Alleged Sales of Non-TAA-Compliant Products Under GSA Schedule Contracts Are Not False Claims, 7th Circuit Holds

Last year, we wrote about a trial court’s decision to dismiss a False Claims Act (“FCA”) complaint regarding alleged Trade Agreements Act (“TAA”) non-compliances because the relator failed to plead fraud with “particularity” under Rule 9(b). That decision offered a sweeping rebuke of speculative FCA claims, and emphasized why it can be difficult to present a valid FCA claim based on a potential violation of a complex regulatory scheme like the TAA.

Last month, the United States Court of Appeals for the Seventh Circuit unanimously affirmed that decision in United States ex rel. Berkowitz v. Automation Aids, Inc., — F.3d — , 2018 WL 3567836 (7th Cir. July 25, 2018). In doing so, the Seventh Circuit provided additional guidance about various topics, including the Rule 9(b) standard for implied certifications and the power of the materiality defense. Our takeaways are below. Continue Reading

OIG Report Criticizes GSA’s TDR Pilot Program

By Jason Workmaster and Peter Terenzio on August 9, 2018 Posted in Commercial Items, Multiple Award Schedule Contracting, Procurement Policy, Procurement Reform

On July 25, the GSA’s Office of Inspector General (“OIG”) published a report summarizing its audit of the GSA Transactional Data Reporting (“TDR”) pilot program. That ongoing pilot program, which we have covered previously and have been tracking since the beginning, allows participating Federal Supply Schedule (“FSS”) contract-holders to report government-sales data each month, in exchange for relief from regulations that would require them to disclose their commercial sales practices. According to the OIG report, however, GSA cannot objectively measure whether the TDR program is working as intended, because the pilot lacks specific objectives and performance targets. Moreover, the data that GSA has collected from TDR participants is “not available for . . . evaluation of the pilot.” Although the Federal Acquisition Service (“FAS”) disagreed with some of the report’s findings, the report suggests that the TDR program remains a work-in-progress.

NIST to Host CUI Information Security Workshop

By Susan B. Cassidy on July 18, 2018 Posted in Cybersecurity, Defense Industry, Information Technology Contracting

The National Institute of Standards and Technology (NIST), in coordination with the Department of Defense (DoD) and the National Archives and Records Administration (NARA), will host a Workshop providing an overview of Controlled Unclassified Information (CUI) on October 18, 2018. The agenda for the Workshop shows a full day of panels, including those addressing DoD’s “Safeguarding Covered Defense Information and Cyber Incident Reporting” Clause (DFARS Cyber Rule), overviews of NIST Special Publications (SPs) 800-171 and 800-171A, and Government expectations when evaluating contractor implementation of the 800-171 security controls. Continue Reading

Covington Artificial Intelligence Update: Department of Defense Establishes Joint Artificial Intelligence Center

By Susan B. Cassidy, Calvin Cohen and Zachary Mears on July 16, 2018 Posted in Artificial Intelligence (AI), Defense Industry

In a memorandum issued June 27, 2018, Deputy Secretary of Defense Patrick Shanahan ordered the establishment of the Joint Artificial Intelligence Center (“JAIC”) within DoD. The JAIC will report to DoD Chief Information Officer (“CIO”) Dana Deasey and has the “overarching goal of accelerating the delivery of AI-enabled capabilities, scaling the Department-wide impact of AI, and synchronizing DoD AI activities to expand Joint Force advantages.” With the creation of the JAIC, the DoD has acknowledged that the AI “effort is a Department priority,” and one to which government contractors should pay attention.

The JAIC will be the primary organizational component responsible for coordinating and executing DoD’s 2018 Artificial Intelligence Strategy, which was delivered to Congress in June. Although an unclassified version of the report is not out yet, the memorandum elaborates upon what is in the report by stating that “A new approach is required to increase the speed and agility with which we deliver AI-enabled capabilities and adapt our way of fighting.”

Teaming Agreement Challenges for Subcontractors

By Dan Johnson on July 13, 2018 Posted in Sub-Prime Disputes, Subcontracting

A recent Virginia Supreme Court case underscores the hurdles government subcontractors may face when they seek to enforce common teaming agreement terms. CGI Fed’l Inc. v. FCi Federal, Inc., No. 170617 (Va. June 7, 2018). This case of the “disappearing workshare” also illustrates that strategic choices made during teaming agreement negotiations and in litigation may dictate whether the subcontractor has any recourse against the prime contractor. Continue Reading

Senate Largely Leaves Bid Protests Alone in Passed Version of FY 2019 NDAA After Threatening Major Revisions

By Jay Carey, Peter Terenzio and Michelle Willauer on July 12, 2018 Posted in Bid Protests, Defense Industry, NDAA, Procurement Reform

For the first time in several years, the version of the FY 2019 National Defense Authorization Act (NDAA) that just passed the Senate does not contain any major reforms to limit bid protests. But the bill the Senate sent to the conference committee process does contain two provisions aimed at bid protests. Although they are minor, they portend and may lay the groundwork for future attempts to change the protest process. Both provisions call for further study of issues addressed in the RAND Corporation’s January 2018 bid protest report.

Protests that are filed first at GAO and then at the Court of Federal Claims

The first bid protest-related provision called for a new study to be carried out by the Secretary of Defense on the “frequency and effects of bid protests involving the same contract award or proposed award” that have been filed both at the Government Accountability Office (GAO) and the Court of Federal Claims (COFC). In recent years, the Department of Defense (DoD) has complained about such protests, even though they are limited in number, and has sought legislation that would force a protester to elect one forum or the other.

The study is to concern the number of such protests, the results, the length of time it took the tribunal to arrive at a decision, and an analysis of any such protests stayed or enjoined. The Secretary is to submit a report on the results of the study, along with “recommendations for improving the expediency of the bid protest process,” within 180 days of the passage of the Act. The RAND report noted it could not “definitively answer” the “rate at which protests appear at both GAO and COFC.” The DoD report recommended by the Senate aims to fill that knowledge gap.

This study seems to be the Senate’s response to a the much more radical provision initially proposed by DoD, which would have amended section 28 U.S.C. § 1491 so that COFC’s timeliness rules followed those at GAO — thereby forcing protesters to select one forum or the other. Currently, COFC does not have the same restrictive timeliness rules as GAO: this allows contractors additional time to file a protest, and also allows protesters dissatisfied with their GAO ruling a second bite at the apple at COFC. According to DoD, these jurisdictional differences between GAO and COFC “greatly hinder[]” the “expeditious resolution” of bid protests.

DoD therefore proposed language requiring post-award protests to be filed at COFC “no later than 10 days after the basis of the protest is known or should have been known.” And, in case DoD’s intent to force protestors to choose between filing at GAO or COFC was not clear, the proposed language also provided that “under no circumstances may the United States Court of Federal Claims consider a protest that is untimely because it was first filed with the Comptroller General.”

This proposal met with opposition from the contractor community. For example, the Professional Services Council (PSC) sent a letter to the Senate Armed Services and Judiciary Committees, in which they strongly opposed the attempt to curtail COFC’s jurisdiction. PSC’s letter referenced the RAND report, and explained that the report had not recommended a drastic change to the existing bid protest system. Instead, the report concluded only that “further research” was needed regarding cases that had been filed at both GAO and COFC. The report did conclude, however, that the “majority” of protests at COFC were resolved within 90 days. That finding does not support DoD’s claim that the “expeditious resolution” of protests is “greatly hindered” by COFC’s current jurisdiction.

It is also worth noting that this was not the first attempt by DoD to place a limit on COFC’s bid protest jurisdiction. In fact, DoD sent identical proposals in both 2013 and 2016. Both of these proposals were rejected by Congress. But although the proposal has now been rejected for the third time, it appears that DoD remains intent on limiting the amount of time within which contractors may seek relief.

Should the current Senate provision pass into law, the outcome of the study will bear close watching. It will surely be used in future discussions about whether to change the current protest system.

Protests of very small procurements

The second bid protest-related provision in the Senate’s FY 2019 NDAA would direct the Secretary of Defense to develop a plan and schedule for an expedited bid process for small value contracts, those valued at less than $100,000. The Senate Armed Services Committee’s (SASC) report on the bill explained that the expedited process would help resolve smaller cases “commensurate with their value while preserving the right to an independent protest.”

This initiative ties directly back to the RAND report, which included the unexpected finding that “roughly 8 percent of GAO protest actions and nearly 4 percent of protest cases at COFC concerned procurements with a declared value under $0.1 million.” The RAND report suggested several possibilities for an expedited process, including COFC ruling from the bench on small-value protests and requiring alternative dispute resolution at GAO. It remains to be seen if the Secretary of Defense’s plan, should the provision survive the committee conference, adopts any of those suggestions.

Covington Artificial Intelligence Update: GAO Testimony Before Congress Regarding Emerging Opportunities, Challenges, and Implications for Policy and Research with Artificial Intelligence

By Calvin Cohen and Susan B. Cassidy on July 11, 2018 Posted in Artificial Intelligence (AI)

Timothy M. Persons, GAO Chief Scientist Applied Research and Methods, recently provided testimony on artificial intelligence (“AI”) before the House of Representatives’ Subcommittees on Research and Technology and Energy, Committee on Science, Space, and Technology. Specifically, his testimony summarized a prior GAO technological assessment on AI from March 2018. Persons’ statement addressed three areas: (1) AI has evolved over time; (2) the opportunities and future promise of AI, as well as its principal challenges and risks; and (3) the policy implications and research priorities resulting from advances in AI. This statement by a GAO official is instructive for how the government is thinking about the future of AI, and how government contractors can, too.

The Evolution and Characteristics of AI

Persons stated that AI can be defined as either “narrow,” meaning “applications that provide domain-specific expertise or task completion,” or “general,” meaning an “application that exhibits intelligence comparable to a human, or beyond.” Although AI has evolved since the 1950s, Persons cited today’s “increased data availability, storage, and processing power” as explanations for why AI occupies such a central role in today’s discourse. And while we see many instances of narrow AI, general AI is still in its formative stages.

Waiting For the Final Government Audit May Be Too Late

By Dan Johnson and Bryan Byrd on July 9, 2018 Posted in Claims and Contract Disputes, Costs, Defense Industry, Government Contracts Regulatory Compliance, Sub-Prime Disputes, Subcontracting

In a case of first impression, a Court of Appeals has held that a government subcontractor’s claim for reimbursement of its actual indirect costs was time-barred. Fluor Fed’l Solns. LLC v. PAE Applied Techs, LLC, No. 17-1468, 2018 WL 1768233 (4th Cir. Apr. 12, 2018) (per curiam) (unpublished). It is the first case to directly address the interplay between the Allowable Cost and Payment Clause of the Federal Acquisition Regulation (“FAR”), 48 C.F.R. § 52.216-7, and a statute of limitations. It highlights the risks government subcontractors face when they choose to wait for a Government audit rather than litigate promptly after a payment dispute arises.

DoD Seeks Streamlined Procurements of Innovative Technologies – Other Transaction Agreements and the Commercial Solutions Opening Pilot Program

By Susan B. Cassidy, Jennifer Plitsch and Tyler Evans on July 3, 2018 Posted in Defense Industry, Government Contracts Regulatory Compliance, Intellectual Property, NDAA, Procurement Reform

The Department of Defense (DoD) has once again emphasized its willingness to engage with commercial companies and other non-traditional contractors to try to expedite and simplify its procurement of innovative technologies. In particular, the Defense Information Systems Agency (DISA) indicated that it plans to enter directly into Other Transaction Authority (OTA) agreements, and DoD issued a class deviation for a commercial solutions opening (CSO) pilot program.

These developments, in connection with the continued promotion of OTA agreements by DoD’s Defense Innovation Unit Experimental organization (DIUx), provide commercial companies with additional incentives to enter into creative collaborations with the U.S. Government.

Takeaways From Recent FCA Decisions On Buy American Act and Trade Agreements Act Compliance

By Peter B. Hutt II, Justin Ganderson and Evan R. Sherwood on July 2, 2018 Posted in Buy American, Domestic Preferences, Escobar, False Claims Act, Trade Agreements Act

Due to the government’s increased focus on domestic preference requirements – for example, through President Trump’s formal policy and action plan for agencies to “scrupulously monitor, enforce, and comply” with the so-called “Buy American Laws,” and Congress’s proposed legislation to make certain Buy American requirements more robust – contractors should not be surprised if there is a corresponding increase in related False Claims Act (FCA) activity. Notwithstanding, based on a review of recent FCA decisions, we have found that courts generally have been skeptical of attempts by relators to allege FCA liability regarding a purported Buy American Act (BAA) or Trade Agreements Act (TAA) violation. We discuss these decisions and provide several key takeaways that will help contractors avoid (and defeat) such FCA lawsuits in an article that can be downloaded here.