Is incumbency a golden ticket to strong past performance? TRICARE’s $58 billion managed care support contracts

GAO has published its decision denying multiple protests of the Defense Health Agency’s decision to award the T-2017 managed care support contracts to Humana Government Business, Inc. and Health Net Federal Services, LLC. Humana won the TRICARE contract for the east region with a total evaluated price of $40.7 billion. Health Net won the west region contract with a total evaluated price of $17.7 billion.

The Atlanta Opera's 2011/2012 performance of The Golden Ticket

Photo: The Atlanta Opera

One of the key issues addressed in GAO’s decision was the challenge to Humana’s past performance rating. Anthem subsidiary WellPoint Military Care Corporation argued that DHA placed so much weight on prior experience as a TRICARE prime contractor that incumbency amounted to an unstated evaluation criterion. In WellPoint’s view, incumbency was the “golden ticket to attaining the highest Substantial Confidence rating.”

GAO found no merit to WellPoint’s argument. There was nothing in the record to suggest that DHA treated incumbency as an unstated evaluation criterion. Indeed, DHA considered WellPoint’s own past performance superior to that of two other incumbent TRICARE contractors—Health Net and UnitedHealth Military & Veterans Services, LLC.

GAO also rejected the legal basis for WellPoint’s argument. While incumbency is not necessarily a golden ticket, GAO also found that it was reasonable to give credit to Humana for its prior experience managing a large TRICARE regional contract. In GAO’s view, “it is not unreasonable for an agency to place particular emphasis on a firm’s performance as an incumbent contractor, since such performance may be reasonably viewed as a more accurate indication of likely future performance . . . .”

Incumbency is not necessarily a golden ticket, but it certainly can’t hurt.

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Kingdomware decision gives new meaning to the words “government contract”

The Supreme Court’s June 2016 decision in Kingdomware Techs., Inc. v. United States, No. 14-916 (June 16, 2016), may significantly impact the meaning of the term “government contract” for years to come.

The case centered on a project for the Department of Veteran Affairs. When VA continually fell behind in achieving its three percent goal for contracting with service-disabled veteran-owned small businesses, Congress enacted the Veterans Benefits, Health Care, and Information Technology Act of 2006. See 38 U.S.C. §§ 8127 & 8128. The Act includes a mandatory set-aside provision that requires competition to be restricted to veteran-owned small businesses if the government contracting officer reasonably expects that at least two such businesses will submit offers and that the “award can be made at a fair and reasonable price that offers best value to the United States.” This is an iteration of the well-known “Rule of Two.”

When it published regulations implementing this statutory requirement, VA took the position that the set-aside requirements in § 8127 “do not apply to [Federal Supply Schedule] task or delivery orders.”  74 Fed. Reg. 64619, 64624 (2009). The Kingdomware case posed a direct challenge to this interpretation.

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Fair Pay and Safe Workplaces—the final rules implementing Executive Order 13673

[UPDATE: Key parts of the rules implementing the Fair Play and Safe Workplaces Executive Order have been enjoined. In an opinion issued on October 24, 2016, the U.S. District Court for the Eastern District of Texas granted a preliminary injunction that stops the implementation of “any portion of the new reporting and disclosure requirements regarding labor law violations as described in Executive Order 13673 and implemented in the FAR Rule and DOL Guidance.” See Associated Builders & Contractors v. Rung, No 1:16-425-MAC (E.D. Tex. Oct. 24, 2016) [pdf]. The decision also enjoins enforcement of EO 13673’s restriction on arbitration agreements. Importantly, the injunction does not extend to new paycheck transparency requirements, which will go into effect on January 1, 2017. We’ll have more on this case in a separate post.]

The FAR Council and the Department of Labor have published the final versions of their respective final rule and DOL guidance implementing the President’s July 2014 Executive Order entitled “Fair Pay and Safe Workplaces”—EO 13673.

Detractors frequently refer to EO 13673 as the “Blacklisting” or “Bad Actors” Executive Order. The order and the new regulations purport to promote efficiency in government procurement by ensuring that federal agencies contract only with “responsible” contractors that comply with federal and state workplace protection laws.

This objective is already a well-established requirement of the government’s procurement rules. The regulations impose additional administrative burdens on current and future contractors, adding an element of uncertainty to future contract award decisions, but only achieving marginal improvements in workplace law compliance. Continue Reading

SBA’s new-and-improved Mentor-Protégé Program

Under a final rule published on July 25, 2016, the U.S. Small Business Administration’s Mentor-Protégé Program is now open to all small businesses. See 81 Fed. Reg. 48558 (July 25, 2016). This significant expansion can be expected to provide real benefits to small businesses, large businesses, and government agencies. The revamped program will no doubt increase the popularity of mentor-protégé agreements among companies seeking federal contracts for goods, services, and construction. With more small-business ventures available to compete, it may also increase the number of contract opportunities actually set aside for small business.

Origin of SBA’s 8(a) Mentor-Protégé Program

The Mentor-Protégé Program was authorized by Congress in 1991 as a pilot program to help certain small businesses compete for Defense Department contracts. By 1998, the SBA was administering a program to help socially and economically disadvantaged small businesses. These businesses were called “8(a) companies” because the program was authorized by section 8(a) of the Small Business Act. Qualified companies acting as mentors provided technical, managerial, and financial assistance to help 8(a) companies compete for federal contracts.

By 2011, roughly 1,000 participating mentor-protégé joint ventures held federal contracts, with about half of those monitored by the SBA. Twelve other participating agencies oversee and administer the other half of existing mentor-protégé participants. Each agency has its own rules and monitoring program. Continue Reading

Accrual of contractor claims after KBR v. Murphy

Contract Disputes Act claims are subject to a six-year statute of limitations. While the math involved in calculating when that limitations glass-time-watch-businessperiod runs seems easy, determining when a CDA claim accrued is not always so simple. FAR 33.201 defines “accrual of a claim” as the date when the party with the claim knew or should have known all of the events that “fix the alleged liability” of the other party. But the Federal Circuit’s decision in Kellogg Brown & Root Services, Inc. v. Murphy, No. 2015-1148 (Fed. Cir. May 18, 2016) [PDF], shows that the date of accrual is not always clear.

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Court orders Postal Service to justify lawfulness of three standard clauses

Leslie Arkansas Post Office

The termination of a $34,000 mail delivery contract serving this post office in Leslie, AR could result in three standard clauses being declared unlawful on thousands of USPS transportation contracts.

Three standard clauses used in virtually all Postal Service surface transportation contracts are now on the chopping block. In an interim ruling, the Court of Federal Claims ordered the Postal Service to show why these three clauses should not be declared unlawful and unenforceable. Tabetha Jennings v. U.S., Fed. Cl. No. 14-132C, May 29, 2016.

The case involves the default termination of a $34,000 contract to provide mail delivery between Leslie and Timbo, Arkansas. Tabetha Jennings, the sole proprietor contractor, had provided service for seven years without any issues. Then, during a heavy volume Christmas season, a postmaster accused her of using a vehicle with insufficient capacity. The postmaster was wrong, but this charge led to other accusations. Eventually, the postmaster accused Jennings of conducting herself “in an unprofessional manner” and disrupting mail processing operations. These accusations, in turn, led the contracting officer to rescind Jennings’s security clearance and her access to postal premises and the mail.

Jennings disputed the accusations against her and presented statements from a different postmaster and from another contractor that backed her up. But the contracting officer was unmoved and did not lift the suspension of her security clearance. When Jennings failed to provide a substitute carrier to continue the service she had been barred from performing herself, the contracting officer terminated her contract for default. Continue Reading

Contractor guide to compliance with OFCCP’s new final rule on sex discrimination

A new Final Rule addressing sex discrimination in employment by federal contractors and subcontractors will go into effect on August 15, 2016. The new Final Rule was published by DOL’s Office of Federal Contract Compliance http://www.contractorsperspective.com/construction-contracting/dc-circuit-rules-that-the-davis-bacon-act-does-not-apply-to-public-private-partnership-project/Programs. It implements Executive Order 11246, which has been essentially unchanged since it was first issued in 1970. OFCCP’s new rules and guidelines include several significant changes from the 1970 version, but the changes are primarily intended to update DOL requirements so that they conform to well-established federal caselaw and other more recently enacted federal requirements.

Who is affected?

OFCCP’s new Final Rule on sex discrimination applies to any business or organization that (1) holds a single Federal contract, subcontract, or federally assisted construction contract in excess of $10,000; (2) has Federal contracts or subcontracts that, combined, total in excess of $10,000 in any 12-month period; or (3) holds Government bills of lading, serves as a depository of Federal funds, or is an issuing and paying agency for U.S. savings bonds and notes in any amount.

What does the Final Rule address?

As they have for many years, DOL’s regulations require contractors to ensure nondiscrimination in employment on the basis of sex and to take affirmative action to ensure that they treat applicants and employees without regard to their sex. The new Final Rule is much more specific.

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Universal Health v. Escobar: the new standard of proof for implied certification liability under the False Claims Act

Photo by Sgt. Sara WoodThe Supreme Court’s unanimous decision in Universal Health Services, Inc. v. United States ex rel. Escobar, No. 15-7 (U.S. June 16, 2016), upholds the viability of the implied certification theory of False Claims Act liability. But it also makes cases arising from minor instances of noncompliance much harder to prove. The Court held that a knowing failure to disclose a violation of a material statutory, regulatory, or contractual requirement can create False Claims Act liability. The requirement need not be an express condition of payment, but it must be material to the Government’s decision to pay.

The requirement for proof of a misleading half-truth

Those hoping that the Court would eliminate implied certification altogether will be disappointed with the decision. It opens up the possibility of new False Claims Act cases in the Seventh Circuit and in other jurisdictions that had rejected the implied certification theory or limited its application to conditions of payment. Some cases that might have been thrown out on a motion to dismiss might stand a better chance of surviving through discovery and trial.

The Court nevertheless takes strong steps to limit misuse of the implied certification theory. According to the opinion in Escobar, liability under the implied certification theory can be imposed only when two conditions are satisfied. First, the claim for payment must make “specific representations about the goods or services provided.” An invoice that makes no affirmative statement about the quality of a contractor’s goods or services cannot be the basis for an implied certification.

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DOL’s new salary level tests for overtime pay

The Department of Labor has issued its final rule amending the overtime and exemption regulations of the Fair Labor Standards Act. Although the final rule differs in some ways from the July 2015 proposed rule, it will have significant administrative and budgetary impacts on most employers. The new rule becomes effective December 1, 2016, and will update automatically every three years thereafter.

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New bid protest procedures at GAO

Image by William Warby

GAO has announced a series of proposed amendments to its bid protest regulations. The changes are prompted by the Consolidated Appropriations Act for Fiscal Year 2014, one section of which required GAO to establish an electronic filing system. But the amendments are not limited to implementing electronic filing, and many of the other proposed adjustments warrant attention.

Electronic filing and new filing fee

Many of the proposed amendments address GAO’s proposed “Electronic Protest Docketing System,” or EPDS. Once adopted, EPDS will be the sole means for filing a bid protest at GAO, replacing the “protests@gao.gov” email method. Protests containing classified information will not use EPDS.

Some protest-related communications will also be required to be submitted through EPDS under the proposed amendment to Section 21.3(a). GAO has stated that it will post instructions on its website as to which communications should be submitted through EPDS and which will continue to be exchanged through email. While this guidance is not yet available, the text of the proposed rule does not suggest a substantive change in existing practice, under which certain communications are distributed to all parties (and GAO, but parties may also have separate contact about some protest-related issues.

A filing fee in the amount of $350—the first of its kind at GAO—will be imposed to cover the costs of supporting EPDS. The fee is to be paid by the protester upon initiating the protest. GAO has not addressed how the filing fee will be paid, a potentially important consideration in light of GAO’s short and strictly enforced filing deadlines.

Other important amendments

GAO’s proposed amendments include substantive changes unrelated to EPDS. Many, but not all, of these changes are intended to formally adopt rules announced in GAO’s decisions. Here are some of the signifcant changes. Continue Reading

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