class deviation was immediately effective and to be implemented in all VA contracts.

On June 11, 2019, the House Armed Services Committee published the draft 2020 National Defense Authorization Act ("NDAA"). Notable potential changes include a reduction in the monetary threshold for enhanced DoD post-award debriefing rights and a grant of permanent authority for DoD's Mentor-Protégé Program. The 2018 NDAA implemented "Enhanced Post-Award Debriefing Rights" for certain DoD procurements. This change required defense agencies to provide the agency's written source selection award determination for all small business contracts valued between $10 and $100 million, and all defense contracts valued over $100 million. Section 828 of the draft 2020 NDAA would reduce the monetary threshold for these enhanced debriefings to only $50 million, significantly increasing the number of procurements for which they must be provided. Section 881 of the draft NDAA permanently authorizes the DoD Mentor-Protégé Program and requires that the DoD's Office of Small Business Programs establish mentor-protégé performance goals and periodic reviews.

Recent Cases and Administrative Decisions

As described in more detail in a recent Venable Government Contract Update, the U.S. Supreme Court's decision in Food Marketing Institute v. Angus Leader Media, No. 18-481 (U.S. June 24, 2019) changes the standard that agencies will be required to utilize when determining whether certain confidential commercial information should be under Exemption 4 of the Freedom of Information Act ("FOIA"). Exemption 4 protects "trade secrets and commercial or financial information obtained from a person [that are] privileged or confidential" from disclosure. 5 U.S.C. § 552(b)(4).

On June 3, 2019, in Veterans4you, Inc., B-417340, the Government Accountability Office ("GAO") found that the VA's Rule of Two is mandatory and applies universally regardless of which agency procures goods or services on the VA's behalf. In this case, the Government Printing Office ("GPO") procured goods on behalf of the VA. The GAO explained that the relevant statute mandates the use of the Rule of Two in the contemplation of any VA "contract, memorandum of understanding, agreement, or any other arrangement with any governmental entity….," 38 U.S.C. §8127(i), noting that the GPO fits squarely within the definition of a "governmental entity."

On June 4, 2019, in Adams & Associates, Inc., B-417534, the GAO found that it lacked jurisdiction over the protest of a task order solicitation where task order's value was below $10 million, excluding the value of an option to extend services where the solicitation did not provide for the pricing or evaluation of the option to extend services. The solicitation contemplated the award of a single task order with a six-month period of performance. Offerors were instructed to quote the six-month base period in their prices. While the solicitation did not specify any option periods, the overarching IDIQ contract incorporated the contract extension provision at FAR 52.217-8, which allows a contract's period of performance to be extended in six-month increments multiple times. The agency argued that the GAO lacked jurisdiction because the task order was valued at less than $10 million. In response, the protestor argued that the GAO did have jurisdiction because the GAO should include the price of the six-month option available to the agency under FAR 52.217-8. The GAO concluded that since the solicitation did not specifically call for the pricing of the FAR 52.217-8 option nor the evaluation of that option, the option period's value could not be considered part of the task order's total value of jurisdictional purposes.

On June 21, 2019, in Gulfnet Communications Company, W.L.L., B-417516, the GAO ultimately dismissed a protest challenging the evaluation of the awardee's quotation for lack of standing because the protester did not submit its quotation under the business name it used in a basic agreement with the agency. Gulfnet protested the Defense Information Systems Agency's ("DISA") award of a delivery order for fiber optic transmission services. Competition was limited to firms that previously had been awarded a basic agreement by the agency's Defense Information Technology Contracting Organization ("DITCO"); Gulfnet had a basic agreement with DITCO. Gulfnet subsequently tried to amend this basic agreement to incorporate "B.Online" as an assumed company business name, but failed to do so since it did not register this different name in SAM.gov or execute a change-of-name agreement. Gulfnet submitted its quotation to the challenged solicitation using B.Online as its entity name, and was subsequently excluded from the competition for failure to adhere to solicitation requirements. The GAO noted that the agency's concern that Gulfnet would not be bound by B.Online's quotation was valid, and found that B.Online was not an "interested party" for jurisdictional purposes since it was not party to a basic agreement with DITCO.

On May 9, 2019, in Kansas City Power & Light Co. v. United States, No. 15-348C, the Court of Federal Claims addressed the Contract Disputes Act ("CDA") statute of limitations for duties to defend and indemnify. The CDA requires that all claims arising under a government contract be filed within six years of the date of accrual. 41 U.S.C. 7103(a)(1), (4). Kansas City Power & Light Co. ("KCP&L") contracted with the General Services Administration ("GSA") to provide electrical services to a federal complex. The contact provided that GSA would defend and indemnify KCP&L with respect to claims arising thereunder. A wrongful death suit was then brought against KCP&L for the death of a GSA employee while on the contract. On March 7, 2008, GSA informed KCP&L that it refused to defend or indemnify it in the wrongful death suit. On June 25, 2014, KCP&L submitted a claim for expenses it incurred defending and settling the suit to the relevant contracting officer, which was denied. The Court analyzed the timeliness of KCP&L's duty to defend and duty to indemnify claims separately. The Court found that the duty to defend claim accrued as soon as KCP&L had knowledge that the GSA would not defend its wrongful death suit, and since KCP&L did not file this claim until more than six years later, the claim was barred by the CDA's statute of limitations. However, the Court found the duty to indemnify claim to be timely, noting that liability for indemnification claims attaches upon judgment or settlement in the underlying action.

GAO Reports

The GAO released a report on June 12, 2019, which found that the Small Business Administration ("SBA") had not fully implemented the GAO's prior recommendations, outlined in a 2014 report, to address oversight deficiencies in the Women-Owned Small Business ("WOSB") and Historically Underutilized Business Zone ("HUBZone") programs, as well as the need for improvement of its procurement scorecard. In the 2014 report, the GAO had found that the SBA did not have adequate procedures related to reviewing the performance of its third-party certifiers, which are private entities enlisted by the SBA to certify the eligibility of WOSB firms, as well as information the certifiers submitted to SBA. The SBA suspended review of these certifiers in June 2018, stating that they did not intend to review the certifiers until a final rule implementing a new certification process is implemented. This final rule is anticipated in June 2021. The GAO found that this delay in improving the WOSB Program oversight prevents the SBA from assuring compliance of the certifiers and hinders improvement in identifying ineligible firms and potential fraud.

Additionally, the GAO addressed unanswered recommendations regarding the SBA's HUBZone Program. In September 2018, the GAO released a report in which it reviewed a sample of 12 firms in Puerto Rico that received HUBZone certification between March 2017 and March 2018, and found that the SBA had not been consistently documenting or following its procedures for HUBZone certification review. The GAO found that the SBA lacked complete documentation for nine of the 12 firms and did not follow its internal policy of conducting three levels of review when determining whether to approve or deny a firm in four of 12 of the certifications reviewed. These findings allowed the GAO to conclude that the SBA did not have reasonable assurance that firms were meeting HUBZone criteria before being certified. The SBA responded to the GAO's recommendations with a plan to update internal policies regarding certification and recertification, and conduct and document review of staff compliance with certification procedures; however, as of May 2019, the SBA had not provided documentation demonstrating any of these steps had been taken. The GAO had also recommended that the SBA design and implement an evaluation scheme to assess its Small Business Procurement Scorecard revisions, which were not fully addressed by SBA.

On June 24, 2019, the GAO publically released a report that found that about $12 billion worth of government awarded contracts were awarded to foreign-located firms, of which about $5 billion went to firms with reported locations in the other six main parties to the World Trade Organization Agreement on Government Procurement ("GPA") and the North American Free Trade Agreement ("NAFTA"), including the European Union ("EU"), Canada, Japan, Norway, Mexico, and South Korea. The GAO also determined that the U.S. government awarded more, by dollar value, to foreign-owned firms located abroad than to foreign-owned firms located in the United States. Of the contracts awarded to foreign-owned firms located abroad, more than 80% were Department of Defense contracts. The GAO conducted this study to shed light on the $4 trillion government contracts market within the international trade realm. In creating this report, the GAO relied on the government procurement databases of Canada, the European Union, South Korea, Mexico, Norway, and the United States, and 2014 trade data merged with data on the types of goods and services purchased by the public sector.