The Contractor's Perspective - Schedule Contracts

Sustainable energy and the national defense

Hal J. Perloff — Fri, 29 Mar 2013 16:25:35 -0600

Energy is a national security issue. The U.S. defense industry represents one of the world's largest markets for energy, and the cost and availability of energy directly affects military capabilities and readiness. Department of Defense leaders are revamping how DOD uses energy and determining which fuels offer the best overall investment, prices, and logistical advantages with the fewest environmental problems. Moreover, the military provides an attractive test-bed for commercialization of emerging technologies on a 'demand-pull' basis as well as an important market for fossil fuels, renewable energy and biofuels, energy services, energy efficiency, and demand response. A secure and sustainable energy system must be viewed from a national defense standpoint. What are the risks and rewards for moving the military toward an environmentally as well as economically sustainable energy system?

This year's J.B. and Maurice C. Shapiro Conference is entitled "Laying the Foundation for Sustainable Energy Future: Legal and Policy Challenges" and will present a panel on Sustainable Energy and the National Defense. The panel will be chaired by former Chief of the U.S. Army Corps of Engineers, retired Lieutenant General Robert Flowers, and includes as panelists:

Honorable Katherine Hammack, Assistant Secretary of the Army (Installations, Energy & Environment)
General Paul Kern, Chairman, CAN Military Advisory Board, U.S. Army (Ret.)
Christopher Yukins, Co-Director of George Washington University Law School's Government Procurement Law Program
Matthew Carr, Managing Director, Industrial & Environmental Section, Biotechnology Industry Organization
Hal Perloff, Partner, Husch Blackwell, LLP

This timely and insightful conference is co-sponsored by the George Washington University Law School, Husch Blackwell LLP, the Environmental Law Institute, and the Constellation Energy Foundation and will be held on April 10 & 11, 2013 at the Jacob Burns Moot Court Room on GW's campus. Please follow this link for additional information and to register to attend.

VA can freely use the Federal Supply Schedule after Kingdomware

Sarah M. Graves — Fri, 30 Nov 2012 08:44:57 -0600

The Veterans Administration can freely acquire goods and services from GSA's Federal Supply Schedule, and it is not required to set-aside such procurements for veteran-owned small businesses (VOSBs) or service-disabled veteran-owned small businesses (SDVOSBs). Under the Veterans Benefits, Health Care, and Information Technology Act of 2006, the VA is required to set aside procurements for VOSBs or SDVOSBs (if it is possible to do so) before opting to use another procurement method. VA applies the so-called "Rule of Two" by conducting market research to determine whether there are at least two VOSBs or SDVOSBs capable of meeting its requirement at a fair price before selecting a different procurement method.

In Kingdomware Technologies, Inc. v. United States, No. 12-173C (Fed. Cl. Nov. 27, 2012), the Court of Federal Claims found that the 2006 Act does not apply to FSS purchases. Despite multiple GAO decisions holding the opposite, Judge Firestone found that the 2006 Act does not specifically address the relationship between the set-aside requirements and the VA's use of FSS. Because of this ambiguity, the court looked to the agency's interpretation and found that the VA has consistently interpreted the 2006 Act as "having no effect on its ability to use the FSS without limitation." Ultimately, the Court found the VA's interpretation reasonable, and it granted judgment in favor of the agency.

It is clear that the VA will continue to look to the FSS where practicable, especially for smaller purchases where it will save administrative costs by doing so. While the Kingdomware decision may be seen as further reducing opportunities available to small businesses, especially VOSBs and SDVOSBs, it highlights the advantages of participating in the FSS. Small businesses seeking to remain competitive as a VA contractor especially should consider getting on the FSS as an additional marketing and sales tool.

More contractor oversight in the 2012 National Defense Authorization Act

Brian P. Waagner — Fri, 23 Dec 2011 04:00:00 -0600

Many of the new contracting policies imposed by the National Defense Authorization Act for Fiscal Year 2012 [pdf] are geared towards increasing oversight of defense contractors and reducing the federal government's outlay of cash. Here are a few of the highlights.

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Contractor past performance information. Section 806(a) of the 2012 NDAA requires the Under Secretary of Defense for Acquisition, Technology, and Logistics to "develop a strategy for ensuring that timely, accurate, and complete information on contractor performance is included in past performance databases used for making source selection decisions." At a minimum, this "strategy" is to include new rules on "timeliness and completeness of past performance submissions" and assignment of "responsibility and management accountability" for the completion of past performance evaluations. The new rules must also "ensure that past performance submissions . . . are consistent with award fee evaluations . . . ." Importantly, the statute protects the contractor's right to "submit comments, rebuttals, or additional information" for inclusion in the past performance database and to challenge a negative past performance evaluation "in accordance with applicable laws, regulations, or procedures." The Federal Circuit affirmed the contractor's right to challenge a past performance rating earlier this year in Todd Constr., L.P. v. United States, No. 2010-5156 (Aug. 29, 2011) [pdf].

Restrictions on contractor labor and overhead charges. Section 808 of the 2012 NDAA limits the amount obligated for DOD spending on contract services in FY 2012 and FY 2013 to the amount requested for contract services in the President's budget for FY 2010. It also requires the Secretary of Defense to issue new guidance indicating that labor rates and overhead rates in contracts over $10 million awarded in FY 2012 or 2013 "shall not exceed labor rates and overhead rates paid to the contractor for contract services in fiscal year 2010."

Restrictions on allowable employee compensation. Section 803 of the 2012 NDAA extends the restriction on the allowability of compensation expenses paid to a contractor's "senior executives" to all contractor employees. The current limit is $693,951, a benchmark compensation figure set in 2010 by the Administrator for Federal Procurement Policy in accordance with 41 U.S.C. § 1127. The restriction does not prohibit paying senior executives or other contractor employees in excess of the benchmark. Rather, it makes compensation in excess of the benchmark an "unallowable cost." See FAR 31.205-6(p).

Annual report on single-award task and delivery order contracts. Section 809 of the 2012 NDAA requires the Secretary of Defense to submit an annual report to Congress identifying determinations to award sole source task or delivery order contract awards over $100 million. The report is to include an explanation of the basis for the determination to invoke the exception that allows a sole source award.

Definition of "covered contract" for application of contractor business systems rules. Section 816 of the 2012 NDAA changes the definition of "covered contract" for purposes of the contractor business systems rules put in place by the Ike Skelton National Defense Authorization Act for Fiscal Year 2011 (Public Law No. 111-383) [pdf]. Under the previous law, a "covered contract" was "a cost-reimbursement contract, incentive-type contract, time-and-materials contract, or labor-hour contract that could be affected if the data produced by a contractor business system has a significant deficiency." The revised language defines a "covered contract" as "a contract that is subject to the cost accounting standards . . . that could be affected if the data produced by a contractor business system has a significant deficiency." We discuss the new DFARS rules on contractor business systems rules here. We discuss the original statutory requirement here.

Additional access to contractor records. Section 842 of the 2012 NDAA gives the Secretary of Defense authority to examine "any" contractor and first-tier subcontractor records "to the extent necessary to ensure that funds available under the contract . . . (A) are not subject to extortion or corruption; and (B) are not provided directly or indirectly to persons or entities that are actively supporting an insurgency or otherwise actively opposing United States or coalition forces in a contingency operation." Such access would be available only upon a written determination by the contracting officer "or comparable official" that there is reason to believe such improper uses of funds have occurred. A sunset provision provides that this access-to-records authority will be effective for only three years.

An empirical look at DOD contract spending

Brian P. Waagner — Tue, 10 May 2011 10:22:20 -0600

From 30,000 feet, we all know about the dramatic increase in federal contract expenditures over the last 10 years. An interesting report [pdf] published by the Center for Strategic and International Studies takes a much closer look at DOD contract spending since 1990. It does a good job of quantifying the increase in service contracts, the increase in Army contracts as a percentage of overall DOD spending, and the increase in the use of multiple-award contracts such as the Federal Supply Schedule. It concludes with a comparison of the list of the Top 20 DOD contractors from 1999 and the same list from 2009. Definitely worth a read.

Emails can create a binding government contract

Brian P. Waagner — Mon, 07 Feb 2011 09:33:17 -0600

As evidence in litigation, email is often useful and sometimes dispositive. Because it is less formal than correspondence and more permanent than the telephone, it can be an important piece of the puzzle in complex cases. But what happens when the use of email conflicts with a requirement in the contract? Even then, it should not be taken lightly. In Mabus v. General Dynamics C4 Systems, Inc. (Fed. Cir. Feb. 4, 2011), the Federal Circuit affirmed the government's use of email to issue delivery orders even when it was prohibited by the contract.

]]>The case involved the validity of a delivery order issued by email under an indefinite delivery/indefinite quantity (ID/IQ) contract for computerized radio communications equipment. Although email delivery orders were formally prohibited by the contract, the contractor accepted 16 of them over a period of several years.

In 2003, the government exercised a contract option and issued a series of delivery orders by email. The contractor rejected the new delivery orders, citing the contract language prohibiting their issuance by email. The contractor claimed that it was "a little shocked" by the government's new orders. The contractor believed that the items ordered by the government had been deleted from the contract during negotiations preceding the email orders. The government argued that its email orders were valid. As to the effect of the negotiations, the government pointed out that there had been no signed contract modification—"the contract, as written, remains in full force and effect."

The contractor filled the government's orders in accordance with its duty to proceed. (See FAR 52.233-1(i).) In a 2009 opinion by Administrative Judge Cheryl Scott, the Armed Services Board of Contract Appeals sided with the contractor. The Board found that the Navy's unilateral delivery orders were invalid because they were not issued in strict compliance with the contract.

The Federal Circuit reversed the Board decision, holding that the contractor was bound by the doctrine of equitable estoppel to accept the government's email delivery orders. As stated in the court's opinion, equitable estoppel requires three elements: (1) "misleading" conduct; (2) "reliance" on the misleading conduct; and (3) "prejudice" to the party that relies.

The court found that the contractor's acceptance of email delivery orders was misleading in light of its "later change in course." Reliance was evident from the fact that the government could have chosen to issue delivery orders in strict compliance with the contract if it had known that the contractor would reject orders sent by email. The prejudice was the government's "inability to obtain radios under its contractually negotiated pricing."

It is obvious from the opinion that the court believed the contractor to be overreaching. It suggests that the contractor consciously changed its position as to acceptance of email delivery orders in order to avoid performing unprofitable work. But the opinion conveys a level of inconsistency in the government's position as well. On one hand, the government argued that the contractor's informal course of conduct in accepting email deliveries overrides the contractual prohibition against them. On the other, it argued that negotiations had not been concluded and that "the contract, as written, remains in full force and effect." Perhaps a little more negotiation could have yielded a better result for both sides.