Government Contracting 101

I recently had the opportunity to present an online CLE for LawLine on Risk Management in Government Contracting. This is my second time presenting a course for LawLine (I previously taught a course on Small Business Compliance).

Risk Management is a broad topic that can mean different things to different people. In this course, I decided to focus on practical steps that contractors can take to develop a corporate Culture of Compliance. There is little value in limiting compliance training to only the upper leadership – employees at all levels must become ethics and compliance watchdogs.

I recommend developing a compliance program in four steps (that not coincidentally track the requirements of FAR 52.203-13):

  • Implement a Contractor Code of Business Ethics and Conduct
  • Establish a Regular and Robust Training Program for All Employees
  • Institute an Internal Control System
  • Understand the Difference between Reportable and Non-Reportable Evidence

To be effective, none of these steps are “one and done.”  It will not do much good to draft a Code of Business Ethics and Conduct, only to put it in a drawer to collect dust.  Your Code should be a living document that your employees read, understand, and utilize often.

In addition to these broad strokes, the course also delves into a few hot button issues relevant to today’s enforcement environment.  Most prominently, I discussed the requirements of FAR 52.204-21 and Cybersecurity best practices.  It may not have fully hit yet – but I think firms that lag behind in this area will soon find themselves on the wrong side of government enforcement actions.

If you have any questions about this Risk Management presentation, or have other questions you’d like to discuss, I’m happy to connect with you off-line.  I’m available by phone (202-696-1460) and email (nsolosky@foxrothschild.com).

Here we go again.  Back in March, I discussed the impact of the brief government shutdown and risks associated with what could have been (had the stand-off gone on much longer).

Today, news from the White House and Capitol Hill raised concerns over another possible shutdown in September (when the government will run out of money without action by Congress and the President).

In light of this uncertainty, I thought it made sense to again share practical steps that contractors can take to get prepared.  That includes creating a plan for how to address existing contractual obligations without assuming unnecessary risks in the event that the government does, in fact, shut down (again).  It is far better to think about and address these issues in advance, rather than face the real time pressure of a last minute budget deal (or failed deal).

Let’s start with the bad news:  your government contract (like almost every other procurement contract) will very likely be impacted by a shutdown.  The Anti-Deficiency Act prohibits Federal agencies from exceeding appropriation limits unless the contract falls into a narrow exception.  For contractors, that means a Stop Work Order.  Remember that the risk of continuing performance in the event that funding is not available may fall on your company.

Now, some good news.  By thinking ahead and planning in advance, you can mitigate that risk and place your business in better position to weather the storm.  Here are a few practical pointers aimed at doing just that:

  • Review Your Contract.  Understanding how the government funds your contract will shed light on how it likely will be treated by the agency in the event of a shutdown.  According to the Office of Management and Budget, most “routine ongoing activities” will not be authorized to continue during a lapse in appropriation.
  • Communicate with the Contracting Officer.  Just like your business, the agency is also likely working on a plan on how to administer on-going contracts during a shutdown.  A mutual understating with the CO will go a long way towards avoiding disputes when the work inevitably ramps back up.
  • Develop Contingency Plans.  Work internally to create a contract specific contingency plan to mitigate risk in the event of a funding issue.  These will vary greatly depending upon the specifics of each procurement, so bringing in outside consulting and expertise to set up an individualized plan may reap benefits, particularly for more complex work.

Of note:  these tips – and the last one in particular – are not limited to government shutdown concerns alone.  Any government contract can experience unanticipated delays or even a long-term suspension of work.  Thinking ahead and creating a plan is the best way for contractors to avoid assuming unnecessary performance risks.

If you are interested in an overview of the unique framework of laws, regulations, and rules that govern the interpretation of government contracts, I invite you to join me for a live webinar on Monday, December 18.

More information on registration and attending the webinar can be found here.

During the webinar, I will discuss the unique interaction between your business and the Federal government when it comes to contracting in the public sector.  A marked departure from private contracting, businesses must understand how government contracts are formed and administered in order to successfully play the game.  Contractors that fail to understand the rules run the risk of losing out on contract awards or dealing with the often severe consequences of unsuccessful performance.

Additionally, the webinar will cover how government contractors are required to engage with the government when a dispute arises.  We will examine common causes of contract changes, the dispute resolution process (REAs, Claims, and more), and even the procedure for protesting erroneous contract award decisions.

Even if you are not able to attend the webinar, I’m happy to answer any questions related to this (or any other) topic.  You can reach me at nsolosky@foxrothschild.com or (202) 696-1460.

Government contractors usually find themselves appearing before the Government Accountability Office (GAO) on a bid protest for one of two reasons:  (1) you believe that the government erroneously did not award a contract to your business or (2) your business holds a contract award that is challenged by a disappointed offeror.  Either way, there is a contract on the line that likely means a great deal to you (and your business).

In the past, we’ve discussed strategies for filing protests – which includes considering the important question of whether the GAO is the proper venue for the protest.  We’ve also offered practical advice on winning bid protest arguments.

But, should you find yourself on the losing end of a bid protest decision (and at extreme risk of losing that important contract for good), the GAO offers a last resort – the Request for Reconsideration.

GAO Reconsideration is a bit of a misnomer, so it is helpful to first discuss it in terms of what it is not, before turning to what Reconsideration actually entails.

First, Reconsideration is not an appeal.  In fact, there is no true “appeal” at GAO.  While disappointed protesters still have the option of turning to litigation at the Court of Federal Claims, that is a separate and distinct process – a clean slate.

Reconsideration also is not a “do over” or second bite at the apple with the GAO.  Contractors should never hold back an argument at the GAO because it is an extremely streamlined process (100 days from protest to decision).  Arguments that are not well stated the first time cannot be revisited.

So, what is Reconsideration, exactly?

In a nutshell, GAO provides for Reconsideration where the protester can identify specific legal or factual errors in the decision denying the protest.  Repeating or restating the same arguments (and hoping for a different result) will not get it done.  Needless to say, it is a high standard – making for a low probability for success.

In a recent bid protest decision, GAO narrowed the opening for what protesters can argue on Reconsideration even further.

In connection with a Defense Logistics Agency diesel fuel services contract, the protester challenged the agency’s failure to set the procurement aside for performance by service-disabled veteran-owned small businesses.  GAO disagreed and dismissed the protest, concluding that the contracting officer performed reasonable market research.

The contractor sought Reconsideration, but was again denied.  GAO’s decision primarily relies on the most common rationale – the protester did not raise issues of fact or errors of law in the underlying opinion.  Thus, GAO classified the Request for Reconsideration as “mere disagreement” with the protest decision.

Importantly, GAO also rejected the protester’s argument that the agency failed to produce key documents needed to prosecute the protest.  There was, indeed, a dispute during the protest concerning whether certain key documents were protected source selection documents (and therefore not subject to disclosure) – but GAO classified that dispute as a protest matter, not a separate ground for Reconsideration of the decision on the merits.

While this is a post about Requests for Reconsideration at GAO – the takeaway for contractors should be focused more on bid protest procedure.  Reconsideration of an adverse protest decision is possible – but rare.

Contractors should focus on strategy in advance and think about how to frame the best argument (leaving nothing in reserve).  Moreover, if there is a dispute (like the battle for responsive documents in this case), contractors should take affirmative steps to protect their interests before a decision is handed down.  By the time Reconsideration rolls around, its likely too late.

Join me on Thursday, August 24, 2017 for lunch (11:30 am to 1:30 pm) and learn about the Small Business Administration’s All Small Mentor Protégé Program. The event is sponsored by Design-Build Institute of American Mid-Atlantic and will be held at Maggiano’s in Tysons Corner.

For months, we poured over the proposed and final rules – speculating about how the Program would look and operate.  Now it is here.  With the SBA accepting and processing applications at a healthy clip, there is no better time than the present to get up to speed.

During the event, we will walk through the basics of the All-Small Program, including the application and approval process.  We will also talk about big picture issues, including the Program’s general shield against affiliation and the most important questions for contractors (both large and small) considering taking the leap.

The event will also offer insights for contractors that have already investigated the Program.  For example, we will discuss the newly published requirements for mentor-protégé agreements and joint venture agreements formed between Program participants.  Careful consideration of the issues captured in these agreements can make the difference between a successful partnership . . . and the undesirable alternatives.

I hope that you can join us on the 24th.  I am happy to chat after the presentation about any specific questions facing your business.  If you can’t make the event, you can always contact me here to discuss your questions.

This Thursday, June 29 (1:00 – 2:30 EST), I will be hosting a webinar to discuss document retention requirements for government contractors.

Implementing corporate document retention policies is an essential business practice for two reasons:

First, there is a legal duty for contractors to comply with contractual document retention requirements.  If the government requests to inspect your company’s records (for example, as part of a DCAA audit) and they are not available, it opens the door to some serious negative consequences (like False Claims Act allegations).

Second, proper document management is essential to supporting claims for time and costs against the government.  If a contractor fails to maintain its records for the specified period, the contracting officer can disallow all or part of the claimed cost that is not adequately supported.  In other words, failed document retention polices can have a real world impact on your business’s bottom line.

During the webinar, I’ll cover the basics of document retention – plus how it impacts more nuanced topics like electronic transfers and storage, the Freedom of Information Act, and the new hot-button issue – Cybersecurity.

Finally, the webinar will cover best practices for document retention under the FAR.  Specifically, I’ll discuss how a contractor can utilize a FAR 52.203-13 Code of Business Ethics and Conduct to not only master document retention practice – but also to implement an overall culture of compliance.

If you are unable to attend the webinar, please feel free to contact me.  I’ll be happy to share the information – or discuss any specific issues facing your business.

 

Earlier this month, we had the pleasure of opening the 2017 Associated General Contractors of America Federal Contractor Conference in Washington, DC with a presentation focused on the emerging issue of Cybersecurity in Federal contracting.  Data breaches are big news in the private sector, but the issue has remained somewhat under the radar for public contracts – until now.

New rules and regulations (with the imminent promise of more on the way) are setting the stage for Cybersecurity to be the next big government enforcement target under the Civil False Claims Act (which the Department of Justice used to claw back $4.7 Billion in recoveries from Federal contractors in FY 2016 alone).

The New Cybersecurity FAR Clause

A Final Rule published by the Department of Defense, NASA, and the General Services Administration in 2016 created a new Federal Acquisition Regulation subpart (4.19) and contract clause (52.204-21) that deal exclusively with Cybersecurity.

The Regulation broadly applies to “covered contractor information systems” that process, store, or transmit “Federal contract information.”  These terms are interpreted expansively to cover any information provided by or transmitted to the Federal government in connection with contract performance.  In other words, if the new clause is not included in your Federal contracts yet, it soon will be.

The Regulation imposes 15 “basic” security controls for contractors.  The controls are intended to impose minimum safeguarding measures that the government believes any responsible contractor should have in place as part of the cost of doing business.  A complete list of the security controls is available here.

The DFARS Cybersecurity Clause

Compliance with FAR clause 52.204-21 should be viewed by contractors as a baseline Cybersecurity requirement – but it does not take the place of other, more complex requirements.

For example, DoD contractors must comply with DFARS 252.204-7012 (Safeguarding Covered Defense Information & Cyber Incident Reporting).  The DFARS clause is more far-reaching than the FAR clause, and includes investigation and rapid reporting requirements for breach incidents.  It also requires compliance with NIST 800-171 (Protecting Controlled Unclassified Information in Nonfederal Systems and Organizations) by no later than December 31, 2017.

Other requirements related to the handling of Classified and Controlled Unclassified Information also remain in place.  And we fully expect more (and more demanding) Cybersecurity requirements to be published by the government in the coming months and years.

The Contractor’s Guide to Cybersecurity Compliance

For Federal contractors, the future is now.

Cybersecurity requirements will soon be included in almost every Federal contract, so the only question is how to achieve and maintain compliance.

The good news is that compliance with FAR 52.204-21 is a great first step.  Again, the government considers the Regulation to be a basic safeguarding requirement that every responsible contractor should have in place.  If your business does not have at least those 15 security controls covered right now, it is time to figure out why.

To track and maintain compliance with expanding requirements, we also recommend making Cybersecurity part of your Federal Business Ethics and Compliance Program.

All Federal contractors have (or should have) a written Contractor Code of Business Ethics and Conduct.  The Code should be a living document that your business routinely updates and uses in connection with internal audits and employee training.

By adding Cybersecurity to your Ethics Program and written Code, you are ensuring that it becomes a part of your company’s culture.  You are also increasing the likelihood that Cybersecurity breaches, or other instances of non-compliance, are identified by your Internal Control System – not by the government.

Cybersecurity is an emerging, complex subject – but that does not mean that the government will relax its enforcement efforts while your business gets up to speed.  In fact, we think the opposite is true.  Contractors that do not make Cybersecurity compliance a priority now will be behind the power curve and are more likely to face harsh consequences (including False Claims Act allegations, suspension, or debarment) later down the road.

 

The contractual duty of “good faith and fair dealing” is well established in private contracts.  Depending on your jurisdiction, there is very likely either a formal or an informal rule that parties to a contract must deal with each other honestly and in good faith.  This is (usually) not a written contract term – rather, the duty is implied automatically in order to reinforce the parties’ intent when entering into the agreement.

But, did you know that the same kind of duty exists in public contracts – and runs as a two-way street between contractors and the Federal government?  It is true.  And it can help your business in the pursuit of time or damages from the government as part of an REA or Claim.

Contract

Implicit in every government contract is the duty for the government to treat the contractor fairly and act in good faith.  Courts discussing this duty place both affirmative and negative obligations on the government.  In other words, the government (1) must take active steps to enable the contractor’s performance and (2) must not willfully or negligently interfere with said performance.

Allegations concerning a breach of the duty of good faith and fair dealing can arise in almost any contractual context.  For example, it is very common to see such claims in the context of delay and disruption claims.  The contractor seeks direction or guidance from the government on how to proceed with certain contract performance details – but the response from the government is delayed, unhelpful, or does not come at all.

A recent Court of Federal Claims decision also advises that contractors can proceed with fairly broad allegations concerning the government’s breach of good faith and fair dealing as part of an appeal.  Specifically, in response to a motion to dismiss by the government, the Court ruled that a such a claim does not need to be tied to a specific contractual obligation in order to demonstrate a violation.

The decision is a win for contractors because it recognizes that contract performance does not take place within a vacuum.  Even if there is no toehold to assert a breach tied to a specific obligation, the duty of good faith and fair dealing exists to ensure that the “reasonable expectations of the parties are respected” by both sides.

Contractors dealing with the government at almost any stage of contract performance would do well to give serious thought to the duty of good faith and fair dealing.  While it is a “big picture” concept, it can have very real implications when a dispute arises – including a meaningful impact on recoveries for claims and appeals.

I’d like to you invite you to join Fox’s Government Contracts team of Reggie Jones, Doug Hibshman and Nick Solosky at the upcoming 2017 Associated General Contractors of American Federal Contractor Conference in Washington, DC.

We will lead a presentation and discussion entitled “Updated Federal Regulations Contractors Must Know – Cyber Security, Ethics & Compliance, SBA All-Small Program & More,” from 3:30 to 5:30 p.m. on Monday, May 1, 2017.

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The presentation will offer insights into the new cybersecurity requirements facing federal contractors – including unpacking the FAR and DFARS cybersecurity clauses and the steps that contractors need to get to get (and stay) compliant.  Cybersecurity is a cutting edge issue, but failing to stay ahead of the curve could land contractors in hot water.

In addition to cybersecurity, we’ll also be detailing the hot button government contracting issues of 2017.  For example, we’ll outline what all contractors – both large and small – need to know about the SBA’s “All Small” Mentor-Protégé Program (and how it could open the door to new business development opportunities for contractors).  We’ll also pull straight from the headlines by covering the new administration and the President’s “Buy American, Hire American” initiative.

If you’re unable to make it to DC or attend the presentation in person, we can still discuss cybersecurity or any other Federal contracting regulations with you.  Please feel free to contact us for more details.

One of the primary risks facing construction contractors is subsurface or unexpected physical conditions discovered after the work begins (commonly known as a Differing Site Condition).  When such conditions are encountered on a federal government project, contractors need to: (1) properly document the condition, (2) notify the government, and (3) preserve the right to bring a Request for Equitable Adjustment or Certified Claim.

Typically, any Differing Site Condition inquiry begins at Federal Acquisition Regulation 52.236-2.  The regulation defines a Type I differing site condition as a subsurface or latent physical condition at the site that differs materially from those indicated in the contract.  A Type II condition is defined as an unknown condition, unusual in nature, that differs materially from the conditions ordinarily encountered or typically expected of the work provided in the contract.

These definitions seem straightforward – either the conditions encountered align with the contract, or they do not.  However, contractors should not take documenting or proving Differing Site Conditions lightly.  There is still much room for disagreement.

One area where contractors and the government commonly diverge is whether the disputed site conditions were “reasonably foreseeable.”  That is, should the contractor have anticipated the conditions based on all of the information available to the contractor when it bid the project.

This particular issue was recently litigated before the Armed Services Board of Contract Appeals (ASBCA) in a dispute over an Army Aviation Support Facility construction contract.  In a nutshell, the contractor and the government disagreed about whether the soft, saturated soils encountered during excavation for the project constituted a Type I Differing Site Condition.

In discussing the issue of reasonable foreseeability, the Board specifically considered the government’s claim that the contractor had access to the site (during a pre-bid site visit) and, therefore, the ability to discover the condition.  The Board disagreed.  The site visit included a visual inspection only – no invasive investigation was permitted.  While Type I Differing Site Conditions do not literally need to be below ground, that made a difference in this case.

The ASBCA concluded that the contractor proved – by a preponderance of the evidence – that the soil conditions at the site were unsuitable for construction.  As a result, it awarded the contractor damages associated with the unexpected soil remediation costs.

Thinking specifically about Type I Differing Site Conditions, contractors should keep the following elements in mind:

  • Is the condition encountered materially different from that indicated in the contract?
  • Is the condition encountered reasonably unforeseeable based on the information provided by the government at the time of bidding
  • Did your firm reasonably interpret the contract and the related documents provided by the government? and
  • Did your firm incur actual damages due to the difference between the expected condition and the condition actually encountered?

If you can answer all of these questions in the affirmative, then your firm is likely entitled to an upward contract adjustment from the government.