FEDERAL CONTRACTS: THE YEAR IN REVIEW
Presented at Navigating Federal Government Contracts Northwest 2020, October 21-22, 2020
BY, JAMES F. NAGLE [1], OLES MORRISON RINKER & BAKER LLP
(For a PDF version of Federal Contracts: The Year in Review, please click here.)
I. NEW STATUTES
A. THE NATIONAL DEFENSE AUTHORIZATION ACT (NDAA) FOR FY 2020
On December 20, 2019, President Trump signed into law the National Defense Authorization Act (NDAA) for FY 2020 (Pub. L. No. 116-92).
Post-Award Explanations for Unsuccessful Offerors for Certain Contracts
- Section 874 requires the FAR to be revised within 180 days to mandate that contracting officers provide a brief explanation of award, upon written request from an unsuccessful offeror, for task order or delivery order awards in an amount greater than the simplified acquisition threshold and less than or equal to $5.5 million issued under an indefinite delivery-indefinite quantity contract. The explanation must include a summary of the rationale for the award and an evaluation of the significantly weak or deficient factors in the offeror’s proposal. Currently, offerors are only entitled to a debriefing after award of an order exceeding $5.5 million
- Accelerated Payments for Small Businesses. Section 873 requires all agencies, including DOD, to establish an accelerated payment date for small business prime contractors, with a goal of 15 days after a proper invoice is received if a specific payment date is not established by contract. The statute also requires agencies to establish a similar accelerated payment schedule for small business subcontractors, assuming a specific payment date is not established by contract and the prime contractor agrees to the payment schedule.
- Federal “Ban-the-Box” Law: The Fair Chance Act to Limit Criminal Background Inquiries by Federal Contractors. The Act “bans the box” by prohibiting federal contractors from asking applicants applying to work in connection with federal contracts about their criminal histories until after the contractor extends a conditional job offer. It also prohibits contractors from seeking such information from other sources. As part of the NDAA, the government enacted the Fair Chance to Compete for Jobs Act of 2019. The Fair Chance Act goes into effect on December 20, 2021.
The Act applies only to job openings “related to work under” a federal contract.
Further, pre-offer criminal inquiries are allowed:
- Where criminal background checks are otherwise required by law;
- Where “a contract … requires an individual hired under the contract to access classified information or to have sensitive law enforcement or national security duties”; and
- In connection with other positions to be identified in regulations that will be issued no later than April 2021 (16 months after enactment of the Act).
The Act directs the Office of Personnel Management to issue regulations identifying additional positions that are exempted from the law. The Office of Personnel Management also must establish a complaint process and progressive penalties, ranging from a written warning for a first violation to payment suspension and contract termination for subsequent violations.
B. SMALL BUSINESS RUNWAY EXTENSION ACT
In December 2018, President Trump signed the Small Business Runway Extension Act of 2018, which amended the Small Business Act—15 U.S.C. § 632(a)(2)(C)(ii)(II)—to change the basis for determining the size of a business concern from the annual average gross receipts of the company over a period of three years to five years without affecting the underlying mechanics of how to calculate receipts. The SBA’s regulations at 13 C.F.R. § 121.104(c), however, continued to maintain the three-year standard and the SBA had indicated that formal rulemaking was required in order for the Runway Extension Act to take effect. Shortly after the House of Representatives introduced H.R. 2345—Clarifying the Small Business Runway Extension Act—in April 2019, which instructed the SBA to issue a final rule implementing the Runway Extension Act by December 2019, the SBA issued a proposed rule on June 24, 2019 to amend its regulations. In the proposed rule, the SBA again warns that the three-year calculation period continues to apply to any offer submitted prior to the effective date of a final rule.
On December 5, 2019, the SBA announced that it was modifying its rule to calculate average annual revenue to increase the measuring period from three years to five years. This five-year change became effective for procurements issued on or after January 6, 2020. For most small businesses, this change is good news as it will enable the business to remain small for a longer period of time assuming the business’ revenue increases incrementally each year. The Regulations will allow small businesses a two year phase-in period until January 6, 2022 to decide which period to use.
II. NEW REGULATIONS
A. New Interest Rate and Minimum Wage Rules
The Treasury rate for interest payments under the Contract Disputes Act or the Prompt Payment Act for the period beginning from January 1, 2020 to June 30, 2020 was 2.125%; from July 1-December 31, 2020 it is 1.125%.
On September 19, the DOL announced the Federal Contractor Minimum Wage rate would increase to $10.80 per hour on January 1, 2020.
B. Federal Acquisition Circulars (FAC)
Federal Acquisition Circular 2020-07; amends the FAR as follows:
Item II—Increased Micro-Purchase and Simplified Acquisition Thresholds (FAR Case 2018-004)
This final rule increases the micro-purchase threshold (MPT) from $3,500 to $10,000, increases the simplified acquisition threshold (SAT) from $150,000 to $250,000, and increases the special emergency procurement authority in paragraph (2) from $300,000 to $500,000. The rule also clarifies certain procurement terms, as well as aligns some non-statutory thresholds with the MPT and SAT. It implements section 217(b) of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2017 and sections 805, 806, and 1702(a) of the NDAA for FY 2018.
Item IV—Modifications to Cost or Pricing Data Requirements (FAR Case 2018-005)
This final rule increases the threshold for requesting certified cost or pricing data from $750,000 to $2 million for contracts entered into after June 30, 2018. For earlier contracts, contractors may request a modification to use the new clause Alternates, with the new $2 million threshold for subcontracts awarded on or after July 1, 2018. The rule implements section 811 of the National Defense Authorization Act for Fiscal Year 2018, Public Law 115-91.
FAC 2020-06 May 6, 2020
Item II—Applicability of Inflation Adjustments of Acquisition-Related Thresholds (FAR Case 2018-007)
This final rule makes inflation adjustments of statutory acquisition-related thresholds under 41 U.S.C. 1908 applicable to existing contracts and subcontracts in effect on the date of the adjustment. It implements section 821 of the National Defense Authorization Act for Fiscal Year 2018.
C. Other Regulations
Agencies Accelerates Accelerated Payments for Small Business Prime Contractors
The General Services Administration issued a class deviation to allow GSA to provide accelerated payments to small business contractors, with a goal of 15 days after receipt of a proper invoice. With this class deviation, GSA accelerated its own implementation of Section 873 of the National Defense Authorization Act for Fiscal Year 2020, which expands the Federal Acquisition Regulation’s provisions for accelerated payments to prime contractors subcontracting with small business concerns to also include prime contractors that are small businesses.
The Department of Commerce has issued a class deviation in accordance with Federal Acquisition Regulation (FAR) 1.404 to implement Civilian Agency Acquisition Council (CAAC) Letter 2020-02 and Section 873 of the National Defense Authorization Act (NDAA) for Fiscal Year 2020 to provide for accelerated payments to contractors that are small businesses, and to small business subcontractors by accelerating payments to their prime contractors.
FedBizOpps to Become beta.SAM.gov in 2020
The GSA has announced that the Federal Business Opportunities website — commonly referred to as “FedBizOpps.gov” — will be decommissioned “starting on November 8, 2019” and that the website’s “critical functionality will be transitioned into beta.SAM.gov in the first quarter of the 2020 fiscal year. Once the transition is complete, beta.SAM.gov should have the same federal business opportunity capabilities found today in the fbo.gov site.
Construction-Manager-As-Constructor Recognized as an Acceptable Project Delivery Method in Federal Contracts
On December 19, 2019, the General Services Administration issued a final rule which amends the General Services Administration Acquisition Regulation (“GSAR”) regarding project delivery methods for construction.[1] This rule, effective January 21, 2020, adopts the Construction-Manager-as-Constructor (“CMc”) project delivery method, one of the three most common construction services delivery methods. By adding the CMc delivery method in the GSAR as an alternative to design-bid-build and design-build, the Government is making it easier to comply with contracting requirements and to conduct business with the Government.
III. THE PANDEMIC
On March 27, 2020, Congress passed and President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), Pub. L. No. 116-136 which in Section 3610 allows federal agencies to use “funds made available by the Act” to modify contracts to reimburse contractors for the costs of providing “paid leave … to keep [their] employees or subcontractors in a ready state” if they are unable to enter a government-approved site of work due to closures or quarantine restrictions resulting from COVID-19. This provision supplements other new requirements in the CARES Act and its predecessor, the Families First Coronavirus Relief Act (“FFCRA”), for paid sick leave.
Section 3610 contains several limitations for government contractors:
- Reimbursement is limited to “minimum applicable contract billing rates,” and may not exceed an “average of 40 hours per week.”
- Reimbursement will be made only if the relevant employees’ job duties “cannot be performed remotely.” This limitation is consistent with the new paid sick leave provided by FFCRA; employees are not eligible for that paid sick leave if they are able to telework.
- Reimbursement will not be made for costs incurred after September 30, 2020, the end of the government’s fiscal year. This is stricter than the FFCRA paid sick leave, which is available through December 31, 2020.
- The payments are offset by the amount of refundable tax credits that employers may receive under FFCRA. In essence, this prevents “double-dipping” for reimbursements.
The CARES Act includes loans that may be forgiven under certain circumstances to small businesses and cost relief to contractors who have been prevented from working. Moreover, Section 3610 encourages federal agencies to modify the terms and conditions of their contracts with business concerns of all sizes to reimburse contractors for keeping their personnel in a ready state (as opposed to terminating them), based on “the minimum applicable contract billing rates not to exceed 40 hours” a week of leave.
To further execute Section 3610 of the CARES Act, the Office of the Undersecretary of Defense, issued a class deviation to the standard contract cost principles under FAR Part 31 and DFARS Part 231 providing for a new cost principle governing allowable paid leave costs incurred by the contractor for contracts in place from January 31, 2020 through September 30, 2020. Contractors will not be entitled to reimbursement for leave costs incurred outside this period or leave costs unassociated with the impact of COVID-19. Under the newly issued DFARS 231.205-79, contracting officers are permitted to reimburse contractors not to exceed an average of 40 hours per week, including paid leave and sick leave contingent upon the availability of funding.
Contractors will be required to submit representations when seeking reimbursement under Section 3610 of the CARES Act of any other relief it has claimed arising out of the pandemic and that it will not pursue reimbursement for the same costs it has incurred provided in the supporting documentation. In other words, contractors may not seek double reimbursement for the same costs if it is receiving compensation for paid leave costs from other COVID-19 relief statutes or regulations, including tax credits. Further, relief under Section 3610 of the CARES Act is not appropriate for small business that should instead enroll itself into the Paycheck Protection Program.
The DoD’s implementation guidance provides additional insight and emphasizes the need to communicate with the contracting officer. At a minimum, the contracting officer must issue a written determination that the contractor is an “affected contractor” to receive reimbursement, but the approach to reimbursement will differ depending on the type of contract. For firm fixed-price contracts, the contractor may need to seek an equitable adjustment and the contract will need to be modified with a fixed-price line item for covered costs. For cost reimbursement contracts, costs should be charged to a separate account such as “Other Direct Cost – COVID 19,” billing in accordance with the contracting officer’s directives.
First, the implementing cost principle, DFARS 231.205-79, applies only if a contracting officer has made the written determination that a contractor’s employees or its subcontractor’s employees meet both of the following criteria:
- They cannot perform work on a government-owned, government-leased, contractor-owned, or contractor-leased facility or a site approved by the federal government for contract performance due to closures or other restrictions.
- They are unable to telework because their job duties cannot be performed remotely during the public health crisis.
This restriction, which resolves the open question regarding what Congress meant by “a site that has been approved by the Federal Government,” makes clear that if your employees can access the worksite or can telework, Section 3610 relief will not be available.:
The Office of the Under Secretary of Defense directed contracting officers to consider the immediacy of the specific needs of the contractor. In its Memorandum, the agency recognized certain contractors are not conducting business during the pandemic and therefore are not generating revenue, which would otherwise allow them to meet their payroll, retain employees, and meet their financial obligations, such as paying rent for their business operations. Accordingly, contracting officers have been given wide discretion and flexibility to keep their contractors in ready state. However, a contracting officer’s decision to ultimately grant relief under Section 3610 of the CARES Act and DFARS 231.205-79 will be determined on a case-by-case basis and the contracting officer is not obligated to grant relief to the contractor. Whether a contractor should seek relief under Section 3610 of the CARES Act, will depend on the extent of the impact of COVID-19 on the contractor’s ability to perform and the relief the contractor may be able to seek under applicable changes and delays provision available in its contract.
3610 is dependent on the availability of funds. Requests for Equitable Adjustment (REAs) will not be approved unless sufficient funds are available.
Presidential Memorandum Grants VA Authority to Indemnify COVID-19 Contractors
On April 10, 2020, the White House issued a Presidential Memorandum authorizing the Secretary of Veterans Affairs to exercise authority under Public Law 85-804 in connection with contracts awarded by the VA to combat COVID-19. Public Law 85-804, as amended by 50 U.S.C. §§ 1431 et seq. and Executive Order 10789, provides federal agencies with the authority to grant “extraordinary contractual relief,” including the authority to indemnify contractors against claims resulting from performing work that involves “unusually hazardous” risks.
DOD Clarifies Progress Payments Deviation
DOD issued a deviation on March 20, 2020, allowed for an increase in progress‑payment rates under DOD contracts from 80 percent to 90 percent for large business concerns and from 90% to 95% for small business concerns. In a press release discussing the deviation, the DCMA described the change as an “an important avenue where industry cash flow can be improved.”
Stafford Act Assistance for COVID-19 Pandemic
As part of the federal government’s response to the COVID-19 pandemic, President Trump declared two different types of emergencies. The first, under the National Emergencies Act, allows the president to waive various federal regulatory requirements and activate a variety of emergency authorities already embedded in federal statutes. The second, under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, allows the federal government, through the Federal Emergency Management Agency, to take specific actions in support of the US Department of Health and Human Services, as the lead federal agency for the COVID-19 response, and to provide certain specific types of assistance to states and local governments as well as other specific types of private non-profit organizations. Among other things, the Stafford Act declaration allows FEMA to provide federal financial assistance from the President’s Disaster Relief Fund.
CBCA Denies Ebola Shutdown Claim
In Appeal of Pernix Serka Joint Venture v. Department of State, CBCA No. 5683 (April 22, 2020), the Civilian Board of Contract Appeals (“CBCA”) denied a contractor’s claim for the costs of demobilizing from a construction site due to concerns about performing work during an Ebola virus outbreak. The U.S. Department of State (“DOS) awarded the contractor a fixed-price contract to construct a rainwater capture and storage system in Freetown, Sierra Leone. The contractor became concerned about the potential impact of the spread of the Ebola virus in Sierra Leone and its ability to support its personnel should they need to be evacuated from the country.
The World Health Organization declared the outbreak an international public health emergency and the contractor decided to shut the project down and evacuate most of its personnel from Sierra Leone. The contractor advised DOS of its decision to temporarily shut down the project work site. At that time, DOS was continuing its own operations in Sierra Leone and had not removed its personnel from the country – although it had begun removing eligible family members of its staff.
DOS acknowledged the contractor’s decision to shut down and the concerns that prompted the shutdown. However, DOS advised the contractor that, since the contractor took this action unilaterally based on circumstances beyond the control of either contracting party, DOS believed that there was no basis for an equitable adjustment for the additional costs the contractor might incur in connection with the contractor’s decision to stop work.
The project site was shut down for more than six months, during which time the contractor provided limited staff. When the contractor remobilized, it employed additional health and safety measures, including expanding its health facilities and employing full time medical staff.
The contractor submitted a claim for additional life safety and health costs incurred due to differing site conditions, disruption of work, and the need to maintain a safe work site, as well as for additional costs incurred resulting from the disruption of work and the need to demobilize and remobilize at the site. DOS denied the claim finding there was no contractual basis for a price adjustment. DOS, however, had given the contractor a time extension of 195 days – the amount of time requested by the contractor. The contractor appealed the final decision and DOS moved for summary judgment. The CBCA granted the motion.
The CBCA held that the Default clause, FAR 52.249-10, explicitly addressed how acts of God, epidemics, and quarantine restrictions were to be treated – the contractor was entitled to additional time, but not additional costs. The CBCA stated that the contractor had not identified any clause in the contract that served to shift the risk to DOS for any costs incurred due to an unforeseen epidemic and rejected the contractor’s arguments that there was a cardinal change or a constructive change. It also found that DOS was not required to provide the contractor with direction on how to respond to the Ebola outbreak. As this was a firm, fixed-price contract, the CBCA concluded that the contractor bore the additional costs of contract performance even if the contractor did not contemplate those measures at the time it submitted its proposal or at contract award.
IV. PRE AWARD
A. PROTEST REPORT
The GAO annual bid protest report for FY 2019 shows that protesters continue to receive some form of relief in nearly half of the protests filed with GAO
The FY 2019 report shows that, for the second straight year, protesters received some relief in 44% of the protests. GAO reports this statistic as an “effectiveness rate”—i.e., the percentage of protests where the protester obtained “some form of relief from the agency . . . either as a result of voluntary agency corrective action or [GAO] sustaining the protest.” For cases that went to decision the sustain rate in FY19 is 13%, compared to 15% in FY18.
The report states that “the most prevalent reasons for sustaining protests” during FY 2019 were: (1) unreasonable technical evaluation; (2) inadequate documentation of the record; (3) flawed section decision; (4) unequal treatment; and (5) unreasonable cost or price evaluation.
Protest filings are down by 16%, which means about 400 fewer protests than FY18. After years of GAO receiving 2500 or more protests, FY 2019 saw only 2198 cases filed—a fairly substantial drop-off of 16 percent from the 2607 cases filed in FY 2018. This could be an anomaly, or may reflect the fact that the Government is making a greater percentage of awards through task orders, which have seen their protest jurisdiction further restricted (see below). Also it may be related to GAO’s new Electronic Protest Docketing System — and associated $350 filing fee. Prior to EPDS, anyone could submit a protest simply by emailing a protest letter to GAO. Now, a protester must file electronically through a formal docketing system — and pay $350 to get on file.
Task Order Protests Are Up. Despite the overall drop-off, the number of task order protests increased in FY 2019 to a near-record high of 373. This is despite the fact that the threshold for GAO protests of task or delivery orders under Department of Defense (“DoD”) multiple award contracts increased from $10 million to $25 million in May 2018, making fewer task order procurement protestable.
The increase in task order protests despite reduced protest jurisdiction indicates that, generally speaking, significantly more procurements are being conducted as task order or delivery order awards. This may explain in part the overall decrease in the number of GAO protests. Now that the change in threshold has been implemented, there may be many procurements (DoD awards between $10-$25 million) that would have been protested in years past, but now cannot be. Because the revised threshold went into effect in May 2018, FY 2019 represented the first full year of restricted jurisdiction.
The number of hearings significantly increased from FY18. There were only 5 hearings in FY18 (i.e., in 0.51% of cases), compared to 21 hearings in FY19 (i.e., in 2% of cases). The number of hearings at GAO had fallen consistently for years, to the point that hearings were almost extinct.
B. Agencies are not obligated to fill in gaps in the proposal
Protest challenging agency’s technical evaluation and cost realism analysis is denied; BEAT, LLC, GAP B-418235, B-418235.2. The protester alleged it should not have received a weakness for failing to demonstrate required experience because its proposal demonstrated the experience. But GAO found that the protester had only made general references to its experience without providing spec
