When a contractor delivers goods to the government that do not conform to the precise requirements of the contract, the results are usually . . . not good.  When the agency specifies certain products in the contract, the contractor should plan to satisfy the exact specifications (or prepare to suffer the consequences).

A straightforward example arose recently on a GSA construction contract.  The contract called for the installation of products from specifically named manufactures (with limited sources identified).  The contract also expressly called out that the agency would not permit substitutions for those named products.

After award, the contractor proposed substitutions for what it considered “equivalent” products from a manufacturer that did not appear on the agency’s approved source list.  The agency declined to consider the contractor’s requested exceptions.

The contractor wisely proceeded to provide the brand name products – but also filed claims seeking the excess costs associated with those products (as compared to the lower-priced equivalents that it suggested to the agency).  The contractor argued that the agency improperly rejected the substitution.

Not surprisingly, the Civilian Board of Contract Appeals granted the agency’s motion to dismiss.  The Board found that the contract language clearly did not provide for substitutions – and that GSA did not breach the contract by refusing to consider the contractor’s proposed equivalents.

Was the contractor totally out of line with this request?  No.  There are certainly examples of agencies waiving contract requirements – even for specified products.  But that would be the exception to the rule.  Without a waiver, the contractor certainly did the right thing by providing the brand name products.

When contractors substitute products without a waiver, we quickly descend into discussions about breach of contract remedies (or worse).  At a minimum, the government is entitled to tap into the contractor’s costs savings from using a product other than the one specified.  The government can even seek damages from the contractor when the substituted product is objectively equal (based on the perceived damaged to the government’s competitive procurement system).

Even worse, agencies often view product substitutions as an intent to defraud the government, leading to criminal sanctions or alleged Civil False Claims Act violations.  Examples arise when contractors intentionally mismark products or otherwise seek to mislead the agency into believing it is receiving something other than the product actually supplied.

Given the government’s current posture in prosecuting fraud under the False Claims Act, contractors must be wary of even honest mistakes being treated as allegedly intentional fraud.

Contractors must read and abide the contract’s fine print.  Substitutions are not forbidden in government contracting, but must be treated as the narrow exception to the larger rule.

Nick Solosky is a Partner in Fox Rothschild’s Government Contracts & Construction Practice. You can reach Nick directly at NSolosky@FoxRothschild.com or 202-696-1460.

Two weeks ago, I presented on Common Issues in Government Contract Interpretation.  The course examined common issues encountered by government contractors in bidding on and performing government contracts – as well as the dispute resolution process under the Contract Disputes Act.

One of the course’s major topics was the Plain Meaning Rule – the concept that Boards and Courts interpreting government contracts will look to the contract language first.  In fact, if the language is clear, the Judge will look at the contract exclusively and ignore any outside (or extrinsic) evidence concerning the parties’ intent.

On the heels of that presentation, the Armed Services Board of Contract Appeals (ASBCA) issued a decision that highlights the critical role that the Plain Meaning Rule plays in government contract disputes.

The contract at issue in the case involved the construction of a hospital facility and dental clinic at Joint Base Andrews, Maryland.  On appeal, the contractor argued that the owner of existing water and sewage infrastructure was responsible for the construction of new systems expected to connect to existing infrastructure.  The Navy countered that the contract clearly differentiated between new systems (priced and performed by the offeror) and work performed on existing systems (performed by the current system owner and priced after award).

The Board sided with the Navy, finding that the government’s interpretation offers the only reasonable way of reading the contract.

In specifically discussing principles of contract interpretation, the Board states:

[The Board cannot] grant summary judgment if we needed to consider disputed extrinsic evidence to resolve an ambiguity. The problem we see with [the contractor’s] argument is that the contract’s language . . . is unambiguous.

In other words, the Board will only turn to extrinsic evidence outside the four corners of the contract if it finds the language ambiguous.  Because it found only one reasonable interpretation of the contract language, the inquiry ended there (in favor of the Navy).

The Plain Meaning Rule presents the minimum threshold a contractor must clear in order to present extrinsic evidence of intent to the Board or Court.  In this case, the contractor may well have possessed key evidence of shared intent with the Navy – but the Board never heard it.

The unambiguous contract language controlled.

The key takeaway for contractors is to work aggressively and proactively against potential ambiguities during the pre-bid phase.  If you can see two ways of interpreting contract language, do not assume the government shares your intent. Raise the issue and push the agency to go on record regarding its interpretation.

Once the contract is signed, it automatically becomes the best – and perhaps only – form of evidence the Court or Board will examine.

Nick Solosky is a Partner in Fox Rothschild’s Government Contracts & Construction Practice. You can reach Nick directly at NSolosky@FoxRothschild.com or 202-696-1460.

Join me today, Monday July 15, 2019 at 3:00 p.m. (Eastern) for Lawline’s Live Course: KEY QUESTIONS OF CONTRACT INTERPRETATION IN GOVERNMENT CONTRACTS.

During the 90-minute course, I’ll cover the key principles of contract interpretation as they relate to government contracting.  To take best take advantage our my limited time and maximize value for those in attendance, I’ll be breaking our discussion down into three parts:

  • Contract Formation – How the U.S. Government forms contracts with private contractors, including tips on avoiding common pitfalls during the proposal phase;
  • Contract Interpretation – Examination of how the U.S. Court of Federal Claims and Boards of Contract Appeals interpret federal contracts (and how it often differs from common commercial practices); and
  • Contract Disputes – A walk-through the dispute resolution process and how formation/interpretation issues impact a contractor’s ability to prevail on claims/appeals and recover damages.

By the end of the class, attendees will learn:  (1) winning strategies for bidding federal work, (2) best practices for interpreting federal contracts with an eye towards successful performance, and (3) how to handle the dispute resolution process in the event an issue arises.

Not able to attend today, but still have questions about interpreting government contracts or contract claims procedures?  Feel free to contact me directly.  202-696-1460 or Nsolosky@FoxRothschild.com

I’ve spent a good deal of time on this blog discussing practical strategies for Best Value procurements.  As the name implies, the goal of every Best Value proposal should be to  maximize the benefit your business can provide to the agency.  While price is always a consideration, Best Value RFPs present an opportunity to flex and show how you can do it better than anyone else (whatever it is).

Today, we take a look at an instructive example of a Best Value protest and examine GAO’s reasoning for upholding the agency’s award decision.

The procurement concerns a U.S. Army contract for test equipment used on missiles, aircraft, and military ground vehicles.  The RFP required offerors to submit a sample device and accessories.  The Army then evaluated the device and assigned a technical score based on its analysis.

Following the evaluation, the Army found that three offerors’ technical scores exceeded the baseline requirement – but only one offeror “significantly exceeded” the objective.  The Army awarded the Contract to that offeror based on the conclusion that the exceptional equipment would prove more advantageous in terms of meeting the agency’s future demands — in other words, the equipment offered the agency the Best Value.

GAO found the Army’s evaluation reasonable and upheld the award decision.  Although the agency accepted the highest-priced proposal, it sufficiently documented its rationale for doing so. Given the awardee’s technical superiority, the Army found the highest-priced proposal “worth the price premium.”

This protest is enlightening because it emphasizes the BEST in Best Value procurements.  The Army received three offers that exceeded the RFP’s objective in terms of technical performance.  If all offers were relatively equal in terms of technical merit, the agency would have been  justified in falling back on price to break the tie.

The awardee did not let price hijack the procurement.

By offering equipment head-and-shoulders above the competition, it proved to the Army that its services are worth the premium price.

Nick Solosky is a Partner in Fox Rothschild’s Government Contracts & Construction Practice. You can reach Nick directly at NSolosky@FoxRothschild.com or 202-696-1460.

It has been a long time coming, but it appears that the government will (finally) amend the Federal Acquisition Regulation (FAR) to align with prior changes by the Small Business Administration (SBA) concerning credit for lower-tier small business subcontracting.

The proposed rule addresses changes to FAR 19.704 and 52.219-9 to marry the regulation up with SBA’s amendments.

We first covered this issue back in 2016 when SBA issued a final rule amending the small business subcontracting plan regulations.  SBA’s amendment allows large prime contractors on federal jobs to receive credit for lower-tier subcontracting awards to small businesses and other socio-economically disadvantaged firms.  That is, rather than limit credit to first-tier subcontracts, prime contracts may count the awards their first-tier subcontractors make to small businesses towards their subcontracting goals.

Prime contractors must have two sets of goals in their subcontracting plans:  The first set includes the prime contractor’s goals for direct subcontract awards and the second set of goals addresses subcontracts awarded at lower tiers.

Receiving credit for those lower-tier subcontracts is often a big deal for large prime contractors.  It provides some much needed flexibility when preparing a federal small business subcontracting plan.  The change also benefits small business subcontractors based on the potential for increased subcontracting opportunities that add value to prime contractors.

Of course, among all of these positives, we need a word of caution.  Federal contractors (both large and small) must carefully understand subcontracting plan requirements, including these recent changes.  Penalties for failure to make good faith efforts to satisfy the requirements are significant – and can include liquidated damages, default termination, and negative performance evaluations.

 

Back in January, I commented on the lack of clarity associated with the the Small Business Runway Extension Act.   The Runway Act calls for calculating a business’s size by averaging its annual receipts over the five most recently completed fiscal years.  That, of course, is a change from the Small Business Administration’s (SBA) standard practice of calculating size under the same metrics, but for a three-year period.

Should a business use the three- or five-year standard to measure its size when submitting a proposal?  It appears that a definitive answer is on the horizon.

This week, SBA proposed a rule that would incorporate the change to the five-year metric into the applicable regulations.  Comments are due no later than August 23, 2019, which means that we should see some resolution on this issue in Fall 2019.

While we wait for a final rule, the the proposed rule itself provides some measure of clarity for contractors trying to reconcile the Runway Act against the existing SBA regulations.  SBA provides a fixed line of demarcation between the three- and five-year standards.  That is, until SBA adopts a final rule, it will continue to apply the three-year average for calculating average annual receipts.

Therefore, contractors submitting proposals at any time between now and the final rule can now feel confident in relying on the three-year standard to determine their size.

Check back for additional updates on this issue when SBA issues its final rule.

 

 

The essential elements of the government’s Service-Disabled Veteran-Owned Small Business (SDVOSB) program are ownership and control of the business by a qualifying service-disabled veteran of the U.S. military.

A recent protest challenged a firm’s SDVOSB status on that precise basis – i.e., that a service-disabled vet did not control the day-to-day operations of the company.  The Small Business Administration’s Office of Hearings and Appeals (OHA) denied the protest in summary fashion.  In doing so, the decision provides a winning playbook for other protested SDVOSB firms.

Specifically, in denying the protest, OHA relied on the awardee’s ability to demonstrate:

·                51% (or more) Ownership by the Service Disabled Vet

·                Unconditional Control by the Service Disabled Vet; and

·                The Service Disabled Vet’s Management Ability and Experience.

Primarily by relying on the company’s Operating Agreement, the SDVOSB demonstrated that only “member-managers” have the ability to make business decisions, direct the organization, and legally bind the company.  The company’s only member-manager is a service-disabled vet.  Further, the company relied on evidence of the service-disabled vet’s management experience as evidence of his ability to run the company and make strategic decisions.

Is every SDVOSB status protest going to be this straightforward?  No.  Allegations will vary and – of course – the protested firm may face unique challenges based on any number of factors unique to its business.

However, regardless of whatever issues come to define the protest – a challenged SDVOSB cannot go wrong in focusing its response on: (1) 51%+ ownership, (2) unconditional control, and (3) proof of the service-disabled vet’s ability to run the business.

The False Claims Act (FCA) was enacted in 1863 to stop the massive fraud perpetrated by large contractors during the Civil War.  The FCA has gone through many iterations since its enactment.  Relevant here, the FCA allows a private plaintiff, known as a relator, to bring a qui tam action in the name of the United States against a violator.  31 U.S.C. § 3730(b).  If the United States decides to intervene, the government acquires ‘‘primary responsibility for prosecuting the action,’’ although the relator remains a party. Id. § 3730(c)(1).  In contrast, if the United States declines to intervene, the relator may proceed with the action alone on behalf of the government, but the United States is not a party to the action. Id. § 3730(c)(3).

A qui tam action may not be brought— (1) more than 6 years after the date on which the violation of section 3729 is committed, or (2) more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed, whichever occurs last. Id. § 3731(b)(2) (i.e. statute of limitations provisions).

Over the years, a circuit split has developed on the applicability of the statute of limitations provisions in the FCA.  The Third and Ninth Circuits have held that a relator may rely on the statute of limitations provisions in the FCA even if the government does not intervene but the limitations period is triggered by the relator’s knowledge of the fraud, not the government’s knowledge.  See U.S. ex rel. Malloy v. Telephonics Corp., 68 F. App’x 270 (3d Cir. 2003); U.S. ex rel. Hyatt v. Northop Corp., 91 F3d 1211 (9th Cir. 1996).

The Fourth, Fifth, and Tenth Circuits have held that a relator may rely on the statute of limitations provisions in the FCA only in cases filed by the United States or where the government has intervened in the case.  See U.S. ex Rel. Sanders v. North American Bus Industries, Inc., 546 F.3d 288 (4th Cir. 2008); U.S. ex rel. Sikkenga v. Regence BlueCross BlueShield of Utah, 472 F.3d 702 (10th Cir. 2006); U.S. et rel. Erkskine v. Baker, 213 F.3d 638 (5th Cir. 2000).

The Eleventh Circuit agrees with the Third and Ninth Circuits that the FCA’s limitations period applies even if the government declines to intervene.  However, the eleventh circuit recently held the statute of limitations is triggered by a government official’s knowledge of the fraud, rather than the relator’s knowledge.  Cochise Consultancy Inc. v. U.S. ex rel. Hunt, 887 F.3d 1081 (11th Cir. 2018).  This is a split from the Third and Ninth Circuits.

On Nov. 16, 2018, the U.S. Supreme Court granted certiorari in Cochise Consultancy Inc. v. U.S. ex rel. Hunt.  In deciding this case, the Supreme Court will resolve a current three-way circuit split on whether a relator in a FCA qui tam action may rely on the statute of limitations provisions in the FCA in a suit in which the United States has declined to intervene and, if so, whether the relator constitutes an “official of the United States” for purposes of FCA Section 3731(b)(2).

With the circuits clearly split, the Supreme Court’s decision will clarify the applicability of the FCA’s limitations provisions for all FCA relators.  This decision should also prevent forum shopping as relators, currently, may have their cases dismissed in some circuits and allowed to proceed in other circuits.  The Supreme Court will hear oral argument on March 19, 2019.

Contractors who have filed or have considered filing a Bid Protest based on a mistake by an agency know that they have very little time to recognize an issue and take action before the Government Accountability Office (GAO).

  • Typically, a protest challenging the award of a contract must be filed within 10 days (calendar, not business) of when a protester knows or should know of the basis of the protest.
  • GAO routinely dismisses untimely protests without even considering the substance of the appeal.
  • Government Agencies will always target timeliness in their brief when it might be an issue.

These facts result in many otherwise worthy Bid Protests being dismissed. While this feels harsh to contractors with legitimate complaints about tight turnaround, it is an integral part of keeping meritorious and timely protests before GAO process quick, inexpensive, and effective overall.

However, there are two important favorable rules GAO has developed over the years that may rescue contractors who might otherwise think they are out of luck due to timeliness concerns.

  • Diligent pursuit of information that gives rise to a basis for protest may lead to a favorable decision on timeliness for contractors.
  • Doubts over timeliness are resolved in favor of protestors.

These two considerations help somewhat ease the harshness of the strict timeliness rules GAO has.

A recent 2019 GAO case reminds us that “diligent pursuit” of a basis for protest may save a contractor whose Bid Protest otherwise appears untimely.

In Miltrope, the Army argued that the Bid Protest should be dismissed because the contractor knew the basis of its protest after its pre-award debriefing when it was initially excluded from the competitive range. The Army had determined the sample device Miltrope provided did not exceed the minimum specification required.

The contractor argued that its protest was timely because it only realized that it had a basis for protest once the sample device was returned to it and forensic analysis indicated that the settings had been changed. In other words, it only became aware of its basis for protest once it received the device back from the agency. Recall the “knows or should know” aspect of timeliness discussed above.

Those changed settings, which directly affected the test the Army had performed, effectively eliminating Miltrope from the competitive range through no fault of their own.

GAO decided that because the contractor had “sought diligently” to determine the cause of its device’s test failure, and had made this determination within eight days that it would hear the substance of the protest.

I mentioned earlier that GAO resolved doubts over issues of timeliness in favor of protesters. This rule essentially means that if a case is a close-call, tie goes to the protester. Pairing the “diligent pursuit” concept with GAO’s long-standing rule resolving doubts in favor of protesters, can create a circumstance that rescues protests that appear to be untimely.

Before even getting to this stage, contractors should be very aware of all of the potential pitfalls surrounding timeliness even before they begin submitting proposals for government contracts. Being prepared to deal with an unfortunate scenario can make all the difference in whether you have the option of protesting before GAO.

At the end of 2018, the President signed the Small Business Runway Extension Act.  Without much fanfare, the Act delivers a major shakeup to the Federal small business community.

Before the Act, a business would determine its size by calculating its average annual receipts over the three most recently completed fiscal years.  With the stroke of a pen, those average annual receipts are now measured over a five year period.

Perhaps predictably, lots of ink was promptly spilled on the internet both hailing and deriding the change.  For a fast-growing business, the Act provides a longer runway (hence the name) to remain small and continue to compete for set-aside work.  On the other hand, a decelerating business now must include receipts from busier times that could bump it over the size threshold and eliminate future opportunities.

In the midst of all of this angst, Small Business Administration (SBA) decreed in an Information Notice that the Act is not effective immediately.  Instead, SBA will roll out implementing regulations on a date to be determined.  As things stand right now, that date does not seem to be coming anytime too soon.

So, which standard should contractors use?  Three years?  Or Five?

The only certainty lies with contractors that are small under either/both metrics.  A contractor that is only small under the three-year measurement could face a size protest because it is not small under the Runway Act.  On the other hand, a business that is only small under the new five-year standard could be face with the argument that there are no implementing regulation for the new law (and therefore the old three-year period still controls — which is what the SBA itself says).

Candidly, there is no right or wrong answer at this time.  Contractors must make calculated decisions based on a number of factors, including where they fall on the size spectrum, the likelihood of a size protest, and what they consider an acceptable amount of risk.

Given the adverse consequences associated with a negative size determine (to say nothing of the cost of defending against a protest), these are decisions that should be approached strategically before deciding to submit a proposal or otherwise hold your business out as small.