As the 2023 calendar year comes to a close, there are a number of important legal, regulatory, and other updates relevant to the government contracts industry. This digest provides an overview of the government's annual bid protest report, information technology updates, and new and proposed agency regulations.
Annual Bid Protest Report
In late October 2023, the U.S. Government Accountability Office (GAO) released its annual report to Congress outlining, among other things, the rate at which bid protests are sustained and the most prevalent grounds for sustaining them. Remarkably, GAO's sustain rate—the overall percentage of bid protests that the office found meritorious—more than doubled compared with any sustain rate in the last several years. For example, GAO's sustain rate in 2023 was 31% compared with a sustain rate of 13% in 2022, 15% in 2021, 15% in 2020, and 13% in 2019. According to GAO's own assessment, the most common grounds for sustaining a bid protest in 2023 included "(1) unreasonable technical evaluation; (2) flawed selection decision; and (3) unreasonable cost or price evaluation" (internal footnotes omitted).
The annual report cites three sample cases from each of the grounds above. What GAO's report does not discuss is the common thread among all three of these cases. Although GAO sustained each case in three different contexts—unreasonable evaluation, flawed selection decision, and unreasonable cost or price evaluation—each bid protest involved a failure on the procuring agency's part to perform a well-documented analysis of its procurement process. For examples, in Systems Plus, Inc. et al., GAO sustained the bid protest because, among other things, the agency's report did not contain sufficient documentation to establish that its technical evaluation was reasonable. B-419956.184 et al., Jun. 29, 2023, 2023 CPD ¶ 163. In CharDonnay Dialysis, LLC, GAO sustained the bid protest because the agency did not demonstrate with its three-line response that it actually looked behind adjectival ratings when making its selection decision in a best-value tradeoff procurement. B-420910, B-420910.2, Oct. 27, 2022, 2022 CPD ¶ 273. In TRAX International Corp., GAO sustained the bid protest because the agency, in awarding a cost-reimbursable contract, relied on the offeror's proposed costs instead of conducting its own price realism analysis. B-420361.7, B-420361.8, June 28, 2023, 2023 CPD ¶ 162.
In Systems Plus and CharDonnay, the agency may very well have arrived at the correct outcome, but GAO could not determine this one way or the other because the respective agencies did not provide consistent or any documentation to support their procurement decisions. In TRAX International, the agency's provided documentation was insufficient to support its award decision because it had not conducted the requisite analysis to include in the agency report in the first place. Firms that contract with the federal government should be mindful of the agency's responsibility to document and justify its procurement process. Where agency responses to a firm's questions are inconsistent, sparse, or nonexistent, this should raise a red flag that the procurement at hand has not followed the normal process.
Information Technology Updates
On November 9, 2023, the National Institute of Standards and Technology (NIST) released the Final Public Draft of Special Publication (SP) 800-171 Revision (Rev.) 3 ("Protecting Controlled Unclassified Information in Nonfederal Systems and Organizations"), which outlines security controls for the protection of Controlled Unclassified Information (CUI). NIST also released the corresponding Initial Public Draft of NIST SP 800-171A Rev 3 ("Assessing Security Requirements for Controlled Unclassified Information"), which provides procedures and methodology for conducting assessments of the security controls outlined in NIST SP 800-171. Once finalized, the Revision 3 requirements (as opposed to the current Revision 2 requirements) will become contractual requirements under the existing DFARS cybersecurity clauses and the forthcoming Cybersecurity Maturity Model Certification (CMMC) clause.
The forthcoming CMMC program, which has been in the rulemaking process for several years, will require DOD contractors and subcontractors to obtain third-party certifications of compliance with the standards under the CMMC framework. On July 24, 2023, the Pentagon submitted the proposed rule to the White House Office of Information and Regulatory Affairs (OIRA) for review. Subsequently, on November 21, 2023, OIRA completed its review. Next, OMB will release an updated rule for public comments and provide the industry 60 days to submit input before the DOD unveils the finalized rule, which is expected in the fall of 2024.
On November 2, 2023, DOD released its 2023 DoD Data, Analytics, and Artificial Intelligence Adoption Strategy and an accompanying Fact Sheet concerning the adoption of analytics, data, and AI technologies that will enable better and faster decision making at all levels and across the DOD. The strategy states that DOD's goals are to (i) invest in interoperable, federated infrastructure; (ii) advance the data, analytics, and AI ecosystem; (iii) expand digital talent management; (iv) improve foundational data management; (v) deliver capabilities for the enterprise business and joint warfighting impact; and (vi) strengthen governance and remove policy barriers. DOD emphasized that it will pursue government contracts for commercial AI solutions to allow DOD to address changing requirements while protecting industry intellectual property, and will create its own solutions only when commercial solutions and applications cannot be adopted to meet mission needs. These publications preview an enhanced focus on contractors' use of AI technologies in federal contracting, as well as the procurement of AI technologies by the federal government.
New and Proposed Agency Regulations
On November 17, 2023, DOD issued a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement a section of the Fiscal Year 2017 National Defense Authorization Act that addresses the inapplicability of certain laws and regulations to the acquisition of commercial products, including commercially available off-the-shelf items, and commercial services. Currently, the Federal Acquisition Regulation (FAR) details certain contract clauses that are inapplicable to contracts for commercial products and services. See FAR 12.503 through 12.505. This new DFARS rule creates two new lists of inapplicable clauses that will apply in addition to the existing FAR provisions for DOD contracts. First, DFARS 212.370 lists inapplicable clauses for contracts and subcontracts for the acquisition of commercial products, commercial services, and commercially available off-the-shelf items. The only clause currently on this list is FAR 52.204-22 (Alternative Line Item Proposal). Second, DFARS 212.371 will list additional clauses inapplicable to contracts for the acquisition of commercially available off-the-shelf items. This list currently includes FAR 52.204-21 (Basic Safeguarding of Covered Contractor Information Systems).
In addition, DOD released a separate proposed rule on November 17, 2023 that would make the following provisions no longer applicable to solicitations and contracts for commercial products, commercial services, and COTS items:
- DFARS 252.203–7003, Agency Office of the Inspector General.
- DFARS 252.203–7005, Representation Relating to Compensation of Former DoD Officials.
- DFARS 252.215–7007, Notice of Intent to Resolicit.
Comments on the proposed rule are due January 16, 2024.
Effective November 13, 2023, a final Small Business Administration (SBA) rule revises the SBA's rules for prime contractors to receive credit for small business subcontracts below the first tier. Since 2016, SBA's regulations have allowed prime contractors to receive credit for some small business subcontracts below the first tier for purposes of meeting small business subcontracting plan goals. The new rule, among other things, provides that a prime contractor can take credit for lower-tier subcontracts only when its subcontracting plan applies to a single contract with a single agency. This means a prime contractor cannot receive lower-tier subcontracting credit when using a subcontracting plan applicable to multiple contracts.
On November 16, 2023, General Services Administration (GSA) released a proposed rule to consolidate the GSA Acquisition Regulations (GSAR) Multiple Award Schedule (MAS) clauses related to economic price adjustments (EPAs) and eliminate certain procedural requirements. See GSAR Case 2020-G510 ("Federal Supply Schedule Economic Price Adjustment"). The proposed rule notes that in March 2022, "in response to the highest level of inflation in over 40 years as well as other factors (e.g., supply chain disruptions), GSA issued Acquisition Letter MV–22–02 to provide a temporary moratorium on the enforcement of certain procedural limits contained in the Schedule EPA clauses." The moratorium, currently extended until March 31, 2024, relaxes the limits on the frequency, timing, and number of EPA price increase requests. This means that contractors do not have to hold their contract for at least 12 months to submit a price increase, are not limited to three price increases per year, do not have to wait at least 30 days between requested price increases, and do not have to make sure to request price increases before the last 60 days of the contract period. GSA found that "[t]he relaxing of these procedural limits" has "seen benefits" and "increased [contractors'] ability to support federal customers in acquiring critically needed products, services, and solutions." Simultaneously, it has avoided contracts feeling compelled to remove "items from their Schedule contract to avoid selling them at a loss," which "increases the administrative costs and time for federal agencies and other customers in meeting their needs." Accordingly, the proposed rule would permanently implement the moratorium on these procedural requirements.
Conclusion
As the new year approaches, it pays to closely follow updates from government agencies, both those that arbitrate conflicts, like GAO, and those that regulate the procurement landscape, like DOD. Venable's team of government contracts experts is ready to assist as your firm navigates complex opportunities.