January 2020

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

6 min

The start of 2020 has seen several significant developments impacting government contractors, including notable regulatory updates, the publication of various reports, and the development of new case law. This article provides an overview of a few of these events from January 2020.

Regulatory Developments

On January 6, the Small Business Administration's (SBA) final rule to implement the 2018 Small Business Runway Extension Act took effect, increasing the period for calculating average annual receipts for SBA's receipts-based size standards, and for other agencies' proposed receipts-based size standards, from a 3-year averaging period to a 5-year averaging period. The Act's intent is to reduce the impact of unexpected and rapid growth that a small business may experience, which could distort a company's look-back revenue and cause it to prematurely lose its small business status.

The Department of Defense (DoD) issued updates on December 30, 2019 to mid-tier and urgent acquisition policies that allow the military to quickly develop prototypes and field systems. The instructions tell DoD agencies when and how to use middle-tier acquisition, and explain the resulting leadership responsibilities, which leaves much of the decision making to the individual agencies. The updates identify middle-tier acquisition as a "pathway intended to fill a gap in the defense acquisition system for those capabilities that have a level of maturity to allow them to be rapidly prototyped within an acquisition program or fielded, within 5 years of middle-tier acquisition program start. The middle-tier acquisition pathway may be used to accelerate capability maturation before transitioning to another acquisition pathway or may be used to minimally develop a capability before rapidly fielding."

The U.S. Treasury Department, Office of Foreign Assets Control (OFAC), announced on January 16 that it would allow contractors a 90-day period to wind down transactions in the construction, mining, manufacturing, or textile sectors of Iran's economy. This announcement followed the issuance of Executive Order 13902 on January 10, which imposed additional sanctions targeting the construction, mining, manufacturing, and textiles sectors of the Iranian economy. The wind-down period expires on April 9, 2020, although entering into new business during the wind-down period could still be sanctioned.

The SBA has also amended its regulations for the Historically Underutilized Business Zone (HUBZone) Program to update the eligibility and compliance requirements, and to improve the set-aside contracting provisions. The final rule does away with some of the uncertainty regarding residency issues under the Program by grandfathering the status of employees who establish significant roots in a community. Businesses must establish their residency prior to certification/re-certification, but will not lose a long-time employee if that person decides to move. Additionally, if a firm is a certified HUBZone small business at the time of its offer, it will not lose that status throughout the life of the contract.

Legislative and Executive Developments

In a first update to the federal grants process, President Trump signed a bill into law on December 30, 2019, directing federal agencies to modernize grant reporting data. The law will require 26 agencies to work with the Office of Management and Budget (OMB) to establish governmentwide standards for information reported by grant recipients so that the data can be centralized on a public website. Lawmakers are hoping that this law will streamline the grant reporting process and make it as transparent as possible to the public, as well as reduce compliance costs and improve oversight on grants.

In additional grants news, the OMB published a proposed guidance on January 22 to revise Title 2 of the Code of Federal Regulations on grants and agreements. This is the first time since 2014 that OMB has issued new guidance on grants. This new guidance, among other things, is intended to strengthen merit reviews for grants, encourage recipients to make domestic procurements, enforce the president's executive orders on free speech and religious liberty, standardize data and terminology, and reduce the reporting burden for recipients. The new rules would also prohibit awarding grants to certain telecommunications and video surveillance services, as well as to any person or entity that is actively opposing U.S. or coalition forces actively engaged in hostilities. Additionally, the rules would require non-federal entities to list their parent or subsidiary entities on grant applications as required by the DATA Act to increase transparency. Comments on the proposed guidance are due by March 23.

The House introduced a bill on January 16 that would prohibit reverse auctions for "design and construction services" contracts. The provisions would cover site planning, landscape design, interior design, delivery and supply of construction materials to sites, and engineering and construction work itself. The provisions build on a policy change made by the U.S. Army Corps of Engineers, which found that reverse auctions did not ultimately reduce costs and did not adequately account for the unpredictability associated with construction work. The House announcement of the bill explained that reverse auctions can also "compromise quality, overlook small businesses, or even require a new bidding process down the road, eliminating any initial savings."

Reports & Other Memoranda

On January 14, the U.S. Government Accountability Office (GAO) published a report urging senior DoD leaders to emphasize key reliability practices when developing weapons systems. The GAO reviewed seven major defense acquisition programs and found that leaders failed to rely on engineers' expertise in the early stages of weapons development. Some of the DoD's failings, according to the report, were not setting realistic expectations for how long systems should operate, not reviewing projects for potential failures throughout development, and not stressing operations and maintenance targets with contractors to ensure that weapons systems would run successfully through their expected lifetimes. GAO recommended that the secretaries of the army, air force, and navy issue policy to highlight the importance of three key reliability practices: leveraging reliability engineers, establishing realistic reliability requirements, and employing reliability engineering activities to improve a system's design throughout development. The DoD has agreed with GAO's recommendations.

From the Courts, Boards, and the GAO

The GAO determined on December 20, 2019 in Cross & Company, LLC, B-417971, that the "Rule of Two" of the Veterans Benefits, Health Care, and Information Technology Act of 2006 (VBA) does not require the U.S. General Services Administration (GSA) to set aside for veteran-owned small businesses any lease procurements conducted on behalf of the U.S. Department of Veterans Affairs (VA). Thus, according to this determination, the acquisition of a leasehold interest is not an acquisition of goods or services such that the VBA would govern these acquisitions. This is the first time an adjudicative body has addressed the question of whether the Rule of Two applies to GSA acquisitions of leases on behalf of the VA. Contractors should be aware that agencies with independent leasing authority may determine that the Federal Acquisition Regulation (FAR) does not apply to leasehold acquisitions.