Every manufacturing contract, including construction contracts, with the government contains a myriad of terms and conditions and other requirements, including the numerous provisions set forth in the Federal Acquisition Regulation (FAR) that are often incorporated expressly or by reference into the contract.  Understandably, contractors focus on the contract’s specifications, schedule, terms for payment, and certifications of compliance with various contractual and regulatory requirements.  But, while these items are undoubtedly central and must be closely monitored, contractors should also review whether their supply chains are subject to the Defense Priority Allocation System (DPAS) for rated orders.  The DPAS is an ordering regime by which the government can direct (or redirect) suppliers to prioritize their delivery of materials and supplies to, and across, various government projects and contracts, even if doing so would disrupt the schedule under another contract, such as your contract.  So, how does this system work, what does it mean for you, and what might you be able to do, and should do, in the event you encounter a DPAS-rated order in your supply chain?

Take this not uncommon situation for example.  A prudent contractor has entered into a contract with the Corps of Engineers (COE) to build a new runway at Air Force Base Alpha.  The contract incorporates the FAR’s contract terms.  Being a prudent contractor, materials were timely ordered, delivery dates confirmed, project schedule and sequencing double checked; orderly and efficient construction commences.  All is good in the world.

However, two weeks before delivery of materials needed to meet completion in the time specified in the contract, a supplier writes the prudent contractor and says: “Unfortunately, the materials ordered cannot be delivered per the agreed schedule.  Materials are being diverted to the Fort Omega construction project.  So sorry.  We will deliver the materials ordered in three or four months.”  Prudent contractor advises the COE of this development, contacts every other supplier of the materials needed, but is unable to secure materials in time to meet the contract milestone.

Prudent contractor comes to learn that the Fort Omega project has been designated with a Defense Priority Allocation System rating.  The Fort Omega project has a “DO” rating.   This means that the supplier that received the rated orders must “give them preferential treatment as required by this part.”  15 C.F.R. § 700.3

In the meantime, the Contracting Officer on the AFB Alpha project has sent a notice to cure default to prudent contractor due to the lack of materials needed to timely complete the project.  The supplier tells prudent contractor that he ordered the materials first, but unfortunately, “Scheduling conflicts with previously accepted lower rated or unrated orders are not sufficient reason for rejection under this section.”  15 C.F.R. § 700.13(b)(1).  The supplier explains that rated orders for rated projects are a matter of national security, and therefore, under the law, and the public policy favoring national security, there is nothing supplier can do.

Not knowing where to turn, prudent contractor calls his attorney, who explains that “Although the operation of the DPAS may give rise to excusable delay in an appropriate case, the DPAS regulations require performance of a lower priority contract to be deferred only if ‘required delivery dates [for the higher rated contract] cannot otherwise be met.’”  DCX, Inc. v. Perry, 79 F.3d 132, 134 (Fed. Cir. 1996).

Additional information gathering confirms that:  supplier is the only person from whom materials can be timely procured for the Omega project; and the dilatory contractor on the Omega project ordered materials three months after prudent contractor, and barely in time to meet the Omega project schedule.  Prudent contractor gathers all the information on delivery dates for replacement materials, calculates the costs, calculates a new completion date, and prepares this analysis for the Contracting Officer.  Prudent contractor also gently reminds Contracting Officer that, under FAR, contractors shall not be “terminated nor . . . charged with damages” if “the delay in completing the work arises from unforeseeable causes beyond the control and without the fault or negligence of the Contractor;” which include “(ii) acts of the Government in either its sovereign or contractual capacity, (iii) acts of another Contractor in the performance of a contract with the Government.”  48 C.F.R. 52.249-10(b)(1).  Because it was proactive and diligent, prudent contractor and the Contracting Officer are able to agree to a fair extension of time to complete the Alpha project.

This example is not uncommon and provides several, valuable takeaways.  When encountering unforeseen impacts due to another project’s DPAS rating, the contractor should determine contingencies quickly, calculate the time and cost impacts, keep records of timely orders of materials, and present the information in a clear and timely manner to the Contracting Officer.  By taking reasonable action, the contractor may be able to prevent an unfair, and surprise, default when the events are beyond its control.  In addition, to the extent possible, the contractor, in conducting its diligence to bid on the contract, should evaluate the depth of its supply chain so that reasonable alternative suppliers may be identified and engaged in the event the first supplier is unable to provide materials in a timely manner due to a DPAS-rated order.

So-called “sovereign acts” may soon affect the performance of a wide swath of government contracts by shielding the federal government from the fallout of President Trump’s newest tariffs. The sovereign acts doctrine is rarely discussed, but it can have a profound impact on contract profitability.

While a contractor might normally be granted additional compensation when its performance is hindered by government action, the sovereign acts doctrine protects the government from liability where the impact on a particular contract results from the government’s “public and general acts as a sovereign.” In other words, because the federal government’s legislative and regulatory powers take precedence over fidelity to any particular private contract, the government is not responsible when its higher-order actions happen to disrupt contract performance.

In March 2018, the Trump administration began imposing tariffs on steel (25%) and aluminum (10%) imports. These tariffs have since been expanded to a number of close U.S. trading partners, including the European Union, Canada, and Mexico. On July 6, the Trump administration also set a tariff of 25% on approximately $50 billion in Chinese imports, and has announced an additional 25% tariff on approximately $200 billion in Chinese consumer goods.

The question of whether a particular federal action is “public and general” enough to trigger the doctrine varies from case to case, but there is a substantial possibility that tariffs on imported steel and other building supplies may qualify. This would leave contractors to cover recent increases in materials costs that flow directly from these trade policies.

While these national-scale government actions are certainly the most visible examples of the sovereign acts doctrine, contractors should also be prepared to confront more localized government actions that benefit from the same defense.

Work site access restrictions are a common example of such “local” sovereign acts. For example, in Conner Bros. Const. Co., Inc. v. Geren, the Army and one of its commanders made the operational security decision to exclude construction personnel from a worksite within an Army base in the days following the September 11, 2001 terrorist attacks. This was deemed a sovereign act that precluding recovery for the contractor’s delay damages, though the contractor was allowed additional time to perform.

Similarly, in Garco Const., Inc. v. Secretary of the Army, (which also involved administrative deference issues that we have covered in previous posts), the sovereign acts doctrine protected the Army from liability after the more stringent enforcement of its existing base access policy barred entry for a large number of subcontractor workers.

While it can be difficult to plan for circumstances like these, contractors should keep a close eye on the price risks that they and their subcontractors accept when bidding on federal contracts. If there is a substantial chance that an imminent sovereign act could interfere with performance, contractors would be well-advised to ensure that their bids reflect contingencies that account for this possibility.

To learn more about how the sovereign acts doctrine could intersect with these new tariffs, or for information about the potential impact of other governmentwide disruptions, consider attending our upcoming seminar, Navigating Federal Government Contracts Northwest 2018.” The seminar/webinar will include a keynote speech by James Nagle specifically addressing the application of the sovereign acts doctrine to government shutdowns and other current or looming political disputes. 

Many politically charged issues are likely to steal the headlines during the confirmation hearings for President Trump’s nominee for the U.S. Supreme Court, D.C. Circuit Court of Appeals Judge Brett Kavanaugh.  However, one issue unlikely to make headlines is the impact that Judge Kavanaugh’s confirmation may have on the doctrine that gives “controlling weight” to the way government agencies interpret their own regulations — known as the Auer Deference doctrine.

Given the composition of the Supreme Court, recent Judicial attempts to re-examine the doctrine, and Judge Kavanaugh’s previous statements, Judge Kavanaugh’s confirmation signals the probability of the Supreme Court’s eventual overturning of the Auer Doctrine  — which would be good news for government contractors.

What is Auer Deference?

Auer deference (also referred to as Seminole Rock deference) is a principle of administrative law that requires courts to give “controlling weight” to the way government agencies interpret their own regulations, even where the agency’s interpretation is not “the best” reading of the text in question. Developed from the U.S. Supreme Court’s holdings in Auer v. Robbins, 519 U. S. 452 (1997) and Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945), the doctrine mandates that courts credit the agency’s interpretation as controlling as long as it is not “plainly erroneous or inconsistent with the regulation.”

This obviously puts a thumb on the scale for agencies in the context of contract disputes or bid protests tied to certain regulatory interpretations. It can be particularly harmful to contractors when the agency has altered its interpretation during the performance or procurement of a contract, or worse, during the course of litigation. Unlike agencies whose procurements rely on interpretation of the FAR, agencies that draft and enforce their own regulations (such as the Small Business Administration) are sometimes empowered under Aeur to alter their interpretation to suit the agencies’ needs on a case-to-case basis. Continue Reading Why Judge Kavanaugh’s Confirmation Could be Good News for Government Contractors

The federal regulations and procurement framework for design-build project delivery concerning direct government procurements, and indirect federal projects where the government provides funding but does not procure the construction, has been in place for the past twenty-two years (The Clinger-Cohen Act passed in 1996, part of Federal Acquisition Regulation at subpart 36.300 et seq.)  Design-build delivery can provide a streamlined project to federal agencies at many times better value than a design-bid-build delivery

In the next three years, design-build projects are expected to to be just about 20% of all of the total U.S. Construction Put in Place ($1.2 trillion of the $5.4 trillion estimated total; See Fails Management Institute June 2018 Market Study ) Highway and road projects are expected to make-up fourteen percent of the design-build delivered projects over the same time period (Ibid.)  As the twenty-fifth anniversary of design-build procurement at the federal level approaches, we can take a few minutes to look at a couple of the benefits and pitfalls for contractors of design-build projects.

Benefit

Generally speaking, design-build projects take less time to complete than traditional design-bid-build projects.  This benefit is realized by eliminating a second procurement process, reducing the errors and omissions in the drawings, and allowing for concurrent design and construction.

Pitfall

Despite Federal Acquisition Regulation subparts 36.303-1, Phase One, and 36.303-2, Phase Two setting for the criteria for evaluating proposals in phases, the evaluation of the criteria is necessarily subjective when the government is awarding a negotiated contract on best value.  The constraints on the wide discretion of the awarding body are that the decision cannot be arbitrary or capricious, contrary to established procedures, or unsupported by substantial evidence (5 U.S.C. § 706(2)) Meeting this burden during the protest process is a more challenging burden of proof.

Benefit

Because the design team and the contractor are under the same umbrella, often times working together during the programming phase of a project, design-build projects generally have less litigation.  A significant reason is that one of the main points of tension, design vs. contractor, is removed in a design-build project.

 Pitfall

Making sure that the design-build team, and the project, is protected by the appropriate insurance coverage can be a challenge for the design-builder.  In our experience, most of the design-builders are traditionally general contractors that contract with a design or engineering firm to be part of the design-build team.  For example, this creates a potentially problematic situation if a project specific insurance policy will have to cover general and professional liability, which is a non-standard type of coverage requiring savvy brokers, builders, designers, and underwriters.  Care must also be taken when negotiating the design-build contract with the awarding agency to include language and insurance requirements appropriate for both the professional liability side (“design”) and the general liability side (“build”).

Despite presenting unique challenges, design-build delivery can provide a streamlined project to federal agencies at many times better value than a design-bid-build delivery.

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)

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.

For years bid protest filings at the Government Accountability Office (GAO) have been done by e-mail (or even fax, mail or hand delivery).  In January 2014, Congress directed GAO to establish a electronic filing and document dissemination system (not unlike the PACER system used by federal courts), and authorized GAO to charge a filing fee to those filing bid protests.  Since that time, GAO has been working on developing an electronic filing system, which GAO calls “EPDS.”  The process has taken longer than most expected, but in February 2018 GAO announced EPDS was almost ready and started handling some protests on EPDS as part of a pilot program.  Today, GAO issued the final rule for EPDS, and announced that rule would take effect on May 1, 2018.  This means that starting in May all bid protest at GAO must be filed through EPDS (protesters will no longer be able to file protests by email) and GAO will charge a $350 fee for filing a protest.

Given the short and strictly enforced time limits for filing protests at GAO, those who file bid protests should consider signing up for an account immediately at https://epds.gao.gov/, and familiarize themselves with the new rules well before they take effect May 1st.  GAO has provided handy instruction manuals and videos for EPDS at https://www.gao.gov/legal/bid-protests/file-a-bid-protest.

As we previously discussed, when Congress passed the FY 2018 NDAA it required the Department of Defense (“DoD”) to issue regulations providing for enhanced post-award debriefing rights on certain DoD procurements.  Specifically, Congress mandated enhanced content requirements, a follow-up question process, and corresponding changes to the time to file a bid protest at GAO with a suspension of performance of the protested contract (a “CICA stay“):

  • Enhanced Content Requirements:  While protecting the confidential and proprietary information of other offerors, the debriefing shall include, at a minimum, the agency’s written source selection award determination, redacted to protect the confidential and proprietary information of other offerors.  These enhanced content requirements apply to “required” debriefings if (1) the contract award exceeds $100M, or (2) the contract award exceeds $10M and the contractor requesting the debriefing is a small business or nontraditional contractor who request such disclosure.
  • Follow-up Question Process:  Disappointed offeror would be allowed the opportunity for follow-up questions within two business days of receiving a post-award debriefing to be answered in writing by the agency within five business days.
  • Time to file protest at GAO and obtain a CICA stay:  The debriefing would not be considered concluded, and the five day post-debriefing period pertaining to when a protest needs to be filed to invoke a CICA stay would not commence, until the day the agency delivers its written responses to the disappointed offeror’s follow-up questions.

The enhanced content requirements were to be implemented through DFARS regulatory changes, which DoD has until June 2018 to issue.  On the other hand, the follow-up question process, and corresponding changes to the time to file a bid protest at GAO with a CICA stay, are already reflected in statutory changes (10 U.S.C. 2305(a)(5) and 31 U.S.C. 3553(d)(4)).  Still, changes to the DFARS were expected to implement the follow-up question process.  But this week, in advance of changes to the DFARS, DoD issued Class Deviation 2018-O0011 – Enhanced Postaward Debriefing Rights, which provides for the immediate implementation of the follow-up question process (and corresponding changes to the time to file a protest at GAO and obtain a CICA stay): Continue Reading DoD Begins Implementation of Enhanced Post-Award Debriefing Rights

Cooperative Agreements” are legal instruments that facilitate the transfer of something of value from federal executive agencies to states, local governments, and private recipients for a public purpose or benefit.

Cooperative Agreements are distinct from traditional procurement contracts and thus are not subject to the Federal Acquisition Regulation (FAR). Like Other Transaction Authority, this approach provides agencies greater freedom to craft the terms of an agreement around new or innovative endeavors. For example, the FDA uses this freedom to advance food safety with states by funding implementation of food safety rules. As the Federal contracting landscape becomes increasingly complex, Cooperative Agreements represent an opportunity for some contractors to pivot to a more streamlined federal funding mechanism. Continue Reading An Overview of Cooperative Agreements in Federal Contracting

The Randolph-Sheppard Act (“RSA”) grants blind persons, operating through State Licensing Agencies, mandatory priority in the award of contracts for the operation of vending facilities on federal property so long as the SLA contractor satisfies criteria established by the RSA’s implementing regulations prescribed by the U.S. Secretary of Education.  In its recent decision in State of Texas v. United Statesthe Court of Federal Claims (“COFC”) made two key rulings in relation to the RSA:

  1. Prior Government Accountability Office (“GAO”) decisions related to the RSA are not persuasive on the COFC, as GAO lacked jurisdiction to hear these protests, and
  2. The RSA creates a two pronged test before granting a State Licensing Agency (“SLA”) priority in a solicitation for vending services — (i) the SLA must be within the procurement’s competitive range, and (ii) the the contracting agency must perform cost and food quality evaluations pursuant to the solicitation, which may be in addition to a determination of whether the proposal falls within the competitive range.

In State of Texas v. United States, the Air Force issued a solicitation for vending services at Joint Base San Antonio.  The State of Texas, acting by and through one its state agencies that qualified as a SLA under the RSA for the purposes of the procurement, submitted a proposal.  The Air Force originally found that the State of Texas’ proposal did not fall within the competitive range.  In response to being excluded from the competitive range, the State of Texas filed for arbitration with the U.S. Department of Education, as is required by the RSA.

Continue Reading Texas Gets Burned: Court of Federal Claims Finds State’s Randolph-Sheppard Act Protest Premature