Despite recent political shifts away from globalization, international trade – particularly U.S. exports – will remain a substantial component of the U.S. economy. Companies doing business in the U.S. and overseas must be up to date on U.S. export control regulations. An important component of these regulations are the Export Administration Regulations (“EAR”), which are administered by the Department of Commerce, Bureau of Industry and Security (“BIS”). The EAR covers the export of commercial products that have the potential for dual use—meaning the item has both a commercial and military use—and as such, covers a broad range of products, hardware, software, technical information, and data.

Among the EAR requirements is the Unverified List (“UVL”).  An entity listed on the UVL indicates a “red flag” for U.S. companies because the “bona fides” of these foreign recipients cannot be confirmed by the BIS.  Specifically, entities end up on the UVL when BIS cannot verify the “legitimacy and reliability relating to the end use and end user of items subject to the EAR,” 15 CFR § 744.16(c), and, as such, BIS cannot confirm the location of the foreign entity or the stated use of a controlled item by that entity.  (The UVL does not require any active intent to prevent “end use” verification. Foreign entities that have actively failed to cooperate with BIS end-use check risk ending up on the Entity List which imposes specific licensing requirements in addition to the other provisions of EAR.)

The UVL creates additional responsibilities for any exporter who intends to conduct business with an entity on the UVL. While the UVL does not preclude export activity involving UVL entities, U.S. exporters must comply with heightened requirements, including obtaining an end-use statement whereby the U.S. company verifies the proposed end use of the item to be transferred, and agrees to cooperate with any government requested end-use checks and post-shipment verification.  Notably, in such cases, exporters cannot rely on any license exceptions. Continue Reading Contractors Take Note – Substantially Expanded List of Unverified Entities For Exporting Under EAR

It seems like a yearly ritual.  The U.S. Senate Armed Services Committee (“SASC”) drafts and passes a version of the annual National Defense Authorization Act (“NDAA”) that includes reforms aimed at curtailing bid protests, while the House Armed Services Committee (“HASC”) drafts and passes a version of the NDAA that omits these bid protest reforms.  Every year, the majority of the reforms in Senate are eliminated during the conference committee process.  However, the FY2019 NDAA appears to be headed towards a break in this yearly ritual.

On June 5, 2018, the SASC introduced its version of the FY2019 NDAA to the Senate.  For the first time in several years, the SASC’s proposed version of the FY2019 NDAA does not contain any major reforms to limit bid protests.  The SASC’s proposed FY2019 NDAA (Section 811) contains only a few provisions aimed at bid protests, neither of which would limit bid protests.  Both provisions appear to be related to findings in RAND’s 2018 report of DoD bid protests:

Continue Reading Senate’s Proposed FY2019 NDAA Includes No Major Bid Protests Reforms (Despite DoD’s Request for Legislation to Curtail Second-Bite Protests)

In its annual report to Congress, the Defense Contract Audit Agency (“DCAA”) released impressive metrics about its progress during the 2017 fiscal year. For many years, DCAA has struggled to manage a substantial number of backlogged incurred cost audits—most of which extended back several years, including some which extended back almost a decade. However, according to DCAA’s March 31, 2018 report to Congress (which was recently made available to the public), DCAA examined $281 billion in contract costs, identified $7.1 billion in audit exceptions, and reported $3.5 billion in net savings, all of which produced a return on taxpayer investment of approximately $5.20 to $1. Notably, DCAA advised that it had only 2,860 incurred cost audits in backlog at the close of 2017 and that DCAA expected to clear this inventory in 2018. While DCAA does not consider an audit to be backlogged until the submission has been pending for two or more years, the reported statistics mark a significant milestone for the agency. Indeed, going forward, DCAA advised that it expects to be fully compliant with Congress’s mandate in the 2018 National Defense Authorization Act (“NDAA”) that DCAA’s audit backlog inventory must not exceed one year.

DCAA’s 2018 annual report paints a far different landscape than those in DCAA’s prior reports to Congress. For example, in 2011, at the height of the audit backlog, DCAA had over 21,000 open audits in incurred cost submissions alone and immediate, subsequent years did not meaningfully reduce that caseload. Accordingly, just a short time ago, DCAA had nearly 10 times the number of open incurred cost audits that it had pending as of the close of 2017. This represents only 14.3 months of outstanding inventory, which is a substantial improvement over the 17.6-month average in 2016, many times the average in 2011, and just shy of the one-year backlog requirement newly imposed by Congress for 2018. Continue Reading 2017 Was a Banner Year for DCAA – What Does this Mean for You?

Back when Congress passed the FY2017 NDAA, they included a provision (Section 1822) requiring SBA to create a pilot program to provide opportunities for qualified subcontractors to obtain past performance ratings. Specifically, Congress mandated that SBA create a 3-year pilot program whereby small business concerns without a past performance rating as a prime contractor in the Past Performance Information Retrieval System (PPIRS) (i.e., without a CPAR) may request a past performance rating in the Contractor Performance Assessment Reporting System (CPARS), if the small business is a first tier subcontractor under a “covered contract.”  This pilot program has been codified at 15 U.S.C. 637(d)(17).

Recently, SBA published notice indicating that it will soon – possibly as early as late June 2018 – be commencing this pilot program. This exciting program could give both small business subcontractors and large business primes an additional tool to improve their chances of winning future contract awards. SBA has called for comments on the pilot program by June 19, specifically on the process outlined in SBA’s notice and SBA’s proposed application form for the pilot program (proposed SBA Form 2465).

Who is Eligible to Participate in the Pilot Program

In order to be eligible for the pilot program, a subcontractor must meet all of the following criteria:

  1. Be a Small Business Concern;
  2. Be without a Past Performance Rating as a prime contractor in CPARS;
  3. The application must be made in connection with the Small Business Concern’s performance of a first-tier subcontract under a contract that requires a subcontracting plan;
  4. Completed an application and submitted within 270 days after the Small Business Concern completed the work for which it seeks a past performance rating OR 180 days after the prime contractor completes work on the contract, whichever is earlier.
  5. Subcontract value meets the mandatory CPARS level: exceed the simplified acquisition threshold (as defined in FAR 2.101) or subcontracts for architect-engineer services valued at $35,000 or more as provided in FAR 42.1502; and
  6. Subcontractor is registered and active in the System for Award Management (SAM) located at www.sam.gov.

As seen above, the biggest restriction to this program is that to qualify the small business subcontractor cannot already have any past performance rating “as a prime” in CPARS. However, the pilot program does not necessarily limit a subcontractor to a single past performance review. Nothing prevents a subcontractor from receiving multiple past performance reviews as a subcontractor in CPARS under the pilot program. Small business concerns who only do work as subcontractors may be able to use this program multiple times, which could make them both a significantly more attractive teaming partner for large business primes and increase their own chances of winning prime contracts in the future.

How do Subcontractors Request a Past Performance Rating Under the Pilot Program?

  1. An eligible small business subcontractor completes a SBA Form 2465, which includes, amongst other things, the subcontractor’s suggested performance ratings for each past performance element (i.e. self-ratings) and “justification and written evidence supporting [each] suggested rating.”  The small business subcontractor then certifies the form and sends it to SBA’s Commercial Market Representative (the “Appropriate Official”) at SPPP@sba.gov.
  2. The Appropriate Official forwards the SBA Form 2465 to the Prime Contractor and the Office of Small Disadvantaged Business Utilization (“OSDBU”). The OSDBU and Prime Contractor have 30 calendar days to concur with the small business subcontractor’s suggested ratings, or to contest the suggested ratings and provide justifications for disagreement.
  3. If the OSDBU and the Prime Contractor both agree on a rating, or if either the OSDBU or Prime Contractor fail to respond and the responding person agrees with the small business subcontractor’s suggested ratings, the Appropriate Official shall enter the agreed-upon past performance rating in CPARS.
  4. Alternatively, if the OSDBU and the Prime Contractor both fail to respond to the submitted SBA Form 2465 within 30 days, or if they disagree about the rating, or if either the OSDBU or Prime Contractor fail to respond and the responding person disagrees with the small business subcontractor’s suggested rating, the disagreeing persons (OSDBU and/or Prime Contractor) shall submit a notice contesting the application to the Appropriate Official. The small business subcontractor then has an opportunity to submit comments, rebuttals, or additional information relating to its past performance. The Appropriate Official shall enter into CPARS “a rating that is neither favorable nor unfavorable” along with the initial application from the small business subcontractor, any responses of the OSDBU, the prime contractor, and any additional information provided by the small business subcontractor.

How a Part Performance Review Issued Under the Pilot Program Can be Used

Congress included the following broad language in the legislation concerning the use of past performance reviewed issued under the pilot program: “A small business subcontractor may use a past performance rating given under [this pilot program] to establish its past performance for a prime contract.”

Why Large and Small Businesses Should be Interested in this Pilot Program

Past performance reviews are the life blood of source selection in federal procurement. Nearly every federal procurement will have a past performance evaluation criteria of some kind, and generally past performance is the second most important evaluation criteria (after price). While the law (FAR 15.305(a)(2)) requires that in “the case of an offeror without a record of relevant past performance or for whom information on past performance is not available, the offeror may not be evaluated favorably or unfavorably on past performance,” the reality is that contractors that receive neutral evaluations on the past performance factor rarely win a contract award, absent a major price advantage. Given the importance of the past performance reviews to the source selection process, especially those past performance reviews that reside in CPARS/PPIRS, the SBA’s Pilot Program for Small Business Subcontractor Past Performance Reviews can provide significant advantages for both large business primes and small business subcontractors.

For small business subcontractors the advantages are clear. The pilot program will allow small business subcontractors to get one (or potentially multiple) past performance reviews in CPARS if they do not already have a past performance review as a prime in CPARS. Moreover, because of the process for program, small business subcontractors will be able to receive a past performance review on their own terms, a distinct advantage from the circumstances a prime contractor encounters. The small business subcontractor will be able to propose ratings (which become the ratings default if not countered by the reviewers), they get to cherry-pick which projects/periods of performance to request past performance review for (which allows the small business to only request a past performance review when it knows its performance has been excellent), and the risk of a negative review is mitigated by the requirement that if their is disagreement on a rating the past performance review will be entered into CPARS with “a rating that is neither favorable nor unfavorable.”  Given all these advantages, small business subcontractors without a review in CPARS as a prime should be able to use the pilot program to build a record of past performance, which will better enable them to compete for procurements as a prime contractor in the future, and which will make them a more attractive teaming partner to large business primes (as many source selections allow or require consideration of the past performance records of both the prime and major subcontractors).

This pilot program could also provide major benefits to large business primes that encourage their small business subcontractors to apply for past performance reviews. As already noted, many source selections allow or require consideration of the past performance records of both the prime and major subcontractors. Thus, large business primes often have an increased chance of receiving award if their subcontractors have a strong record of relevant past performance. Under the pilot program, the large business prime actually has influence on the past performance rating that its subcontractor receives, which essentially gives large business primes a role in improving their own team’s past performance record for use on future procurement. Large business primes should encourage the small business subcontractors that they frequently team with to take advantage of this pilot program, thereby allowing the large business prime to present a stronger record of past performance for its team in future procurements.

The Department of Defense (“DoD”) recently issued a final rule regarding contractor disclosures of defective pricing issues on DoD contracts, which can arise where the contractor’s certified cost or pricing data is inaccurate, incomplete or is not current.  In such cases, these errors and omissions can result in significant contract overpayments by the government.  While the new rule incentivizes contractors to voluntarily disclose defective pricing matters, the rule’s impact may be somewhat muted by contractors’ existing mandatory disclosure obligations under the Federal Acquisition Regulation (‘FAR”).

On May 4, 2018, DoD issued Defense Federal Acquisition Regulation Supplement (“DFARS”) 215.407-1(c)(i), Defective certified cost or pricing data.  The new rule, which can be found here, provides that, when in receipt of a contractor’s voluntary disclosure of a defective pricing matter, the contracting officer will discuss the level of involvement needed from the Defense Contract Audit Agency (“DCAA”) in reviewing the disclosure, which can range from a technical review of discrete cost elements, to a limited scope audit, or the requirement for a full scope audit of the contractor.  The contracting officer is, at a minimum required to discuss with DCAA:

  • The completeness of the contractor’s voluntary disclosure on the affected contract;
  • The accuracy of the contractor’s cost impact calculation for the affected contract; and
  • The potential impact on existing contracts, task or deliver orders, or other proposals the contractor has submitted to the government.

Continue Reading New Rule, Same Requirements? – The Department of Defense’s New Rule on Voluntary Disclosures of Defective Pricing Matters

Oles Morrison Rinker & Baker, LLP, one of the West Coast’s most respected law firms, is pleased to announce that attorney David Yang has joined the firm as a partner.

Yang’s practice focuses on government contracts where he advises clients on all critical aspects of their business, whether the issues involve compliance, intellectual property, prime-subcontractor matters, cost accounting, claims, bid protests, false claims act or other disputes.

Yang has litigated on behalf of contractors before a diverse range of courts, boards and arbitration panels. He focuses on bid protests, where he has successfully protested and defended billions of dollars’ worth of some of the largest defense and civilian procurements in recent history before the U.S. Government Accountability Office and the U.S. Court of Federal Claims, where he served as a law clerk early on in his career.  In addition to his expansive protest work, Yang has recovered millions of dollars in Contract Disputes Act claims before the boards of contract appeals and also routinely defends contractors in False Claims Act cases in federal courts nationwide.  Yang has strategically obtained dismissal of several multimillion-dollar FCA lawsuits through the effective and efficient use of pre-trial motions.

Prior to joining Oles Morrison, Yang was a partner at an AmLaw 100 firm in Washington, D.C. He also served as a law clerk for the Honorable Mary Ellen Coster Williams at the U.S. Court of Federal Claims.

Yang received his law degree from George Washington University Law School, with high honers, and his bachelor’s degree from the University of Washington

The addition of David Yang expands Oles Morrison’s already skilled government contracts team, which, in addition to Yang, is led by Adam LaskyHoward Roth and Jim Nagle.

About Oles Morrison

With deep roots in the Pacific Northwest and Alaska, Oles Morrison Rinker & Baker LLP has built a legal practice with a focus on construction, government contracts, commercial litigation and real estate transactions. Our experienced team has been helping domestic and international companies of all sizes to resolve legal issues on a wide variety of complex public and private projects while protecting their business interests for 125 years.

Often times the most difficult part of the government contract claims process is checking all the procedural “boxes” of a certified claim.  Failure to file a claim within six years of accrual, request a contracting officer’s final decision, or include a wet ink signature are just a few of the procedural technicalities required by the Contract Disputes Act (“CDA”) that can get a claim kicked out before the Board ever has a chance to get to the merits.  Another significant procedural requirement under the CDA is that, for claims of more than $100,000, the claimant must provide a certification that certifies (among other things) that the claim is supported by accurate and complete data and the amount requested accurately reflects the contract adjustment for which the claimant believes the government is liable.

In Mayberry Enterprises, LLC v. Department of Energy, CBCA 5961 (March 13, 2018), the contractor appealed the denial of its uncertified claim seeking costs and excusable delay related to late payments, contract modifications and government-caused delays for a total of $529,895.59.  The contractor submitted three invoices to the government, each requesting a “category” of damages:

  • $87,990 – for suspension of work and late payment issues.
  • $41,000 – retained funds.
  • $400,905 – mobilization, prepatory, surfacing, design and other miscellaneous costs for extra work.

Continue Reading Contractor Escapes Total Dismissal For Failure To Certify $500,000 “Severable” Claim

When do agency Boards of Contract Appeals have jurisdiction to hear a federal contract dispute under the Contract Disputes Act (CDA) when the dispute is with a surety that issued a bond on the project?  Answering this question is key to avoiding a government motion to dismiss for lack of jurisdiction.

Typically, if a surety is forced to step in to take over for a contractor, both the terms of the bond and principles of equity allow the surety subrogation rights, which entitle the surety to the contract rights of the obligor (contractor). This includes the right to pursue payment from the government for work performed, and for overpayments to the contractor. Continue Reading When is a Surety a “Contractor” with the Government at the Boards Of Contract Appeals?

On May 1, 2018, Oles Morrison partner Adam Lasky will be on a panel discussing “Tips for Avoiding Litigation on Federal Construction Projects,” together with Paul Varela (Varela, Lee, Metz & Guarino), Neil O’Donnell (Rogers, Joseph O’Donnell, PC), and Jennifer Fiore (Dunlap Fiore, LLC), at the AGC Federal Contractors Conference 2018.  Adam and the panel will be discussing a number of topics relevant to construction contractors doing business with the federal governent, including false claims act liability, pass-through claims, and releases.

Click here for registration information.

In the RAND Corporations’s 2018 report on DoD bid protests, RAND highlighted some concerning statistics regarding bid protests filed by small businesses. RAND discovered that more than 50% of protests were being filed by small businesses (more than double the percentage of prime contract dollars going to small businesses), and at GAO protests filed by small businesses tended to have significantly lower sustained and effectiveness rates, and were 50% more likely to be dismissed as “legally insufficient.” As a result of these findings, and others, RAND recommended that Congress consider approaches to reduce and improve bid protests from small businesses.

Please join the ABA Section of Public Contract Law Small Business Committee’s panel for a broad discussion of RAND’s findings and recommendations specific to small business protests, and the feedback RAND received concerning these recommendations. In addition, the panel will examine other approaches under consideration that were not included in the report, and will open the floor to a discussion on ideas to reduce and improve bid protests from small businesses.

Moderator

Panelists

  • Brian PersonsSenior Management Scientist, RAND Corporation (Co-Author of the RAND Report)
  • Jessica TillipmanAssistant Dean for Field Placement and Professorial Lecturer in Law, The George Washington University Law School

This event will take place in-person (Morrison & Foerster LLP, 2000 Pennsylvania Ave NW, Suite 6000, Washington, DC) and by teleconference (Call-in: 855.890.6636 Participant Code: 7037607325), Noon – 1:00 pm EDT (9:00 am – Noon PDT) on Thursday May 3.  If you’re interested in attending, please RSVP to TFouch@mofo.com.