Senate Armed Services Committee Proposes Expansive but Unclear Software Review Provisions

As the Senate approaches the end of its debate on the National Defense Authorization Act for Fiscal Year 2019, provisions of the bill regarding access to and review of information technology code deserve close attention. These sections, if enacted, would significantly impact Department of Defense contractors and also would affect matters associated with investments subject to review by U.S. national security agencies.

As drafted, the provisions could expose current and prospective contractors to intrusive scrutiny and significant risks. They lack clarity on key definitions, leaving the precise scope of those risks unclear. We summarize major issues and concerns below. We expect these provisions to receive scrutiny during the House-Senate conference on the NDAA over the summer. Continue Reading

Congress Aims to Redefine the “Subcontract”

By Justin Ganderson and Susan B. Cassidy on June 14, 2018 Posted in Commercial Items, Government Contracts Regulatory Compliance, NDAA, Procurement Policy, Procurement Reform, Subcontracting

[Updated June 19, 2018]

If an agreement qualifies as a “subcontract” under a government contract, then it may be subject to certain flow-down, compliance, and reporting requirements. These requirements are intended to protect the government’s interests, and have significant ramifications for contractors, e.g., increasing transaction costs, expanding potential areas of exposure. These compliance obligations and risks can even deter some companies from performing under government contracts, especially those companies offering commercial items.

Currently, there is no uniform definition of “subcontract” in the applicable procurement regulations or in the procurement chapters under Titles 10 and 41 of the U.S. Code. Indeed, there are more than twenty varying definitions of “subcontract” in the FAR and DFARS, with many clauses failing to specify which definition applies. Now Congress is looking to address this lack of uniformity through the FY 2019 National Defense Authorization Act (NDAA).

4 Considerations For Gov’t Contractor Carveout Deals

By Scott A. Freling and Alexander Hastings on May 22, 2018 Posted in Government Contracts Regulatory Compliance, Transactional Support and M&A Diligence

[This article was originally published in Law360.]

A steady flow of M&A activity in the government contracts industry continues. Indeed, last year we saw over 100 publicly reported deals involving government contractors, and this pace has continued into 2018. This M&A activity has taken a variety of forms, including a number of “carveout” transactions, where a government-focused business is separated from its existing corporate structure. For instance, earlier this month L3 announced an agreement to sell its Vertex Aerospace to American Industrial Partners in what L3 described as an effort to optimize its portfolio of operations. Similarly, last month Siemens’ sold its federal business Dresser-Rand to Curtiss-Wright in order to allow Siemens to refocus on its core strengths.

Whether a carveout is absorbed by another company — such as Lockheed Martin’s sale of its IS&GS business to Leidos — or a carveout results in a new, stand-alone company — such as iRobot’s sale of its robot defense and security government business to private equity firm Arlington Capital, carveout deals can create great opportunities. They can allow a seller to realize the value of the carved-out business, while also creating exciting opportunities for both the remaining and sold businesses to refocus resources on their missions. Also, carving out a business that is less than a natural fit with its larger organization can allow for the realization of synergies if the carved out business is placed in a structure more suited to the carved out business’s specialties.

The Future of Novations in Contractor M&A

By Scott A. Freling and Nooree Lee on May 18, 2018 Posted in Transactional Support and M&A Diligence

In corporate transactions involving government contracts, “novation” has become a dreaded process. Many buyers and sellers express uneasiness and concern about having to subject their deal to the U.S. Government’s discretionary framework for accepting the transfer of a government contract from one party to another. In particular, they fear the uncertain timeline and arcane requirements for securing approval.

While the cumbersome novation approval process has drawn significant attention in recent years, the National Defense Authorization Act mark-up released by the House Armed Services Committee earlier this month was again silent on the issue. In the absence of Congressional enthusiasm, the government contracts bar seems to have focused its efforts to fix the novation process on the Section 809 Panel, which is considering ideas to streamline and simplify the defense acquisition system. The American Bar Association Section of Public Contract Law offered thoughts on the current novation process in comments to the panel late last year, and it remains to be seen how the Section 809 Panel will react to those comments in the two public reports the Panel is expected to publish over the coming months.

The ABA comments focused on three primary issues with the current novation process under FAR 42.1204: (1) the timing of novation approvals; (2) corporate entity conversions; and (3) the content of novation packages.

Bipartisan Legislation Aims To Strengthen “Buy American” Requirement Under National School Lunch Program

By Justin Ganderson and Jennifer Plitsch on May 17, 2018 Posted in Buy American, Country of Origin, False Claims Act, Government Contracts Regulatory Compliance, Procurement Policy

[A modified version of this blog post was published in Law360.]

Last month, Senators Dan Sullivan (R-AK) and Maria Cantwell (D-WA) introduced legislation to “improve the requirement to purchase domestic commodities or products” under the National School Lunch Program (the “NSLP”) and the School Breakfast Program (the “SPB”). Even if this legislation fails to make it out of Committee, it signals a continued trend to strengthen the “Buy American” requirement under these programs.

Any Questions? : Department of Defense Implements FY 2018 NDAA Requirement for Post-Debriefing Q&A Process

By Jay Carey and Andrew Guy on May 11, 2018 Posted in Bid Protests, Defense Industry

This past March marked the beginning of a more fulsome required debriefing process for defense contracts. The Director of Defense Procurement and Acquisition Policy (“DPAP”) issued a class deviation memorandum, effective March 22, 2018, requiring contracting officers to: (1) provide unsuccessful offerors an opportunity to submit additional questions within two days after receiving a debriefing; and (2) hold the debriefing open until the agency delivers written responses. The class deviation implements Section 818 of the National Defense Authorization Act for Fiscal Year 2018 (“NDAA”). Continue Reading

A Bridge Too Far — Court of Federal Claims Sustains Protest of Fifth (Yes, Fifth) Sole-Source Bridge Contract Awarded to Incumbent During Protracted Bid Protest Litigation

By Hunter Bennett and Evan R. Sherwood on May 10, 2018 Posted in Bid Protests, Government Contracts Regulatory Compliance

Non-incumbent awardees who are defending their awards against a bid protest often view sole-source “bridge” contracts issued to the incumbent as something akin to death and taxes — an unpleasant, yet seemingly inescapable fact of life. But a recent Court of Federal Claims decision offers an important reminder that these types of contracts are not inviolate. They can be successfully protested themselves when the need to sole-source arises from a lack of advance planning on the part of the agency.

The 340B Ceiling Price and CMP Rule . . . Changes on the Horizon?

By Jennifer Plitsch and Kassie Maldonado on May 10, 2018 Posted in Government Contracts Regulatory Compliance, Health Care Contracting

After more than eight years in the making, the 340B Drug Pricing Program Ceiling Price and Manufacturer Civil Monetary Penalties Regulation (the “Rule”) seems to be a rudderless ship on a shoreless sea. On Monday, the Health Resources and Services Administration (HRSA) issued a notice of proposed rulemaking delaying the implementation date of the final Rule from July 1, 2018 to July 1, 2019. The final Rule was published eighteen months ago (January 5, 2017) and the implementation date has since been delayed on four different occasions. HRSA has cited a variety of reasons for each delay—compliance with the Regulatory Freeze issued by the incoming Trump Administration; providing stakeholders additional time to prepare for compliance with the Rule; yet more time for compliance preparations; and additional time for HRSA to “fully consider the substantial questions of fact, law, and policy raised by the [R]ule.”

DoD Final Rule to Promote Post-Award Disclosure of Defective Pricing Arms Contractors with Potentially Impactful Information

By Susan B. Cassidy and Bryan Byrd on May 8, 2018 Posted in Costs, DCAA, Defense Industry, Government Contracts Regulatory Compliance

On May 4, 2018, the Department of Defense (“DoD”) issued a final rule amending the Defense Federal Acquisition Regulation Supplement (“DFARS”) to state that, in the interest of promoting voluntary disclosures of defective pricing identified by contractors after contract award, DoD contracting officers have more discretion to determine the scope of the involvement of the Defense Contract Audit Agency (“DCAA”) in assessing such a disclosure. 83 Fed. Reg. 19645. This is a change from DoD’s November 2015 proposed rule, which required contracting officers to request at least a limited-scope audit when a contractor voluntarily discloses defective pricing. While arguably a step in the right direction, the permissive language of the final rule continues to provide only limited information to defense contractors about what to expect following a voluntary defective pricing disclosure. Nonetheless, by listing the types of information that the contracting officer must consider when deciding whether to request an audit, the rule arms contractors with potentially impactful information.

When Not to Pass Go and Go Directly to GAO: Decision Highlights Risk of Protesting Purchase Orders and Other Time-Sensitive Contracts at the Agency Level

By Hunter Bennett and Evan R. Sherwood on May 7, 2018 Posted in Bid Protests, Government Contracts Regulatory Compliance, Multiple Award Schedule Contracting

For contractors who are concerned that filing a bid protest in the Government Accountability Office or Court of Federal Claims may alienate their customer, agency-level protests are a welcome, less-confrontational alternative that allows them to raise their concerns in a discreet, non-public fashion. But as shown by GAO’s recent decision in GovSmart, Inc. – Protest and Costs, B-415871.3 et al., Apr. 19, 2018, 2018 CPD ¶ __, an agency-level protest of a proposed purchase order or other time-sensitive contract may ultimately preclude an offeror from obtaining meaningful relief in a subsequent GAO protest of that same procurement.