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.

Continue Reading

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

Overkill or the new normal? Criminal charges for underpayment of prevailing wages and benefits

Criminal charges for minimum wage violations are certainly rare. But the November 2015 indictment of electrical contractor Marcus Butler shows that they are possible. Mr. Butler faces jail time and heavy fines for allegedly making false certifications regarding $126,514 in Davis-Bacon Act wages on three HUD multi-family housing projects.

Given the rarity of criminal indictments for wage-and-hour violations, I infer that Mr. Butler’s alleged conduct was much worse than simply miscalculating the prevailing wage or losing track of some payroll records. But there is nothing in the indictment that would reveal the underlying aggravating factors that motivated it. The Government asserts simply that Mr. Butler participated in a “scheme” and that he “knowingly and willfully” overstated wages and benefits on his 61 separate certified payrolls (DOL Form WH-347).

It will probably be some time before we see whether this is case is the result of overreaching conduct by DOL and government attorneys (like another recent DOL case) or the application of the new Justice Department policy set forth in the Yates Memorandum on Individual Accountability for Corporate Wrongdoing. This new policy will almost certainly increase the number of criminal charges arising from ordinary non-compliance and administrative oversight. Husch Blackwell’s client alert on the Yates Memorandum is available here.

Either way, now is the right time for federal contractors to take on the task of reviewing and updating their own HR policies and practices.

Continue Reading

New seminar: Claims and Disagreements under Postal Service HCR contracts

HCR Seminar Postal Contracting Brochure 2016_3Unpaid for work you performed on your HCR contract?  Can’t agree with the Postal Service on a contract price adjustment?  Not given a chance to bid on new work in your area?

Learn about remedies for these problems at our new seminar, “Claims and Disagreements under Postal Service HCR contracts.”  Husch Blackwell partner David Hendel will present the seminar on January 19, 2016, at 9:00 – 10:30 a.m., at the Golden Nugget Hotel in Last Vegas, NV.

The seminar focuses on two areas where HCR contractors have substantial rights and remedies. First, we examine the claims process, which gives contractors the right to recover funds for various Postal Service actions – or inactions. We describe the activities that potentially generate claims, how to prepare a claim, when to bring a claim, and how claims are processed and resolved. We review actual claims that arose from service changes and describe how courts have ruled on them. We also provide a list of do’s and don’ts when preparing and submitting claims.

Second, we describe the “disagreement” process, which allows contractors to protest a Postal Service procurement action or award decision. We explain the grounds for bringing a disagreement, deadlines and filing requirements, and decisions by the USPS Supplier Disagreement Resolution Officer (SDRO).

The seminar is presented in conjunction with the Central/Western Area regional meeting of the National Star Route Mail Contractors Association. Separate registration is required. For Star Route Association members, the seminar fee is $195; for non-members, $295.  A $50 discount applies to each additional person who attends from the same company. Those wishing to register may go to https://www.regonline.com/hcr  or contact seminar coordinator Shana Hoy at  816.983.8809 at shana.hoy@huschblackwell.com.

Increased government attention to Federal Supply Schedule pricing may soon have contractors sharpening their pencils

Contractors supplying goods or services to the government through Federal Supply Schedules should expect increased scrutiny of their pricing in the coming months. In a July 2015 report [pdf], GAO released the results of a year-long performance audit analyzing government competition and pricing practices for FSS orders. The report highlights inconsistencies across FSS procurements, including purchasers’ frequent failure to ask FSS contractors for discounts to list prices (required by FAR 8.405-4 for orders exceeding the simplified acquisition threshold).

The main issues identified in the GAO report are nothing new. GSA is already taking steps to address the inconsistent usage of the FSS system among buyers. Calculator stock photo In March 2015, GSA proposed a rule that would impose a new transactional data reporting requirement upon FSS vendors. (For an explanation of current Price Reduction Clause requirements, take a look at our discussion here.) The proposed rule is aimed at increasing transparency in pricing across government procurements, with the end goal of an overall reduction in prices paid for FSS supplies and services. While the rule is still pending, a number of the nearly three dozen comments submitted during the comment period reveal considerable opposition to the proposed changes. Regardless of whether the proposed rule is enacted, contractors can prepare to effectively contract through supply schedules in a few simple ways. Continue Reading

Bid protests in Virginia

HB Asbestos_Map_v4Contracts with Virginia agencies, counties, municipal governments, and school boards are governed by the Virginia Public Procurement Act. The Act requires the use of competitive procedures in the solicitation and award of public contracts. It also establishes a procedure for the submission and resolution of bid protests. See Va. Code Ann. § 2.2-4360(A).

How and when to protest a contract award decision

An actual or prospective bidder seeking to challenge the award of a Virginia government contract must submit a protest to the procuring agency or to an official designated by the agency. The protest must be submitted in writing. It must include the basis for the protest and the relief sought. A bid protest must be submitted no later than ten days after the award or the announcement of the decision to award, whichever occurs first. This deadline is extended if the protest depends on obtaining access to documents. In those situations, the protest must be submitted within ten days after the records are made available. The VPPA does not specifically allow for the submission of a pre-award protest that challenges the terms and conditions of a solicitation.

If a protest is timely filed, the award and performance of the contract is automatically stayed unless the agency determines in writing that “proceeding without delay is necessary to protect the public interest or unless that bid or offer would expire.”  Va. Code Ann. § 2.2-4362. Continue Reading

Colorado bid protests

HB Asbestos_Map_v4The Colorado Procurement Code grants the right to submit a protest to “[a]ny actual or prospective bidder, offeror, or contractor who is aggrieved in connection with the solicitation or award of a contract.” Colo. Rev. Stat. § 24-109-102(1).

A protest must be submitted in writing within seven working days after the protester knew or should have known of the grounds for the protest, usually directly after the contract award decision by the agency issuing the solicitation or bid request. The protest must be submitted to the head of the agency or his designee, who is usually the purchasing agent for the agency.

The purchasing agent for the agency may settle and resolve protests concerning the solicitation and contract award. Absent a settlement, a written decision is required within seven working days after the protest is filed. This decision is to be based on and limited to the issues raised in the protest. It must explain each of the factors taken into account in reaching the determination and must advise the protester of its appeal rights. Colo. Rev. Stat. § 24-109-107. The protest decision must be mailed or otherwise furnished immediately to the protester and is final and conclusive unless the protester files a timely appeal or initiates a court proceeding to challenge the decision. Continue Reading

Missouri bid protest procedures

HB Asbestos_Map_v4Public procurement in Missouri is conducted according to statutes and the rules published by the Division of Purchasing and Materials Management within the Missouri Office of Administration. See Chapter 34, Revised Statutes of Missouri; Missouri Code of State Regulations, Title 1, Division 40, Chapter 1—Procurement [pdf]. Although many protesters opt to bring their protest actions directly in court, there are voluntary procedures for the submission and resolution of bid protests involving purchases by Missouri state government agencies in 1 Mo. CSR 40-1.050(9). Continue Reading

LexBlog