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

How the Supreme Court will limit False Claims Act liability for implied certification

In some courts in the United States today, a government contractor or a healthcare provider seeking reimbursement from a federal program can violate the False Claims Act even when its work is satisfactory and its invoices are correct. Under the theory of “implied certification,” a minor instance of non-compliance with one of the thousands of applicable statutes, regulations, and contract provisions can be the basis for a federal investigation, years of litigation, as well as fines, penalties, suspension and debarment, even imprisonment of company personnel.

This week, the Supreme Court heard oral arguments in Universal Health Services, Inc. v. United States ex rel. Escobar, Docket No. 15-7, a case involving the viability of the implied certification theory. Here, we look at the questions posed during oral argument to see if we can infer how the Court might resolve the case.

The Supreme Court agreed to consider two questions posed in Escobar. First, the Court agreed to address the current split in the circuits as to the viability of the implied certification theory. The First Circuit’s decision in United States ex rel. Escobar v. Universal Health Services, Inc., 780 F.3d 504 (1st Cir. 2015), broadly adopts implied certification. The Seventh Circuit’s decision in United States v. Sanford-Brown, Ltd., 788 F.3d 696 (7th Cir. 2015), firmly rejects it.

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DC Circuit rules that the Davis-Bacon Act does not apply to Public-Private Partnership project

We have previously written about the Department of Labor’s effort to expand the scope of its regulatory and enforcement jurisdiction over government contractors against the wishes of Congress and even fellow federal agencies. The United States Court of Appeals for the District of Columbia struck down an attempt by the DOL to significantly expand the Davis-Bacon Act to apply to the construction of a Public-Private Partnership project. The Davis-Bacon Act requires that contractors on federal and DC government construction projects pay prevailing wages and fringe benefits to the workers on such projects. DOL sought to apply the Act to CityCenterDC, which is a mixed-use development on the site of the DC Convention Center. This project includes 60 retail stores, various private offices, approximately 700 residential units, and a 370-room luxury hotel.  Continue Reading

Mandatory paid sick leave for contractor employees

On February 25, 2016, the Department of Labor proposed regulations requiring many government contractors to provide up to seven days of paid sick leave to employees. The proposal seeks to implement Executive Order 13706, which was
issued by President Obama on Labor Day last year. DOL estimates that the new regulatImage: www.flickr.com/photos/pyxopotamusions will provide paid sick leave to nearly 437,000 government contractor employees who had none before.

Here is a look at DOL’s proposal—

The basics

Application:  Government contractors and subcontractors working under covered contracts.

Covered Contracts:  (1) Davis-Bacon Act contracts; (2) Service Contract Act contracts; (3) concessions contracts; and (4) contracts offering services under leases and licenses associated with Federal property.

Affected Employees:  Employees performing work on covered contracts whose wages are governed by the DBA, SCA, or FLSA, as well as exempt employees.

Absences Covered:  Those absences resulting from:

  • Their own illnesses or other physical or mental health care needs, including preventive care.
  • The care of a family member or loved one who is ill or needs healthcare, including preventive care.
  • Purposes resulting from being the victim of domestic violence, sexual assault or stalking, or to assist a family member or loved one who is such a victim.

No Credit:  Paid sick leave under the proposed regulations would not count towards meeting prevailing wage or fringe benefit obligations under the DBA or SCA.

Enforcement:  Complaints of non-compliance would be filed with the DOL’s Wage and Hour Division. There is an investigatory process and an administrative process for resolving disputed questions of fact and law. Contractors found to have violated the regulations may be subject to the withholding of funds, damages, and debarment.

Effective Date:  New or replacement contracts solicited by or otherwise awarded on or after January 1, 2017. Continue Reading

Top U.S. Postal Service Suppliers in FY 2015

Top 150 first page FY 2015Transportation and technology companies dominate the top 10 spots on the list of the Top U.S. Postal Service Suppliers for FY 2015.  Federal Express Corporation again tops the list, a position it has held since 2002. Overall, the Postal Service spent $12.5 billion on outside purchases, about half of it on transportation.

FedEx, now in the third year of a seven-year air cargo network contract, received nearly $1.4 billion in revenue, a 3 percent drop from last year. Package giant United Parcel Service is also among the agency’s top suppliers, earning $154 million in postal revenues and moving up from No. 12 to No. 11.

Other transportation-related companies in the top 10 include trucking company Salmon Companies, Inc. (No. 4, $229 million); Victory Packaging, logistics and distribution services provider for ReadyPost and other packaging supplies programs (No. 5, $212 million); commercial airline United Airlines, Inc. (No. 6, $197 million); and auto-parts supplier Wheeler Bros., Inc. (No. 9, $175 million). Not far behind are trucking company Eagle Express Lines, Inc., No. 12 ($140 million); cargo airline Kalitta Air, LLC, No. 15 ($97 million); and commercial airline Delta Air Lines, Inc., No. 16 ($93 million).

Technology-related companies on the list start with EnergyUnited Electric Membership Corporation, which provides telecommunication and energy billing services. EnergyUnited is again the Postal Service’s second-largest supplier with $440 million in revenue, most of which is paid out to other companies. At No. 3 is Honeywell International, Inc., which received $273 million under its contract to provide 225,000 Mobile Delivery Devices (MDD). Letter carriers use the MDD to scan mail and packages.

HP Enterprise Services, LLC, a provider of computer equipment, ranks No. 7 with $192 million in revenue, about $20 million more than last year. Accenture Federal Services, which provides enterprise technology and consulting services to the agency, is ranked No. 8 with $188 million. International Business Machines Corporation (IBM) and AT&T Corporation again placed in the Top 20. EMC Corporation, which recently won a Postal Service contract to provide information storage and management services, has already cracked the Top 20 with $81 million in postal revenue.

Rounding out the Top 10 with $159 million in revenue is Northrop Grumman Corporation, which operates the Postal Service’s central repair facility in Topeka, Kansas.

David Hendel, a partner at Husch Blackwell, has compiled annual lists of the top Postal Service contractors since 2002, including these lists from 2010 – 2014.

Agency cannot retroactively terminate to reduce damages

An agency must use-it or lose-it under a fixed-priced contract.  When an agency makes it impossible to receive a contractor’s service under a fixed-priced contract, it must still pay the full contract price. So long as the contractor is willing to live up to its end of the bargain, the contractor is entitled to payment regardless of whether it provided any service. And the agency’s failure to tender work does not itself serve as a constructive termination, so the contract remains in effect until actually terminated.

Those are the lessons of Olbeter Enterprises, Inc., PSBCA No. 6543, January 12, 2016, involving a point-to-point mail transportation contract. During the course of the contract, the Postal Service closed one of its facilities, making it impossible for Olbeter to provide the contracted service. The Postal Service, however, did not issue a termination notice or contract modification. Instead, it allowed the contract to remain in force and continued to make full payment, occasionally ordering other work for which Olbeter was paid separately.

Nine months after the facility closure, the parties agreed to a convenience termination. Later, the Postal Service decided that the payments it had made during the nine-month closure period were over-payments. The Postal Service recovered those amounts by withholding payments under a different contract. Olbeter appealed the withholdings to the Postal Service Board of Contract Appeals.

At the PSBCA, the Postal Service contended that Olbeter knew the facility had been closed, that this made performance impossible, and that the Postal Service intended to terminate the contract. The Postal Service thus argued that the facility closure itself served to constructively terminate the contract. The Board disagreed. Whatever the Postal Service’s intentions may have been, and regardless of Olbeter’s knowledge of those intentions, the agency had not taken action to terminate the contract. In addition, the parties had agreed to a termination nine months after the facility closed and the Board would not supplant that agreement with a constructive retroactive termination.

The Postal Service next contended that it had breached the contract itself by not tendering any mail. Since it had breached the contract, the Postal Service argued, Olbeter was limited to recovering its expectancy damages, which were much less than nine months of payments. The Board rejected this argument, holding that the agency’s failure to tender mail was not a breach.

Finally, the Postal Service contended that allowing Olbeter to retain nine months of payments for service it did not perform would unjustly enrich Olbeter or constitute a windfall. The Board denied this argument as well, noting that unjust enrichment is an equitable doctrine that applies when parties do not have an express contract, and here an express contract existed. That contract simply did not provide the Postal Service a mechanism to withhold payment for service that the agency had made impossible to perform.  Olbeter was thus entitled to retain the payments it had received for the nine-month closure period.

The principle underlying the Olbeter decision would apply equally to any fixed-priced contract where the government made performance impossible or waived its right to receive performance. If the contract does not have a clause that directly addresses such events, and if no contemporaneous action is taken to terminate it, the agency remains obligated to pay the full contract price.

Cybersecurity and acquisition reforms in the FY 2016 National Defense Authorization Act

http://www.defense.gov/Media/Photo-Gallery?igphoto=2001326495

The National Defense Authorization Act for Fiscal Year 2016 [pdf], signed into law just before Thanksgiving, authorizes $607 billion for Department of Defense activities in FY 2016. It also implements a number of acquisition reforms intended to enhance the Government’s cybersecurity efforts and streamline the various acquisition regulations.  Here we break down some of the key acquisition provisions:

  • Rapid acquisition authority for cyber attacks. Section 803 of the 2016 NDAA expands the DoD’s ability to employ rapid acquisition procedures established under the 2003 NDAA to enhance its ability to respond to combat emergencies and urgent operational needs. Under Section 803, rapid acquisition procedures may now be used to acquire “needed offensive or defensive cyber capabilities, supplies, and associated support services” to respond to a cyber attack that “has resulted in critical mission failure, the loss of life, property destruction, or economic effects.” The term “cyber attack” is broadly defined as including any “deliberate action to alter, disrupt, deceive, degrade, or destroy computer systems or networks or the information or programs” in those systems. Acquisitions made pursuant to this authority are subject to an aggregate limit of $200 million in each fiscal year.
  • U.S. Cyber Command acquisition authority and liability protection for cybersecurity contractors. In addition to expanding DoD’s rapid acquisition authority to deal with cyber attacks, Section 807 of the NDAA provides new limited acquisition authority for the Commander of the United States Cyber Command (CYBERCOM). The Commander is authorized to procure “cyber operations-peculiar equipment and capabilities,” subject to an annual limit of $75 million for each fiscal year from 2016 through 2021. Section 1647 of the NDAA also requires the evaluation of cyber vulnerabilities of all major DoD weapons systems by the end of 2019. Section 1641 of the NDAA provides enhanced liability protection for reporting cyber incidents for both “cleared” and “operationally critical” contractors, so long as there is no willful misconduct.

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GAO’s guide to winning bid protests

GAO Headquarters in Washington, DC

The Government Accountability Office has been publishing its annual bid protest statistics report to Congress since fiscal year 1995. That year GAO received 2,334 new protests and closed 2,528. For FY 2015, GAO reports that it received 2,496 new protests and closed 2,647.

Given the changes in contract law and the significant increase in expenditures on federal contracts over the last 20 years, these figures are remarkably consistent.

For Fiscal Year 2015, GAO reports that protesters obtained some form of relief in 45 percent of cases closed, either as the result of an agency’s voluntary corrective action or a decision sustaining some or all of the protest grounds. This “effectiveness rate” is marginally higher than it has been in the previous several years, when it hovered between 42 percent and 43 percent.

Winning bases for bid protests

One interesting piece of data added to GAO’s annual report in the last couple of years is the summary of the “most prevalent grounds for sustaining protests.” This new data element is the result of a requirement in a 2013 amendment to the Competition in Contracting Act. See 31 U.S.C. § 3554(e)(2).

In FY 2015, GAO identified five grounds of protest as the most prevalent. Even though it is drawn from only a small subset of protests that are actually resolved on the merits, GAO’s list of reasons for sustaining protests provides a roadmap for future protesters. Here is GAO’s list, along with a brief summary of the decision that GAO cites to illustrate it. Continue Reading

Gate Guard Services—the 1.5 million consequences of bad faith conduct by DOL investigators and attorneys

Photo by Richard MasonerMost court cases filed on the heels of a Department of Labor investigation focus on misconduct by a contractor. In that respect, the Fifth Circuit’s recent decision in Gate Guard Services, L.P. v. Perez, 792 F.3d 554 (5th Cir. 2015), is unusual. The case is the result of an action by a contractor challenging misconduct by the Department of Labor. According to the decision, DOL investigators and attorneys acted unethically, frivolously, and in bad faith. Ultimately, DOL was forced to close the investigation by making a $1.5 million payment to the contractor.

What happened? Gate Guard provides gate attendants at remote drilling sites for oilfield operators. The gate attendants remain at the drilling sites and record the license plates of vehicles entering and leaving the site. Because many locations are isolated, attendants often live on site and Gate Guard hires service technicians to deliver supplies to them. Gate Guard considers attendants to be independent contractors and pays them between $100 and $175 per day.

In July 2010, DOL investigator David Rapstine received a tip that Gate Guard had misclassified its gate attendants as independent contractors instead of employees. If that were true, Gate Guard would be violating the Fair Labor Standards Act by not paying overtime and by not keeping detailed time records. Rapstine had little training or experience in contractor misclassification cases, but he decided to open an investigation.  Continue Reading

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