More Novation Complexity In Gov’t Contracts M&A?

(This article was originally published in Law360 and has been modified for this blog.)

Government contractors undergoing an asset transaction know all too well the peculiarity and uncertainty associated with the transfer of a U.S. government contract through the required novation process. In two recent decisions, the Government Accountability Office considered the impact of such transactions and the novation process on the pursuit of new task orders from the U.S. government, with disappointing results for the affected contractors. Continue Reading

DoD Issues Final Guidance for Assessing Contractor Compliance with NIST SP 800-171

The Department of Defense (DoD) recently issued final guidance for requiring activities to assess contractors’ System Security Plans (SSPs) and their implementation of the security controls in National Institute of Standards and Technology (NIST) Special Publication (SP) 800-171.  A draft of this guidance was made available for public comment in April 2018.  As noted in our original post on the draft guidance, DoD’s proposed approach raised significant questions as to what role offerors’ implementation of the security controls in NIST SP 800-171 would play in bid protests, contract performance, and post award audits.  In the memorandum accompanying the final guidance documents, DoD notes that it has incorporated comments it received from the public into the final guidance.  As discussed below, although the DoD has addressed some of the issues raised by the April draft, the final guidance adds some additional concerns and ambiguities.

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Time to Resolve a Question About Time: Supreme Court to Consider FCA’s Statute of Limitations

When does a private party need to file a qui tam action under the False Claims Act (“FCA”)?  Such a seemingly simple question has resulted in three different answers from six different courts.  This past Friday, November 16, 2018, the Supreme Court announced it would resolve that circuit split — by granting a request to review the Eleventh Circuit’s decision in United States ex rel. Hunt v. Cochise Consultancy, Inc.  The case will merit close attention, as the ultimate outcome could help protect government contractors from intentional and prejudicial delay in litigation.

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Still Just A Rat In A CAGE: Recent GAO Decisions Underscore the Need for Precision in Identifying Corporate Entities During the Procurement Process

Many government contractors are part of corporate families consisting of multiple corporate entities.  One entity may be named as the official contracting party, but use the resources of affiliates, parents, or subsidiaries during performance.  The distinction between those members of the corporate family may not seem important in terms of day-to-day operations — in fact, the synergy and seamlessness between the corporate entities may be a selling point.  Two recent GAO decisions make clear, however, that when it comes to bidding on government work, it is important to precisely identify which corporate entity is going to do what and which corporate entity has which resources.

In BDO USA, LLP and Intermarkets Global USA, LLC, GAO’s decisions turned on a perceived misidentification of corporate entities at some point in the procurement process.  In BDO, the problem occurred during bid submission.  In Intermarkets, the problem occurred when the protest was filed.

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What’s in a Brand Name? DoD to Limit Use of “Brand Name or Equal” Contract Competitions

The Department of Defense (“DoD”) has proposed a new rule limiting the use of “brand name or equal” contract competitions, calling on contracting officers to publicly justify their need for a brand name-type product before issuing a solicitation.  The rule would implement Section 888(a) of the National Defense Authorization Act of 2017, which directed the Secretary of Defense to “ensure that competition in [DoD] contracts is not limited” by brand name references without a justification under 10 U.S.C. § 2304(f).

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“Hey Big Spender . . .”: GAO Reiterates That Agencies Must Meaningfully Consider Price In Best Value Tradeoffs

In three related bid protest decisions made public last week, the Government Accountability Office (“GAO”) reaffirmed the principle that agencies must meaningfully consider price when making best value tradeoff decisions.  GAO sustained the protests, stressing that merely paying lip service to price while selecting a more expensive, higher-rated offeror is not sufficient — agencies must provide a rational explanation for why they have decided to pay a premium for the awardee’s technical superiority.

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Takeaways from DoD’s Proposed Changes to Certain Sourcing Restrictions

Pursuant to Sections 817 and 881(b) of the FY 2017 National Defense Authorization Act (“NDAA”), the Department of Defense (“DoD”) recently issued a proposed rule to amend certain sourcing restrictions found in DFARS subpart 225.70 and related clauses.  Specifically the proposed rule would amend the DFARS to:

  • extend the Berry Amendment’s domestic sourcing restrictions to the acquisition of certain athletic footwear for members of the Armed Forces, when the procurement is valued at or below the simplified acquisition threshold [Section 817], and
  • recognize that Australia and the United Kingdom of Great Britain and Northern Ireland (the “UK”) are now members of the National Technology Industrial Base (“NTIB”), thereby permitting the United States to acquire certain items (that are subject to the sourcing restrictions in 10 U.S.C. 2534) if they are manufactured in the UK, Australia, Canada or the United States [Section 881(b)].

We provide our takeaways below. Continue Reading

DoD OIG Audit: What SDVOSBs Need to Know

The Department of Defense Office of Inspector General (“OIG”) recently announced that it was initiating an audit to determine whether agencies within DoD awarded Service-Disabled Veteran-Owned Small Business (“SDVOSB”) set-aside and sole-source contracts to eligible companies. The audit is set to begin this month, and likely will evaluate the number and value of contracts awarded to SDVOSBs under set-asides and sole-source procurements, as well as whether and how agencies confirm that awardees qualify as SDVOSBs at the time of award. The audit, which comes six years after the OIG previously determined that DoD did not have adequate controls in place to ensure the integrity of the SDVOSB set-aside program, signals that SDVOSB eligibility issues are likely to become a greater point of emphasis in future enforcement proceedings.

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New Cases Confirm that FOIA Exemption 4 Protects Line-Item Pricing Information

Although the Freedom of Information Act (FOIA) allows citizens to request agency records and thus keep a close eye on their government, proprietary information is exempt from disclosure under Exemption 4, which protects “trade secrets and commercial or financial information obtained from a person [that is] privileged or confidential.” A substantial body of case law has developed regarding what does and does not qualify as proprietary, and therefore exempt, under FOIA. For example, the total price paid under a government contract is rarely exempt, but a contractor’s line-item pricing often can be. However, there is no per se rule that line-item pricing is exempt from release under FOIA. Instead, contractors must show on a case-by-case basis that the disclosure of the line-item pricing would cause competitive harm.

On September 28, 2018, the D.C. District Court issued two noteworthy decisions holding that line-item pricing data and commission rates were exempt from release under FOIA Exemption 4. Northrop Grumman Systems Corp. v. NASA, No. 17-1902, 2018 WL 4681012 (D.D.C. Sept. 28, 2018); Hodes v. Treasury, No. 17-0219 (D.D.C. issued Sept. 28, 2018). Although these decisions do not break new ground, they are nonetheless significant as the latest examples of a court preventing the disclosure of pricing information. They suggest that courts are willing to apply a broad definition of confidential commercial or financial information where the contractor makes the necessary showing. They also reject common agency arguments for disclosing pricing information, such as the information is too old or not final. Thus, these opinions provide useful authority in defending against the public release of contractor pricing information. Continue Reading

“Economic Security Is National Security”: Key Takeaways from the Defense Industrial Base Report

(This article was originally published in Law360 and has been modified for this blog.)

Peter Navarro, assistant to the president for trade and manufacturing policy, recently offered in a New York Times op-ed that “[a] strong manufacturing base is critical to both economic prosperity and national defense.” The Trump Administration’s maxim that “economic security is national security” is rooted in several government initiatives, ranging from large-scale policy reforms (like renegotiating the North American Free Trade Agreement and strengthening the so-called “Buy American Laws”) to more granular contracting procedures (like the Department of Defense’s proposed changes to commercial item contracting and increased scrutiny of security across all levels of defense supply chains).

Business leaders should therefore pay close attention to the government’s long-awaited interagency assessment of the manufacturing and defense industrial base, available in unclassified form here.  The report was commissioned by Executive Order 13806, which described “[s]trategic support for a vibrant domestic manufacturing sector, a vibrant defense industrial base, and resilient supply chains” as “a significant national priority.”  The Department of Defense served as the lead agency coordinating the report, in partnership with the White House’s Office of Trade and Manufacturing Policy.

Throughout the 140-page report, the Interagency Task Force (the “Task Force”) identifies myriad threats, risks and gaps in the country’s manufacturing and industrial base, and concludes that “[a]ll facets of the manufacturing and defense industrial base are currently under threat, at a time when strategic competitors and revisionist powers appear to be growing in strength and capability.”  To address these concerns, the Task Force lays out a methodology, diagnosis, and framework for policy recommendations and gives the government significant flexibility in crafting responses.  The report recommends – and we expect the President to issue – a follow-on Executive Order directing action on those responses.  That creates an opportunity for industry to participate in shaping the major implementing policies and regulations that are coming.  Continue Reading

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