September 2020

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

12 min

Executive Developments
  • As previously reported here, on September 22, 2020, President Trump issued Executive Order 13950 ("EO 13950") on Combating Race and Sex Stereotyping, the provisions of which are applicable to Federal contractors, subcontractors, and grant recipients, among others. In EO 13950, the President included a mandatory Executive Order contract provision, which takes effect on November 21, 2020, after the upcoming election, and which prohibits all Federal contractors and subcontractors from "inculcate[ing] in its employees any form of race or sex stereotyping or any form of race or sex scapegoating," as defined therein. For example, EO 13950, Section 2(c) defines the term "race or sex scapegoating" as "assigning fault, blame, or bias to a race or sex, or to members of a race or sex because of their race or sex." It explains that the term "encompasses any claim that, consciously or unconsciously, and by virtue of his or her race or sex, members of any race are inherently racist or are inherently inclined to oppress others, or that members of a sex are inherently sexist or inclined to oppress others." Id. Because existing diversity and inclusion training may focus on countering unconscious bias, this Executive Order has a potentially far reaching impact. Federal contractors must flow down the enumerated Executive Order contract provision to all of its subcontractors. Whether Federal grant recipients must also comply with a similar clause remains to be seen, pending the findings of the heads of all agencies' review of their respective grant programs.

    While the Executive Order contemplates the promulgation of rule or regulations, it does not provide a specific time for such promulgation. A Federal contractor or subcontractor's failure to comply with EO 13950 can result in the cancellation, termination, or suspension, in whole or in part, of the Federal contract, regardless of whether such training took place in the Federal contractor or subcontractor's commercial operations or was paid for using private funding. Worse yet, noncompliance can result in the suspension or debarment of Federal contractors and subcontractors, even if the violation occurred during the performance of a newly awarded contract. As EO 13950 currently stands, no exemptions to these requirements exist. However, it is possible that the Secretary of Labor, pursuant to the President's direction in EO 13950, will elect to provide exemptions applicable to certain categories of Federal contracts, including for standard commercial supplies or raw materials. Given the harsh consequences for noncompliance, Federal contractors and subcontractors should review their existing training programs and assess whether they need to make changes based on the EO 13950.

Regulatory Updates
  • On August 13, 2020, as more fully discussed in this article, the Office of Management and Budget ("OMB") issued its Final Guidance on amendments to the OMB Guidance for Grants and Agreements ("Uniform Guidance"). The revisions to the Uniform Guidance are extensive, and they both clarify existing requirements and reflect policy goals and initiatives by the Administration designed "to measure recipient performance to improve program goals and objectives, share lessons learned, and spread the adoption of promising practices." A majority of these revisions are effective as of November 12, 2020; only two of the revisions became effective on August 13, 2020.
  • Pursuant to a "deregulatory" Final Rule with an effective date of August 31, 2020, the FAR officially reflects long-awaited increases to both the micro‑purchase and simplified acquisition thresholds ("SAT"), which increased from $3,500 to $10,000, and from $150,000 to $250,000, respectively. The Final Rule is expected to "reduce[] the burden on contractors by increasing the thresholds at which various regulatory burdens apply" and allow Federal agencies to issue more awards based on quotes, rather than formal proposals. Notably, the breadth of the Final Rule reaches both commercial item contracts and contracts at or below the SAT.
  • On September 29, 2020, the Federal Register published a new Interim Rule by the U.S. Department of Defense ("DoD") that provides further clarity on how Federal contractors can best meet mandatory cybersecurity certifications and requirements over the next five years. Effective November 30, 2020, the goal of the Interim Rule is to "enhance the protection of unclassified information within the DoD supply chain," which the DoD believes it can achieve by way of instituting, through the Interim Rule, an "assessment methodology and framework to assess contractor implementation of cybersecurity requirements," which includes the implementation of both the National Institute of Standards and Technology ("NIST") Special Publication ("SP") 800‑171 DoD Assessment Methodology and the Cybersecurity Maturity Model Certification ("CMMC") Framework. In connection with Defense Federal Acquisition Regulation Supplement ("DFARS") 252.204-7012, Safeguarding Covered Defense Information and Cyber Incident Reporting, the Assessment Methodology will score contractors according to three assessment levels, Basic, Medium, and High, which will "reflect[] the net effect of NIST SP 800-171 security requirements not yet implemented by a contractor." The former Assessment is completed by the contractor, and the latter two Assessments are completed by the Federal Government. These scores will be documented in the Supplier Performance Risk System for review by DoD Components prior to contract award. The CMMC Framework, on the other hand, "adds a comprehensive and scalable certification element to verify the implementation of processes and practices associated with the achievement of a cybersecurity maturity level" based on five established "Levels" that indicate the level of progression of a contractor's cybersecurity maturity. As of October 1, 2020, the CMMC Framework will apply to all DoD contracts, including commercial item contracts with a value that exceed the micro‑purchase threshold, and, in some instances, must be flowed down to subcontractors at all tiers. Given the complexities of this new Interim Rule, we urge contractors and subcontractors that transact with the DoD to carefully review the terms and nuances therein. Comments on the Interim Rule are due on or before November 30, 2020.
  • Beginning January 1, 2021, Federal contractors must pay their employees that work on or in connection with a Federal contract at least $10.95 an hour. The Wage and Hour Division of the U.S. Department of Labor published a Notice to this effect in the Federal Register on August 21, 2020, noting that this change applies only to those Federal contracts covered by Executive Order 13658, Establishing a Minimum Wage for Contractors. Affected contracts include concession contracts, Federal contracts "in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public," and contracts covered by the Davis-Bacon Act and the Service Contract Act.
  • On September 14, 2020, the FAR Council issued a proposed rule to implement Executive Order 13881 on Maximizing Use of American-Made Goods, Products, and Materials. The proposed rule seeks to increase both domestic content requirements and price preferences for domestic products, the contemplated changes of which will also be implemented into the DFARS pursuant to DFARS Case 2019-D045, Maximizing Use of American-Made Goods. Key changes the proposed rule would effectuate include the following:
    • The term "domestic end product" will now include "domestic construction material";
    • For the first time, define end products that consist "predominantly of iron or steel or a combination of both" as those end products for which the cost of iron and steel content in an item exceeds 50% of the total cost of all its components;
    • Increase the domestic content requirement for iron and steel end products, construction material, and the newly defined combined iron and steel end products, including all commercially available off-the-shelf ("COTS") items except for fasteners, to 95%;
    • Partially restore the domestic content test for COTS items that consist wholly or predominantly of iron and steel, with the exception of iron and steel fasteners, which will remain exempt. Restoration of the domestic content test for such items requires only a "good faith assurance that not more than 5[%] of the iron and steel content is foreign";
    • For all other non-COTS item end products and construction material, increase the domestic content requirement from 50% to "exceeds 55[%] of the cost of all components"; and
    • Increase the price preference evaluation factor for large businesses from 6% to 20%, and for small businesses from 12% to 30%.
  • The Executive Order signals changes to the carefully crafted formula for federal procurement of iron and steel items, both for the federal government procurement in general (which, with the exception of Federal Transportation projects, generally lacked steel specific restrictions), and for the DoD, whose current regulations for procurement of manufactured end items that contain specialty metals (as opposed to the purchase of specialty metals themselves as end items) contain significant exceptions for commercially available off the shelf products. Specifically, within DoD, the Berry Amendment, 10 U.S.C. § 2533b, as implemented by DFARS 252.225-7008 Restriction on Acquisition of Specialty Metals, required that when the DoD purchased specialty metals, such as steel as an end product (for example, for non-manufactured steel bars), it must be wholly melted or produced in the United States. In contrast, where specialty metals such as steel were components of end items, DFARS 252.225-7009 Restriction on Acquisition of Certain Articles Containing Specialty Metals (2019) recognizes an important exception for COTS products manufactured in the United States or a qualifying country (such as Japan, Germany, Turkey, Italy, Mexico, France, Canada, Austria, or Sweden, which are all rank in the top 30 countries in steel production).

    The implementation of significant domestic content requirements for iron and steel end products in COTS items throughout federal procurement will have a significant impact on manufacturers selling to the United States. The existing COTS exceptions are embodied in both statute and regulation and were created, in part, to give the United States access to the innovations, efficiencies, and supplies offered by the commercial market. As of 2019, the United States was the fourth largest steel producer in the world, behind China, India, and Japan (which is both currently a party to the World Trade Organization Government Procurement Agreement and a qualifying country under DFARS 252.225-7002, which means that Japan has treaties with the United States that allow its products to be considered equivalent to the United States in most situations). This Executive Order will have to be construed consistently with existing statutory exceptions and treaties.

    Comments on the proposed rule are due on or before November 13, 2020.

  • On September 3, 2020, the U.S. Government Accountability Office ("GAO") issued "Observations on Contractor Paid Leave Reimbursement Guidance and Use," the first Report of a forthcoming series, which provides GAO's "observations" on the Federal Government's implementation of Section 3610 of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. The Report focuses on issues ranging from the implementation of the CARES Act in March of this year, through actions taken by the OMB and seven Federal agencies as of July 20, 2020, including those agencies' issuance of their respective implementing guidance. The data analyzed in the Report is based on the amount of funds the relevant agencies reported reimbursing through contract modifications pursuant to the authority of Section 3610.

    Section 3610 permits Federal agencies, at their discretion, to reimburse contractors for the cost of paid leave for their employees and subcontractors during the COVID-19 pandemic. The GAO's Report, which is based on GAO's analysis of reimbursement amounts used, reveals that the relevant agencies "made relatively few new obligations to reimburse contractors using section 3610 authority through July 2020." Specifically, the GAO found that the DOD, the National Aeronautics and Space Administration, and the U.S. Department of Energy reported obligating roughly $22 million on thirty-nine contract actions; DOD accounted for $18.3 million of that amount. The remaining four agencies— the U.S. Department of Health and Human Services, the U.S. Department of Homeland Security, the U.S. Department of Veterans Affairs ("VA"), and the U.S. General Services Administration—reported no Section 3610-realted obligations as of July 2020. However, the Report notes that OMB issued additional guidance on July 14, 2020, which is less than a week before the GAO captured the data used in its Report, and that certain agencies, such as the DOE, do not have to issue a contract modification in order to obligate funding.

Legal Developments
  • On August 17, 2020, the U.S. Court of Federal Claims ("COFC" or the "Court") issued an Order permitting the putative awardee's subcontractor to intervene in a post-award bid protest pursuant to Rule 24 of the Rules of the Court of Federal Claims ("RCFC"). The Court permitted intervention of the subcontractor—the entity contracted to perform onsite work—in accordance with RCFC 24(a)(2), as the subcontractor's interests in the procurement are "directly relevant to the bona fides of the putative award to" the prime contractor, and because plaintiff alleged that the subcontractor "violated procurement law and committed fraud, in collusion with [the awardee], when [the awardee] was tentatively awarded the contract." Additionally, the Court highlighted that intervention in accordance with RCFC 24(a)(2) was also proper, as the contract was awarded pursuant to the Randolph Sheppard Act, 20 U.S.C. § 107, whereunder the prime contractor is effectively a "nominal awardee." Though the applicability of this Order is likely limited to the facts and circumstances of that case, the Order nevertheless opens the door for subcontractors with claims and defenses that it demonstrably shares with the prime contractor to have possible success in filing a Motion to Intervene.
  • On September 2, 2020, the GAO issued a decision dismissing the protest of a fixed-price contract award to a Service‑Disabled Veteran-Owned Small Business ("SDVOSB") by the VA, finding that the protestor was not an interested party. The Solicitation provided for a "total set-aside award based on a tiered evaluation method," where each tier represented a distinct set-aside, and according to which the VA would evaluate offerors "in isolation" in descending order of tiers; SDVOSB Concerns were "Tier 1," Veteran-Owned Small Business ("VOSB") Concerns were "Tier 2," and Small Business Concerns, including an enumerated order of priority, were part of "Tier 3." Per the Solicitation, the VA would only evaluate Tier 3 offerors if there were no acceptable Tier 1 or Tier 2 offerors. The VA ultimately evaluated only Tier 1 offerors, including the awardee. After discovering that the VA entered into discussions with the awardee after finding it technically unacceptable, the protestor, a Tier 3 offeror, argued that the VA improperly deviated from the Solicitation's tiered evaluation methodology and, by having those discussions, effectively conducted an improper sole‑source procurement. Given the tiered structure of the Solicitation, the GAO concluded that, as a Tier 3 offeror, the protestor was not an interested party.
  • On September 9, 2020, the GAO sustained two pre-award protests in which the protestors claimed that the Library of Congress' ("LOC") Solicitation was unduly restrictive of competition. Notably, the GAO declined to dismiss the protest where the LOC's dismissal request stated "that the precise corrective action to be taken has not yet been determined." Even after the GAO sought clarification on that dismissal request, the letter that the LOC provided to the GAO still failed to alleviate attending uncertainties. The GAO based its decision on the premise that "the proposed corrective action either was too vague to provide a basis for dismissal, or . . . failed to address one or more of the protest allegations."