Each month, Venable's Government Contracts Group publishes a summary of recent legal developments of interest to the government contractor community.
Regulatory Updates
The FAR Council has proposed to amend the FAR to implement section 5(b)(i) of Executive Order (E.O.) 14030, Climate-Related Financial Risk. The proposed rule would require contractors to "disclose their [greenhouse gas] GHG emissions and climate-related financial risk and set science-based targets to reduce their GHG emissions." The rule applies to "significant" or "major" contractors: a "significant contractor" is one that "received $7.5 million or more, but not exceeding $50 million, in Federal contract obligations (as defined in OMB Circular A-11) in the prior Federal fiscal year as indicated in the System for Award Management (SAM)," while a "major contractor" is one that "received more than $50 million in Federal contract obligations (as defined in OMB Circular A-11) in the prior Federal fiscal year as indicated in SAM." This rule creates a significant compliance burden for federal contractors, and we encourage contractors review the rule closely and submit comments. Comments close January 13, 2023.
The FAR Council published a final rule to encourage broader communication across the industry. The rule amends Federal Acquisition Regulation (FAR) 1.102-2, Performance Standards, to encourage acquisition personnel to "engage in responsible and constructive exchanges" with industry. A more detailed article discussing this rule can be found here. The rule is effective December 30, 2022.
The Small Business Administration (SBA) is working to adjust size standards to correlate with inflation that has occurred since 2019. The SBA finalized an interim final rule from 2019 that adjusted monetary-based size standards for inflation since 2014. Concurrently, the SBA published three interim final actions to account for inflation since the issuance of the 2019 interim rule. These interim final rules became effective on December 19, 2022, and will impact small businesses and other economically disadvantaged business:
- First, the SBA is increasing size standards by 13.65% across the board for industries with receipts-based size standards. The interim rule provides a table for receipts-based standards by six-digit NAICS 2022 code, as well as a table for asset-based standards by industry, where impacted contractors can review their inflation-adjusted size.
- Second, the SBA increased program-based size standards by 13.65% to account for inflation, for sales or leases of government property and stockpile purchases, and by 23.22% for the size standard based on tangible net worth and net income for the Small Business Investment Company (SBIC) program, which had not been adjusted since 2013. The SBA likewise provides a table outlining the new size standards adjusted for inflation, along with previous size standards from the last time they were adjusted.
- Finally, the SBA increased procurement thresholds for determining economic disadvantage and maintaining eligibility in 8(a) Business Development (8(a) BD) and economically disadvantaged women-owned small business (EDWOSB) programs. SBA outlines the increases for the two programs in a table that provides the new inflation-adjusted threshold and information regarding the last time the size standard was adjusted.
The Government Accountability Office (GAO) provided its annual report to Congress on November 1, 2022, as required by the Competition in Contracting Act of 1984. The report provides the protest statistics for the 2022 fiscal year, and states that the GAO sustained 13% of filed protests. The most prevalent sustained protest grounds of 2022 were those grounds that alleged an unreasonable technical evaluation, a flawed selection decision, or flawed solicitation. The report confirms again that many protests do not reach a GAO decision, as the agencies often decide to take corrective action rather than defend a protest. The GAO also noted that in only one instance an agency, the Navy, declined to implement the GAO's recommendations. However, a United States Court of Federal Claims protest followed the GAO protest, and the Navy implemented corrective action in response to an opinion from the court that was consistent with the GAO's recommendations.
Congressional Developments
The president signed the 2023 National Defense Authorization Act (NDAA) on December 23, 2022. The annual NDAA often implements many changes in the government contracting space, and this year's NDAA is no different. These reforms present both compliance risks and pitfalls, as well as opportunities for contractors. The following are a sample of the changes, and contractors should consider the impact to their business.
- In what many view as an expansion to prohibitions in Section 889, which prohibited the government from procuring certain equipment or services utilizing telecommunications equipment with ties to China, Section 5949 provides new restrictions on procuring "covered semiconductor products or services"—which is expected to impact companies worldwide because of the broad use of Chinese semiconductors.
- The FedRAMP (Federal Risk and Authorization Management Program) Authorization Act, at Section 5921, officially establishes a government-wide program to support security assessments of cloud computing, and to promote broader use of secure cloud computing across the federal agencies.
- Section 805 requires DoD to treat as changes the addition of clauses to contracts implementing executive orders, making equitable adjustments more attainable for impacted contractors.
- The NDAA also provides inflation relief to certain contractors at Section 822. The rule permits certain contractors to seek adjustments for inflation when the cost of an eligible contract has become greater than the price to perform.
Congress also implemented a rule from the 2021 NDAA that establishes a government-wide certification program under the SBA for veteran-owned small businesses (VOSB) and service-disabled veteran-owned small businesses (SDVOSB). The rule transfers certification of VOSBs and SDVOSBs to SBA on January 1, 2023 and requires contractors to apply to the SBA for certification to be eligible for set-asides, with certain exceptions. The rule grants self-certified SDVOSBs a one-year grace period, until December 31, 2023. As long as the self-certified SDVOSB applies before December 31, 2023, it remains eligible for set-asides until the SBA can certify the contractor. SDVOSBs certified by the Department of Veteran Affairs Center for Verification and Evaluation will be deemed certified by the SBA for the length of their existing 3-year certification. Contractors should review the rule and determine what steps they need to take to ensure ongoing eligibility for these set-aside contracts.
In October, 2022, President Biden signed the End Human Trafficking in Government Contracts Act of 2022 to increase government oversight over and scrutiny of U.S. government contracts abroad. The Act updates existing language at 22 U.S.C. 7104b(c)(1) to require agencies to report substantiated allegations of human trafficking, not only to the contracting officer and agency inspector general, but directly to the suspension and debarment official. This creates the risk of more severe repercussions for contractors violating human trafficking statutes and represents an even stronger commitment from the federal government to prevent these activities from occurring.
Recent Federal Circuit, COFC, and GAO Decisions
For small businesses, the United States Federal Circuit clarified that the Runway Extension Act of 2018 (15 U.S.C. § 632(a)(2)) did not require the SBA to use a 5-year average when calculating size status—only other agencies. See Obsidian Sols. Grp., LLC v. United States, No. 1:20-cv-01602, 2022 U.S. App. LEXIS 33742 (Fed. Cir. Dec. 8, 2022). The SBA had long argued that the clause in question (15 U.S.C. § 632(a)(2)(C)), even before its amendment under the Act from 3 years to 5 years, does not apply to the SBA. The Federal Circuit agreed. The ruling impacts contractors, like the protestor in this case, who were not small under a 3-year average, and submitted proposals before the SBA's own 5-year rule went into effect in January 2020. Small Business Size Standards: Calculation of Annual Average Receipts, 84 Fed. Reg. 66561 (Dec. 5, 2019); 13 C.F.R. 121.903(a)(1)(ii). Congress has since amended the language of 15 USC § 632(a)(2)(C) to prohibit any agency, including the SBA, from using less than a 5-year average, but this change was not retroactive, and so does not impact contractors situated similarly to the protestor in this case. See Thornberry National Defense Authorization Act for Fiscal Year 2021, Pub. L. No. 116-283, 134 Stat. 3388, 3784 (codified as amended at 15 U.S.C. § 632(a)(2)(C)).
The Court of Federal Claims underscored the importance of function over form to satisfy grounds for intervention under Rule 24(a)(2) of the Rules of the Court of Federal Claims. See Air Borealis Ltd. P'ship v. United States, No. 22-1554C, 2022 U.S. Claims LEXIS 2619 (Fed. Cl. Dec. 12, 2022). In Air Borealis Ltd. P'ship, the protestor objected to a Canadian supplier's intervention in its protest because contracts between DoD and Canadian suppliers are managed by the Canadian Commercial Corporation (CCC), under which DoD pays the CCC, which in turn pays the Canadian supplier that is the successful offeror. The protestor argued this structure, in essence, rendered the intervenor a subcontractor, whose interest would be too indirect to support intervention. The court rejected this argument as "absurd," and found that despite this structure, the intervenor's legal right to be paid under the contract satisfied the grounds for intervention of right under RCFC 24(a)(2).
The GAO clarified that the DoD's enhanced debriefing procedures—and therefore timing requirements—do not apply to pre-award protests. See MP Solutions, LLC, Nov. 21, 2022, B-420953, CPD ¶ __ at 8. The GAO rejected the Missile Defense Agency's argument that the protestor's pre-award protest should be dismissed because the protestor did not wait to file its protest until after the debriefing concluded. The GAO found that the protest was timely, because the enhanced debriefing procedures do not apply to pre-award debriefings, but also because the agency's failure to state whether the debriefing would remain open, or to acknowledge protestor's questions submitted after the pre-award debriefing at all, "created an ambiguity that led the protester to reasonably believe its debriefing was closed."
The GAO dismissed a contractor's protest ground alleging that the Department of Veterans Affairs violated CICA, the FAR, and other agency regulations when the agency used in-house janitorial services while a protest was pending, allegedly to punish the protestor. See HamHed, LLC, B-420245.4, et al., Nov. 18, 2022, CPD ¶ __ at 7. The GAO generally will not review an agency's decision to perform in-house work, but recognizes an exception only where the agency uses a procurement to compare the costs of in-house work with the cost of contracting, because that in itself is damaging to the procurement system. Contractors must allege that this exception applies when challenging an agency's use of in-house work, or otherwise risk dismissal or denial.
In another recent case, the GAO determined an agency was not required to call references when the protestor's proposal did not meet the stated requirements. See Open SAN Consulting, LLC dba OSC Edge, B-420724.2, Aug. 5, 2022, CPD ¶ __ at 3 n.3. The request for proposals (RFP) required an offeror to provide narratives that demonstrated experience providing certain criteria. The RFP further provided the agency would evaluate an offeror's past performance based on references included in its corporate experience form, and may use information obtained directly from those references. Despite the protestor's inclusion of contact information for its corporate experience references, and the fact that the RFP permitted the agency to use outside information when evaluating past performance, the agency was not required to call the protestor's references to fill in the gaps. The decision serves as a reminder that contractors should ensure that their proposals satisfy criteria in the RFP and should not rely on the government to follow up, as doing so may risk missing the opportunity for award.
* We would like to express our special thanks for the key contributions of Venable's Anna R. Kaye in creating this month's update.