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.
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
Pragmatism Wins the Day in GAO Buy American Protest
Last month, the Government Accountability Office (GAO) issued a bid protest decision regarding the application of Buy American Act (BAA) requirements to a solicitation for construction. In this decision, GAO rejected the agency’s determination that an offeror’s bid was nonresponsive because the offeror failed to provide certain required information for the evaluation of a potential BAA exception. A summary of the decision and our takeaways are below.
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How Well Do You Know Your Supply Chain? New Policy Developments Affect Defense and Security Contractors
This post first appeared on Covington’s Global Policy Watch blog on September 7, 2018
Generating and sustaining the United States’ global economic and military superiority over more than the last half century has depended on a dominant U.S. global economic position and perpetual technological innovation. The United States has increasingly relied on a global industrial supply chain and a relatively open environment for foreign investment in early stage technology development to sustain this dominant position, but in so doing has built risk into the foundation of its competitive advantage. The U.S. Government has growing concerns that these past practices meant to extend the U.S. economic and military advantage are contributing to its erosion. As a result, the Department of Defense (DoD), other Executive agencies, and Congress are taking steps to mitigate risks across the defense industrial and innovation supply chains that provide hardware, software, and services to the U.S. Government.
The U.S. Government has been focused on supply chain issues for more than a decade. As the threats have increased, so has the Government’s scrutiny of its contractors and their suppliers. Underlying these efforts is the concern that a foreign government will be able to expropriate valuable technologies, engage in espionage with regard to sensitive government information, and/or exploit vulnerabilities in products or services. Many senior policymakers across the Executive Agencies and the Congress believe these threats are increasing, and they are focused on taking further steps to make security a business differentiator for those seeking to compete for U.S. Government contracts. Contractors need to understand these security obligations and implement compliance processes, or they may find themselves at competitive disadvantage or even precluded from competition.
Companies seeking to sustain and grow business with the U.S. federal government must ask: how well do you actually know your supply chain—from the materials you acquire to the software you include in your products or services? If you have not answered this question recently, you should consider adding it to your “to do” list. Not only does the United States Government want to know, the Government is seeking to integrate national security considerations into the acquisition process and expect contractors to be the first line of defense.
A cross-functional team from Covington’s Government Contracts, Public Policy, and National Security practices have studied the major initiatives the Government has launched to protect its supply chain. In a recent article (available here), we analyze new provisions in the recently enacted Fiscal Year 2019 John S. McCain National Defense Authorization Act, including restrictions on the procurement and use of certain telecommunications equipment, software, and services from manufacturers connected to the Chinese government, and stringent disclosure obligations related to foreign review of software code. Finally, we discuss how the Deliver Uncompromised initiative is likely to influence DoD going forward, and what impact this could have on defense contractors and suppliers.
Contractors and the U.S. Government share the strategic objectives of protecting the United States’ competitive edge and sustaining overmatch on the battlefield. Our recent article highlights some of the friction points in pursuing those goals. With planning, forethought, and experienced counsel, contractors can minimize disruption and continue to accomplish their business goals while furthering U.S. national security interests.
Put It In Prospectus: Reviewing the Congressional Lease Approval Process in Light of the Upcoming Lower Manhattan SEC Lease
With the General Services Administration’s (“GSA”) recent issuance of a prospectus in connection with its announced plan to acquire new office space for the Securities and Exchange Commission (“SEC”) in lower Manhattan, now is a good time for a quick refresher about the congressional lease approval process under 40 U.S.C. § 3307, which potentially gives rise to a pre-award bid protest claim that is viable at the Government Accountability Office (“GAO”) but likely not at the Court of Federal Claims.
Federal Circuit Charts New Terrain in Commercial Item Contracting
Last month, the Federal Circuit weighed in on a largely-overlooked provision in the Federal Acquisition Streamlining Act (“FASA”) that requires federal agencies, to the maximum extent practicable, to procure commercially available goods and services to meet their needs. In the case — Palantir USG v. United States — the court affirmed the decision by the Court of Federal Claims (“COFC”) enjoining the Army from proceeding with its Distributed Common Ground System – Army Increment 2 (“DCGS-A2”) procurement until it complies with the FASA provision. This bid protest decision has potentially significant implications for commercial item contractors.
2018 DoD Cyber Strategy: The DoD Defends Forward While the DIB Must Defend its Cyber Practices
The Department of Defense (“DoD”) recently released the summary of its cyber strategy for 2018. The 2018 DoD Cyber Strategy, which replaces the DoD’s 2015 cyber strategy, is focused broadly on “defending forward,” shaping day-to-day competition, and preparing for conflict. But the strategy includes items that are sure to be of interest to contractors and other private sector DoD partners, particularly the members of the Defense Industrial Base (“DIB”). In addition to its emphasis on adopting a more flexible approach to procurement, the strategy is focused on protecting DIB networks and systems and holding members of the DIB and other private sector partners accountable for their cybersecurity practices. Many contractors may already be seeing evidence of this emphasis on accountability, with the recent announcement by the Secretary of Defense that the DoD Office of Inspector General (“OIG”) would conduct an audit to determine whether DoD contractors have security controls in place to protect the DoD controlled unclassified information (“CUI”) maintained on their internal information systems.
CBCA Issues Rare Decision Addressing Government Claim Accrual
The Civilian Board of Contract Appeals (“CBCA” or “Board”) recently published a decision on accrual of government claims for overpayment under the Contract Disputes Act (“CDA”). In the case, United Liquid Gas Co. d/b/a United Pacific Energy v. Gen. Servs. Admin., CBCA 5846, United Pacific Energy (“UPE”) appeals a General Services Administration (“GSA”) final decision seeking overpayments arising under four task orders that were issued under UPE’s GSA schedule contract to provide propane gas.
In its motion for partial summary relief, UPE argued that GSA’s claims for some of those overpayments were time-barred by the CDA’s six-year statute of limitations. The Board sided with UPE, finding that the discrete overpayment claims at issue in the motion accrued when the Government overpaid each corresponding invoice — each of which occurred more than six years before GSA issued its final decision. In doing so, the Board rejected GSA’s argument that the claims did not accrue until the Government issued an audit report discussing the overpayment issue, which occurred less than six years before GSA issued its final decision.
This decision is important because it adds to the limited number of opinions that the Board has published on claim accrual and reinforces established precedent. Our takeaways are below.
Takeaways From DoD’s Proposed Changes to Commercial Item Contracting
[This article was originally published in Law360 and has been modified for the blog.]
Over the summer, pursuant to Section 874 of the FY 2017 National Defense Authorization Act (“NDAA”)[1], the Department of Defense (“DoD”) issued a proposed rule[2] to exclude the application of certain laws and regulations to the acquisition of commercial items, including commercially available off-the-shelf (“COTS”) items. Among other things, the proposed rule identifies certain DFARS and FAR clauses that should be excluded from commercial item contracts and subcontracts, and sets forth a narrower definition of “subcontract” that would carve out a category of lower-tier commercial item agreements from the reach of certain flow-down requirements. A summary of the proposed rule and our key observations/takeaways are below. Continue Reading
