Contractors & the Law


David Yang

David Yang
Oles Morrison
Rinker & Baker 

Eric Forner

Eric Forner
Oles Morrison
Rinker & Baker

 

Federal Government Contractors: Take Note of These Five Important Developments

 

With hundreds of billions of dollars appropriated for federal procurements in 2018, it is already shaping up to be another banner year for government contractors, especially for those considering, pursuing or performing defense contracts, for which over $650 billion has been appropriated this year alone.

Given the bounty of opportunities, it has never been more important for government contractors to stay abreast of the major developments in government contracts this year — some potentially transformative, others long anticipated and still others which continue to point to positive trends in government contracting. Below are five key takeaways that attorneys have observed so far this year.

Alaska Native corporations contracting law reinterpreted

In a big win, the Alaska delegation recently brought about a significant reinterpretation of the Small Business Administration’s 8(a) program as it pertains to Alaska Native Corporations, or ANCs.

In 1986, Congress expanded the 8(a) program to include ANCs. After the 1986 8(a) expansion, ANCs received many sole-source federal defense contracts. ANCs thrived under this procurement model, but their success in federal contracting was scrutinized by some in Washington, D.C. Accordingly, the 2010 National Defense Authorization Act (NDAA) required that for defense contracts then valued at over $20 million the contracting officer needed to obtain approval from the respective secretaries of the military branches.

The branches interpreted the language to mean that, rather than securing approval from a designee, contracting officers had to obtain approval from the actual branch secretary. The burden associated with this perceived requirement proved so prohibitive that contracting officers largely abandoned their sole source authority for ANCs for any procurements affected by the new law.

The 2010 law, which became effective through the Federal Acquisition Regulation in March 2011, had a significant adverse impact on ANCs, drastically reducing the use of this once abundant procurement model — by some accounts, the 2010 law has decreased awards of federal defense contracts to ANCs by more than 80 percent, thus significantly suppressing this once-powerful economic growth engine for ANCs and village corporations.

However, the Army, Navy and Air Force, through a series of internal memoranda released in June 2018, have adopted a more sensible reading of the statute, agreeing to reinterpret the approval requirements. Instead of requiring the actual signature of the secretary of these branches, the Army, Navy and Air Force now agree that contracting officers can again award sole-source contracts to ANCs by obtaining approval from a designee of the secretary of the agency, without needing the secretary’s actual signature, a prohibitively burdensome requirement.

This more sensible interpretation may reopen the door to federal contracting for ANCs, particularly in services, and restore an important boon to the Alaska economy. While the door has been reopened, it remains to be seen whether the sole source procurements for ANCs will return to its pre-2011 activity.

Bid protest process streamlined

In a May 1 final rule, the U.S. Government Accountability Office, or GAO, in addition to making several changes to streamline the protest process, also made a long-awaited change to its bid protest practice.

In 2014, Congress had directed the GAO to implement an electronic filing system for bid protests. In the May 1 final rule, the GAO implemented this long-anticipated system, which it calls the Electronic Protest Docketing System, or EPDS.

EPDS operates much like the electronic PACER docketing system used by federal courts and is now the GAO’s official docketing system for all protests and related filings, including initial and supplemental protests, the agency’s report, the parties’ comments, and any administrative, procedural or related filings.

Although there has been some controversy over the mandatory $350 filing fee for initiating an EPDS protest, most observers agree that the pros of EPDS outweigh any potential cons. For the most part, EPDS has resulted in more timely notice of protests to the government. It also implements the automatic stay of performance upon the filing of a protest without the need for the GAO to call the agency, and facilitates a more orderly administration of the protest process by improving the ease of use and access to information.

Enhanced debriefing helps bidders do better next time

In protests, 2018 saw the implementation of enhanced debriefings by the Department of Defense, or DOD, to unsuccessful offerors. Pursuant to the 2018 National Defense Authorization Act, or NDAA, DOD was directed in March to begin providing enhanced debriefings to include, in addition to the standard information provided in debriefings under Federal Acquisition Regulation (FAR) 15.506(d), the agency’s written source selection decision and to allow offerors two days to submit questions, with the protest clock beginning to run only after the offeror receives a response from DOD.

The additional information provided in enhanced debriefings must still abide by the requirements of FAR 15.506(e) — namely the prohibition from disclosing any confidential or proprietary information regarding other offerors’ proposals or their evaluations. However, most observers agree that the additional information provides offerors with greater transparency into the procurement process, including the strengths and weakness of an offeror’s proposal, areas for future improvement and whether or not a protest is warranted.

DOD’s enhanced debriefing process has generally been favorably received by industry, which has long welcomed any efforts that foster greater dialogue with the government. At the same time, DOD hopes that enhanced debriefings will reduce the filing of speculative protests that are intended to obtain information to determine whether their proposals were unreasonably rejected, information which may now be provided in an enhanced debriefing.

Hope on horizon for slowing frivolous fraud claims

False Claims Act, or FCA, enforcement activity has continued to be strong in 2018 but some relief appears to be on the horizon. The FCA is the government’s primary anti-fraud tool. In fact, since 1987, recoveries have totaled $56 billion and no single year since 2010 has fallen below $3 billion in recoveries.

Most cases continue to be brought by qui tam relators, or someone who brings a fraud case forward on behalf of the government and potentially receives a share of the recovery. The Department of Justice, or DOJ, maintains its decision not to intervene in most cases, instead allowing the relator to go forward. While daunting circumstances for industry, DOJ’s recent remarks during the American Bar Association’s June 14, 12th National Institute on the Civil False Claims Act and Qui Tam Enforcement were certainly welcomed, where top DOJ leadership addressed a number of “reform” projects of significant interest.

Notably, DOJ addressed its authority to dismiss frivolous qui tam cases, which rely on informal agency guidance, as opposed to an actual regulation or statute, to allege a legal violation in support of a false claim. For its dismissal authority, DOJ confirmed that its policy of dismissing frivolous cases remains an important objective for DOJ but acknowledged that such dismissals by DOJ, to date, have been rare.

Accordingly, DOJ is “now instruct(ing) (its) attorneys” to determine whether dismissal is warranted in non-intervened cases. And, with regard to reliance (often by qui tam relators) on internal and informal agency policies or practices to fashion the basis for a legal violation, DOJ agreed during the conference that such internal guidance, which lacks the force and effect of law, should not serve as a viable basis for alleging a legal violation — a situation that subjects a company to substantial defense burdens — when agency policies or practices are inherently subjective and are often even inconsistent in their application.

While it is still early, on June 29, and at DOJ’s request, a Kentucky district court dismissed a weak qui tam case with prejudice over the relator’s objections.

DOD adopts policy to work more like a commercial business

Lastly, 2018 has seen significant policy developments regarding government acquisition strategy. Named after that section of the 2016 NDAA, the Section 809 panel of acquisition experts published two policy positions in January and June, which recommended that DOD procurements be overhauled to focus on achieving desired outcomes rather than on processes.

In its January policy position, the Section 809 panel proposed that DOD should adopt a “dynamic marketplace” approach which pursues its objective to focus less on process and more on the outcome that an agency is trying to achieve. As part of this effort, the panel proposed that DOD should strive towards attaining greater commerciality by working more with small and commercial businesses, thereby loosening the barriers of entry to government contracting by broadening the contractor marketplace and sources of supply.

Similarly, the panel’s June policy position continued the call for greater commerciality in government contracting by: 1) increasing the use of non-defense, commercial businesses, 2) simplifying the acquisition system to allow for more flexibility in the effective allocation of resources, 3) procuring requirements on a shorter and more rapid basis, and 4) enhancing the acquisition workforce by incentivizing and empowering personnel to develop policies and programs based on actual business rationales and needs rather than political or outside influences and expectations. It is hopeful that this strategic recommendation will further open the marketplace to companies who traditionally do not participate in government contracting, thereby increasing the pool of qualified contractors.

 

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David Yang is a partner at Oles Morrison Rinker & Baker LLP. Federal contractors of all sizes look to David for his strategic counsel in navigating all phases of the federal procurement process. Drawing on his decades-long experience of the state, local and federal marketplaces, Dave regularly advises clients on all critical aspects of their business, whether the issues involve compliance, intellectual property, prime-subcontractor matters, cost accounting, claims, bid protests or other disputes.

 

Eric Forner, an attorney at Oles Morrison Rinker & Baker LLP, combines his first-hand construction industry experience with his legal skills to counsel construction companies and businesses of all sizes. His legal practice is full-service, addressing all aspects of his client’s legal needs from initial contract drafting and review to complex litigation of claims and disputes.