The Armed Services Board of Contract Appeals has issued its annual report for FY 2023, shedding light on how often contractor appeals reach a successful result, and what agencies are most frequently involved in contract litigation.Continue Reading ASBCA Issues Annual Report, Providing Data on How Often Contractors Prevail
This is the twenty-ninth in a series of Covington blogs on implementation of Executive Order 14028, “Improving the Nation’s Cybersecurity,” issued by President Biden on May 12, 2021 (the “Cyber EO”). The first blog summarized the Cyber EO’s key provisions and timelines, and the subsequent blogs described the actions taken by various government agencies to implement the Cyber EO from June 2021 through August 2023. This blog describes key actions taken to implement the Cyber EO, as well as the U.S. National Cybersecurity Strategy, during September 2023.Continue Reading September 2023 Developments Under President Biden’s Cybersecurity Executive Order and National Cybersecurity Strategy
On Thursday, GAO released its Bid Protest Annual Report to Congress for Fiscal Year 2023, which provides bid protest statistics and other interesting information regarding GAO’s protest system.Continue Reading GAO’s Annual Bid Protest Report: Protest Filings and Sustain Rate Soar
On October 5, 2023, the Federal Acquisition Regulatory Council (FAR Council) issued an interim Federal Acquisition Regulation rule (FAR rule) that implements the Federal Acquisition Supply Chain Security Act (FASCSA). This FAR rule implements the requirements of the Federal Acquisition Supply Chain Security Act of 2018 and the Federal Acquisition Security Council (FASC) final rule for complying with exclusion or removal orders. The FAR rule represents yet another step by the Government to mitigate the security risks that the Government perceives with the use of information technology that may be produced or provided by countries considered to be foreign adversaries. Like similar supply chain prohibitions, the rule requires contractors to conduct diligence to ensure that articles and sources covered by a FASCA exclusion or removal order are not provided to the Government, to make an affirmative representation to the Government that such articles and sources will not be provided, and to promptly report if any are identified. The FAR rule will become effective on December 4, 2023, and will apply to new contracts and contracts subject to extension or renewal. The rule instructs that existing IDIQ contracts should be modified by the Government within six months of December 4, 2023 to apply the requirements to future orders.
Additional information about the rule and its relationship to existing FASCSA regulations is outlined below.Continue Reading FAR Council Issues Interim Rule Outlining Procedures Relating to Excluded Covered Articles and Sources
On October 17, 2023, the U.S. Government Accountability Office (“GAO”) published a report on mergers and acquisitions (“M&A”) in the defense industrial base. The report details the current M&A review process of the Department of Defense (“DOD”) and provides recommendations to proactively assess M&A competition risks.Continue Reading GAO Recommends Increased Guidance for DOD Mergers & Acquisitions Review
Although Congress averted a Government shutdown on October 1 by passing a temporary spending bill, we may be headed toward a shutdown next month. As many Federal Government contractors have experienced during prior Government shutdowns, some portions of the Government — primarily those not funded through annual appropriations bills or that provide “essential services” — may continue to operate (often without pay or access to certain resources), while others shut down immediately, leaving contractors with a customer that often is unable to provide funding, authorize contract actions or respond to inquiries until the Government reopens its doors. Faced with these challenges, contractors would be well advised to ensure their shutdown plans position them to navigate the potential challenges. Each agency and contract can offer unique challenges, but we offer a few key considerations below to guide contractors in assessing their approaches to potential shutdowns:
- Assess Impacted Contracts – As a first step, contractors should take inventory of their government contracts to assess how a shutdown could impact performance.
- Contractors should consider whether any contracts contain the Availability of Funds (FAR 52.232-18) clause, as a lapse in appropriations during a shutdown could mean that the availability of funds for such contracts is further impacted.
- “Fully-funded” contracts are also impacted by a shutdown. Although theoretically, many contracts are “fully funded” — meaning that they contain funds that have already been obligated to cover the price of a fixed-price or the estimated price of a cost-reimbursable contract — issues may arise if, for the completion of the contract, a contractor requires access to government facilities or systems or otherwise needs ongoing input from government personnel. In such situations, performance may be delayed or adversely impacted, particularly if such access or input is from personnel deemed “non-essential.” Additionally, if a contract is nearing an option exercise or the need for a modification is on the horizon, performance may be impacted if so-called “non-essential” personnel are required to exercise option periods or authorize modifications.
- Performance under certain contracts (including cost-type contracts or contracts subject to funds not yet appropriated) may be halted, and the Government may issue a stop work order for certain contracts.
In connection with this assessment, a contractor should seek guidance from the Government regarding contract performance (assuming contract terms allow for ongoing performance) and/or instructions for performance during the shutdown. Contractors should also review an agency’s shutdown plans for guidance and information, many of which are available online. Agencies are expected to execute shutdown plans in an orderly manner, which may allow an opportunity for a contractor to receive specific instructions regarding contract performance.
- Remain Aware of the Legal Consequences of Employee Furloughs – Agencies are expected to instruct contractors on agency contingency plans and to provide guidance on how to implement reductions in contract hours. A misstep in implementing this direction, however, could potentially result in an exempt employee being reclassified as non-exempt under the Fair Labor Standards Act (“FLSA”), which would then require payment of overtime wages to the employee. Professional services contractors are particularly at risk, as many of their employees may be working on cost-reimbursable government contracts but may be compensated on a salaried basis. We previously considered this topic here.
- Understand the Exceptions to the Anti-Deficiency Act – The Anti-Deficiency Act prohibits agency officials from paying employees when the official does not have the funding that covers the payment that will be owed to the employee in the future. However, the Act recognizes a few narrow exceptions — such as when Government services are “for emergencies involving the safety of human life or the protection of property” — that permit the Government and its contractors to operate on a limited basis. These narrow exceptions can be crucial for contractors because falling within them could mean being able to recover for the costs of paying employees.
When determining whether the exception applies, contractors should consider whether their operations involve the “safety of human life” or “the protection of property,” recognizing that administrators have only found exceptions in unique and narrow circumstances. For example, GAO found that recalling Farm Service Agriculture employees to open mail to identify bankruptcy notices and third-party actions affecting security interests was an exception to the Act because of the time-sensitive nature of the action. Matter of: U.S. Dep’t of Agric.-Operations of the Farm Serv. Agency During the Fiscal Year 2019 Lapse in Appropriations, B-331092 (June 29, 2020). Contractors must also be sure to clearly link the action to an emergency posing imminent harm. See Matter of: Smithsonian Inst.-Application of the Antideficiency Act to Emp. Travel During A Lapse in Appropriations, B-333281 (Oct. 19, 2021) (finding that Smithsonian had not identified a clear emergency or demonstrated how its action would avert imminent harm to human life or property).
- Record Costs Incurred as the Result of the Shutdown – Contractors should document the costs they reasonably incur as a result of a shutdown, as they may be recoverable from the Government. For instance, contractors may be able to proceed under the Government Delay of Work clause (FAR 52.242-17), which allows for adjustments in contract price (excluding profit) or delivery schedule if the actions of the contracting officer in the administration of the contract are “not expressly or impliedly authorized” by the contract. The cost reimbursement Changes clause (FAR 52.243-2) also may provide a basis for recovery for a stop in work depending on the costs and facts of the stoppage, though contractors should take care to precisely document and track costs, which form the basis to the successful recovery of an equitable adjustment.
- Assess and Track Potential Cost Overruns – During a shutdown, contractors often ask whether they can continue to work once they have reached a contract ceiling and, if so, whether they will be reimbursed. Although the contracting officer typically has the discretion to fund a cost overrun retroactively, a number of factors inform this decision (including the terms of the funding that may be available to the contracting officer to use for this purpose). If a contractor decides to proceed, the standard FAR clause requires contractors to provide notice of an overrun before it occurs. We addressed this topic in detail, here, during a prior Government shutdown.
- Consider Impact on Procurement Activities and Protests – With non-essential government workers furloughed and appropriations stalled, procurement activity will inevitably slow. Contractors should watch carefully to determine whether procurement deadlines are extended, and continue to plan to submit (if possible) by the deadline if such extensions are not publicly posted. Additionally, GAO will typically pause its consideration of pending protests, and extend filing deadlines consistent with the length of the shutdown.
These considerations reflect only a few of the numerous challenges contractors potentially face related to a Government shutdown. Indeed, for many contractors a shutdown causes ripple effects, leading to program delays and cash flow difficulties affecting employee retention and payment of subcontractors. Although planning for a shutdown and its potential length is difficult, communication with the Government (when possible) and documentation of performance efforts and costs incurred throughout the shutdown may help to mitigate its impacts.
On October 3, 2023, the Federal Acquisition Regulation (FAR) Council released two new proposed cybersecurity rules. The first of the two, titled “Cyber Threat and Incident Reporting and Information Sharing,” adds new requirements to the cybersecurity incident reporting obligations of federal contractors. The second rule, which we will cover in a separate blog post, is titled “Standardizing Cybersecurity Requirements for Unclassified Federal Information Systems” and covers cybersecurity contractual requirements for unclassified Federal information systems.
Both rules arise from Executive Order 14028, “Improving the Nation’s Cybersecurity,” issued by President Biden on May 12, 2021 (the “Cyber EO”). We have covered developments under this Executive Order as part of a series of monthly posts. The first blog summarized the Cyber EO’s key provisions and timelines, and subsequent blogs described the actions taken by various government agencies to implement the Cyber EO from June 2021 through September 2023. This blog describes key requirements imposed by the proposed “Cyber Threat and Incident Reporting and Information Sharing” rule.Continue Reading FAR Cyber Threat and Incident Reporting and Information Sharing Rule
Following our recent overview of topics to watch in the National Defense Authorization Act (“NDAA”) for Fiscal Year (“FY”) 2024, available here, we continue our coverage with a “deep dive” into NDAA provisions related to cybersecurity and software security in each of the Senate and House bills. For the past three years, the NDAA has dedicated a separate Title to cyber and cybersecurity, reflecting the increased importance of these issues in Department of Defense (“DoD”) operations. As expected, both the Senate and House versions of the NDAA bill continue this tradition. Many of the cyberspace related provisions in both chambers’ bills would have direct or indirect impacts on DoD contractors and other members of the Defense Industrial Base (“DIB”). We summarize below the cyber-related provisions that are most likely to impact the DIB.Continue Reading Key Cyber Security and Software Security Provisions of the House and Senate Versions of the Fiscal Year (FY) 2024 National Defense Authorization Act (NDAA)
The Supreme Court’s decision in United States ex rel. Polansky v. Executive Health Resources, Inc., 143 S. Ct. 1720 (2023), has increased attention on arguments that the False Claims Act’s qui tam provisions may be unconstitutional. Although the majority’s opinion in the case did not address the issue, the dissent by Justice Thomas—joined in this regard by Justices Kavanaugh and Barrett—stated that “[t]here are substantial arguments that the qui tam device is inconsistent with Article II and that private relators may not represent the interests of the United States.” Id. at 1741 (Thomas, J., dissenting); see also id. at 1737 (Kavanaugh, J., concurring).
Justice Thomas’s opinion focused on the potential violation of the Appointments Clause by allowing “a private relator to wield executive authority to represent the United States’ interests in civil litigation.” Id. at 1741 (Thomas, J., dissenting). He went on to critique arguments in which supporters of qui tam suits have relied on “the long historical pedigree” of such suits. Id. The lower courts, in decisions not discussed in Polansky, also have found the qui tam provisions constitutional by characterizing actions thereunder as one-time events. See, e.g., United States ex rel. Stone v. Rockwell Int’l Corp., 282 F.3d 787, 805 (10th Cir. 2002) (relying on “temporary” nature of relator’s role (quotation omitted)); United States ex rel. Taxpayers Against Fraud v. General Elec. Co., 41 F.3d 1032, 1041 (6th Cir. 1994) (relying on view that relator’s role “is without tenure, duration, continuing emolument, or continuous duties” (quotation omitted)); United States ex rel. Kelly v. Boeing Co., 9 F.3d 743, 759 (9th Cir. 1993) (relying on view that relator “litigates only a single case”).
Third-Party Litigation Funding (“TPLF”) presents a challenge to both the historical justification for qui tam suits and the position that they are one-off actions. TPLF has no longstanding historical precedent, and its potential to shift control of a qui tam action even further away from the Executive Branch has become a concern for the government in recent years. In 2020, for example, DOJ indicated that it will ask relators during the period in which a case is under seal “whether [a funding] agreement entitles the funder to exercise any direct or indirect control over the relator’s litigation or settlement decisions.” Ethan Davis, Remarks on the False Claims Act at the U.S. Chamber Institute for Legal Reform (June 26, 2020). The constitutional problems raised by a private individual representing the interests of the government in litigation are compounded where a funder has invested in multiple qui tam actions, thereby raising the prospect of a concentration of power and control at odds with the view of a relator as a one-time protector of the government.
At least one court has entertained arguments about the intersection of TPLF and constitutional issues raised by the qui tam provisions. In Ruckh v. Salus Rehabilitation, LLC, 963 F.3d 1089 (11th Cir. 2020), the Eleventh Circuit addressed the impact of TPLF on a relator’s standing to bring suit under Article III, ultimately finding that the relator had standing because she had assigned “only a small interest” in her portion of any recovery, and her funding agreement was “clear” that she “retain[ed] sole authority over the litigation.” Id. at 1101. After Justice Thomas’s invitation in Polansky, similar considerations of the degree to which the relator has assigned her interest in an action and the extent to which a funder has gained control over the litigation may be more likely to be advanced in the context of arguments about the improper appointment of private citizens to exercise executive power under Article II.
In addition to impacting attacks on the constitutionality of the qui tam provisions in cases involving TPLF, Justice Thomas’s opinion in Polansky may have less high-profile effects that bear on the use of TPLF in qui tam actions. For example, defendants often face relevance objections when seeking information in discovery about TPLF; those objections should carry less weight when viewed in light of the potential impact of TPLF on the concerns expressed by Justice Thomas. In addition, third-party funders themselves could become subject to inquiry if there is reason to believe that they have made investments in a meaningful number of qui tam suits. And even setting aside situations (such as that in Polansky) in which the government moves to dismiss an action over a relator’s objection under 31 U.S.C. § 3730(c)(2)(A), the presence of a third-party funder may make a relator more likely to object when the government seeks to settle an action, leading to more disputed resolutions under 31 U.S.C. § 3730(c)(2)(B).
With increased attention on both the use of TPLF in qui tam litigation and constitutional concerns with the qui tam device, litigants and courts should expect the two issues to arise in an increasing number of cases, potentially in combination with one another.
Last Friday, September 29, the FAR Council published a proposed rule that would update the Federal Acquisition Regulation (FAR) to implement the Small Business Administration’s (SBA) 2020 changes to rules on when small businesses must recertify their status in connection with orders under multiple-award contracts.
The SBA size and socioeconomic recertification rules are convoluted — especially in situations where a small business becomes a large business by virtue of an M&A transaction and wants to continue bidding on orders under a multiple-award contract. The proposed changes seek to provide greater clarity in the FAR on the situations in which small businesses must recertify their size status in connection with certain orders and take a much-needed step towards aligning the FAR small business requirements and clauses with SBA’s regulations. As is true with respect to small business representations more generally, contractors should pay attention to the situation-specific recertification requirements to avoid being inadvertently tripped up.Continue Reading Updates to FAR Small Business Recertification Requirements: More Clarity, More Complexity