The Contractor's Perspective - Offering perspective on key developments in the law of government contracts

The GAO’s decision in BC Peabody Constr. Serv., Inc., B-408023 (May 10, 2013) [pdf] illustrates the importance of establishing prejudice in a bid protest. The protester alleged that it proposed the same subcontractor (Bauer Foundation Corporation) as the awardee proposed on a dike rehabilitation project. Both offerors relied on Bauer for the “cut-off wall,” a critical element of the project. Both proposals showed that Bauer had the required experience for the cut-off wall.

Despite their use of the same subcontractor, the Corps of Engineers nevertheless assigned the awardee and the protester different scores for the cut-off wall element of their proposals. The Corps rated the awardee’s proposal acceptable for both the demonstrated experience and past performance subfactors, but it rated the protester’s proposal unacceptable.  The GAO agreed the Corps’s action was procurement error. “Where multiple proposals propose the same contractor, once the agency becomes aware of that subcontractor’s experience . . . it cannot reasonably assign one proposal a higher score than another based on that experience.” GAO nevertheless denied the protest.

Flight delays resulting from the furloughs of air traffic controllers are certainly not the only impact of sequestration. All federal contractors and grant recipients will have to adapt to reduced federal spending. According to the OMB report to Congress on sequestration reductions for FY 2014, $109 billion will be cut from the federal budget next year with equal reductions of approximately $54.7 billion in the defense and non-defense categories. Discretionary defense spending will see a $53.9 billion reduction, while direct defense spending will be reduced by $749 million. Non-defense discretionary spending will decrease by $37.2 billion, and non-defense direct spending will shrink by $17.5 billion, $11.2 billion of which will come from reductions in Medicare spending. 

As agencies struggle with these mandatory budget cuts imposed by sequestration, incrementally funded contracts are particularly vulnerable. Despite the apparent need for their goods or services and the high caliber of their work, contractors holding incrementally funded contracts may find that funds are simply not available. Here are three strategies contractors can take to limit the risk of performing without compensation:

"Oh, a-hunting we will go!" The U.S. Postal Service Office of Inspector General (OIG) is looking for a supplier to help it track down infringers of the agency's patents and other intellectual property. Under a solicitation issued on March 26, 2013, the OIG intends to start with five patents that have the "highest potential for infringement or licensing." OIG has already examined six USPS patents for this purpose, including those involving:

• managing powered industrial vehicles, 
• web-based address corrections,
• image lift and capture, and
• tracking a moveable article.

The Postal Service has identified 181 agency-owned patents that show promise for commercial development or catching infringers. These will be narrowed down by the OIG and the supplier to five. The supplier will then research online data from the US Patent and Trademark Office, assess potential commercial value of the patent, and evaluate the opportunity for potential licensing revenue and recovery of royalties. In other words, become the Postal Service's patent troll.

Unlike other federal agencies, the Postal Service is not subject to the Federal Acquisition Regulation (FAR) and has a slightly different approach to intellectual property than its federal cousins. For example, the Postal Service occasionally seeks outright ownership of patent rights, not just unlimited rights in them. Companies who contract with the Postal Service should take care to ensure that they do not inadvertently hand over intellectual property rights to the agency. The good news is that the Postal Service's standard intellectual property contract clauses are not necessarily set in stone. Under the USPS Supplying Principles and Practices manual, which sets out the agency's unique procurement policies and rules, these clauses are subject to negotiation or alternatives proposed by the supplier.

Posted by Husch Blackwell Associate David Newman

Congress continues to promote opportunities for small business contractors to do business with the federal government. It also continues to increase the penalties for those taking unfair advantage of small business opportunities. Here is a look at the most recent set of carrots and sticks, which appear in the National Defense Authorization Act for Fiscal Year 2013.

1. Subcontracts with “similarly situated” small businesses

Section 1651 of the 2013 NDAA provides a new exception to the small business subcontracting cap, which restricts small businesses from subcontracting more than 50 percent of the amount paid under a services contract. With the passage of NDAA, the amount paid under any subcontract with a small business concern that has the same small business status as the prime contractor is excluded from the small business subcontracting cap. The term “similarly situated entities” includes service-disabled veteran-owned small businesses, HUBZone small businesses, women-owned small businesses, and economically disadvantaged women-owned small businesses.

This provision also changes the method for calculating the 50-percent subcontracting cap. Previously, the subcontracting limits in FAR 52.219-14 counted only direct labor costs. Under section 1651, “amount paid” under a subcontract, including labor, material, and other direct costs, is used to determine the 50-percent subcontracting cap. This is a strong incentive for small business prime contractors to award subcontracts to similarly situated small businesses. The old formula continues to govern subcontracting limitations for construction contracts, but the NDAA directs the SBA to establish similar limitations on construction contracts.

The penalty for violating the subcontracting cap is the greater of $500,000 or the dollar amount expended over the cap. The “amount expended” clause is a new penalty.

We have dedicated multiple posts to understanding the scope of jurisdiction over protests of task and delivery orders. Previous posts can be found here and here. Thanks to an amendment contained in the 2013 National Defense Authorization Act [pdf], the issue remains somewhat unsettled. Fortunately, Congress still has a few years to set the record straight.

Before the 2013 NDAA, disappointed offerors could protest the issuance of task and delivery orders valued over $10 million regardless of whether the order was issued by a civilian or Department of Defense (DoD) agency. Both of the authorizing statutes providing for task order protest jurisdiction on civilian and DoD orders over $10 million were set to expire on September 30, 2016 (the “sunset provisions”).

Section 830 of the 2013 NDAA amends 10 U.S.C. § 2304c(e) by eliminating the sunset provision, providing for permanent GAO jurisdiction over challenges to DoD task and delivery orders over $10 million. However, this amendment applies only to the statute authorizing jurisdiction over DoD task and delivery orders. The corresponding statute providing for task order protest jurisdiction over civilian agency task and delivery orders over $10 million, 41 U.S.C. § 4106(e), is still set to expire on September 16, 2016.