When drafting small business joint venture agreements, the devil is in the details. A template JV agreement—like the one from the Small Business Administration—may not guarantee a JV’s eligibility for a contract award. The details of the agreement, like which contracts the JV will pursue and what each side will contribute, are critical.

Even if approved, a generic JV agreement may not survive a protest.

In CVE Protest of Veterans Contracting, Inc., the SBA’s Office of Hearings and Appeals sustained a protest challenging a JV’s status as a service-disabled veteran-owned small business because its JV agreement was too generic to establish the JV’s eligibility as an SDVOSB. The JV in that case (CRNTC) was a joint venture between CR Nationwide, LLC (the SDVOSB partner) and Trumble Construction, Inc.

The Department of Veterans Affairs approved CRNTC’s SDVOSB status for a period of three years in June 2018. The approval was based on the JV agreement between CR Nationwide and Trumble, which made CR Nationwide the majority owner. But the JV agreement did not identify any particular solicitation that CRNTC would pursue or otherwise outline what each partner would contribute to the JV. The agreement specified that the parties would identify the contract and scope of work at a later date and would set those out in a jointly executed statement that would be submitted to the relevant contracting authority.

Six months later, CRNTC submitted a bid in response to an SDVOSB set-aside IFB for a construction project at the VA medical center in Cleveland, Ohio. The VA selected CRNTC as the apparent awardee in March 2019, and an unsuccessful bidder, Veterans Contracting, Inc., protested the award and challenged CRNTC’s status as an SDVOSB.

In its response to the protest CRNTC attached a copy of its JV agreement and highlighted the fact that its majority owner, CR Nationwide, was an SDVOSB. That was not enough for the Office of Hearings and Appeals. OHA reopened the record and required CRNTC to provide additional evidence to establish its eligibility as an SDVOSB. It highlighted the fact that CRNTC’s JV agreement did not specify the contributions of CR Nationwide and Trumble, and there was no evidence of a jointly executed statement outlining their contributions, like the JV agreement had contemplated.

Details after award do not necessarily prove the JV’s eligibility prior to award.

CRNTC subsequently provided OHA with a copy of the VA’s letter approving CR Nationwide as an SDVOSB. It also provided a document showing an apparent breakdown of work for the solicitation at issue, but the document was unsigned and undated. The VA’s contracting officer separately informed OHA that she did not receive a jointly-executed statement outlining what scopes of work CR Nationwide and Trumble would provide for the IFB’s scope of work.

OHA concluded that this evidence was not sufficient to prove that CRNTC was an SDVOSB either on the date that it submitted its bid, or the date when it was awarded the contract (eligibility on both dates is required). Because the JV agreement was prepared months earlier and did not even mention the IFB at issue, OHA concluded that it did not satisfy the SBA requirements of itemizing the resources each JV partner would contribute and specifying each partner’s responsibilities for contract negotiation, source of labor, and contract performance. The lack of a contemporaneous jointly executed statement addressing each party’s contribution also meant that CRNTC could not show that CR Nationwide (the SDVOSB partner) was actually performing 40% of the work, as required under SBA’s regulations.

OHA also refused to consider the “breakdown” document that CRNTC submitted during the protest. It noted that CRNTC’s eligibility had to be determined at the time it submitted its bid (December 2018) and when it received award (March 2019). The unsigned and undated “breakdown” document had no bearing on CRNTC’s eligibility on those dates because the document appeared to have been created only after OHA reopened the record and asked CRNTC to provide additional evidence of its eligibility.

Determine each party’s specific contribution before submitting a proposal.

In our experience, the factual situation from this case is fairly common. Eager to establish a new relationship, partners often rush to sign a template JV agreement before they have identified how or what they will do together. As a result, the JV agreement often does little more than identify the partners and ensure that the small business partner will be the majority owner. Although that may be sufficient for preliminary size or status approval, any resulting contract award could still be at risk. In order to prove the JV’s eligibility, attention to detail is required. The parties should be sure to clearly outline their respective contributions and responsibilities for a particular procurement before they submit their bid and receive award of the contract.

Continue Reading The importance of specificity in small business joint venture agreements

If you are excluded from the competitive range in a procurement, you have a right to request a debriefing (within 3 days) to learn why. 41 U.S.C. § 3705(a). But the scope of that pre-award debriefing is more limited than a post-award debriefing. Pre-award debriefings cover the agency’s evaluation of “significant elements” of the excluded contractor’s offer, the rationale for the exclusion, and “reasonable responses to relevant questions” posed by the excluded offeror. 41 U.S.C. § 3705(d). But they expressly cannot cover the total number or identities of offerors, or the “content, ranking, or evaluation” of the other offerors’ proposals.  41 U.S.C. § 3705(e). That information is available only in post-award debriefings.  41 U.S.C. § 3704(c).  This difference in scope may create the temptation to delay a pre-award debriefing until after award in the hope that you will gain more information. But giving in to that temptation may preclude a protest at GAO.

Duty to pursue protest grounds

GAO’s bid protest regulations generally require that protests be filed within 10 days “after the basis of protest is known or should have been known (whichever is earlier) . . . .” 4 C.F.R. § 21.2(a)(2) (emphasis added). The “should have been known” aspect of that requirement means that protesters have an affirmative obligation to diligently pursue information about their potential grounds of protest. Taking a more passive approach is inconsistent with that obligation and could mean that any subsequent protest is untimely, even if the information was not previously known.

For example, GAO has previously held that a protest filed four months after an award decision based on information from a FOIA request was untimely because the protester did not request a debriefing, which would have revealed much of the information ultimately obtained from the FOIA request. See Automated Med. Products Corp., B-275835, Feb. 3, 1997, 97-1 CPD ¶ 52.

GAO has also held that deliberately delaying a pre-award debriefing until after award is inconsistent with the obligation to diligently pursue potential protest grounds. In United Int’l Investigative Services, Inc., B-286327, Oct. 25, 2000, 2000 CPD ¶ 173, the protester timely requested a debriefing after learning it was excluded from the competitive range, but it expressly requested that “this debriefing be delayed until after award” pursuant to FAR 15.505. That FAR provision allows pre-award debriefings to be delayed, but notes that such a delay “could affect the timeliness of any protest filed subsequent to the debriefing.”  FAR 15.505(a)(2). The agency complied with the request and provided a written debriefing after award. But when the protester subsequently filed its protest challenging the evaluation of its proposal, the agency moved to dismiss it as untimely. GAO agreed and dismissed the protest because the protest grounds were based on information that could have been obtained earlier, had the pre-award debriefing not been delayed.

The same result can occur even if the agency offers the delay (as opposed to the offeror affirmatively requesting the delay). In Loc Performance, Inc., B-417431, Apr. 22, 2019 [PDF], the protester requested an immediate debriefing after learning it was excluded from the competitive range. In response, the agency explained the different scopes of pre-award and post-award debriefings and asked the protester to pick one or the other. The protester chose the post-award debriefing and timely protested after that debriefing. The agency argued that the protest was untimely and GAO agreed, citing its prior ruling in United Int’l. GAO also rejected the protester’s argument that the agency engaged in gamesmanship.  The protester asserted that it understood the agency’s choice of a pre-award or post-award debriefing as a suggestion to select a post-award, rather than pre-award, debriefing. GAO disagreed and found there was nothing misleading in the agency’s explanation.

GAO’s debriefing deadline exception

The protesters in both United Int’l and Loc Performance appear to have (mistakenly) relied on the debriefing exception to GAO’s 10-day “known or should have known” protest filing deadline. When a procurement is based on competitive proposals “under which a debriefing is requested and, when requested, is required,” the filing deadline extends to 10 days after the debriefing is held.  4 C.F.R. § 21.2(a)(2) (emphasis added). Because the regulation refers to debriefings generally (without distinguishing between pre-award and post-award), one might assume that the extended deadline relates to either or both types of debriefings.

The key, though, is whether the debriefing is required when requested. Pre-award debriefings are required when timely requested and they render the post-award debriefing optional unless the Government refuses the pre-award debriefing. 41 U.S.C. § 3705(c). But the Government can only refuse a pre-award debriefing if it determines that conducting a debriefing at that time (i.e., pre-award) “is not in the best interests of the Federal Government.” 41 U.S.C. § 3705(b). If the Government does not make that determination, then the pre-award debriefing is required and the post-award debriefing is optional. As a result, the debriefing exception to GAO’s 10-day filing deadline does not apply when an offeror requests or consents to a delay of its pre-award debriefing because the post-award debriefing is not required, even if requested.

Transportation companies again dominate this year’s Top 150 U.S. Postal Service Suppliers list. All told, USPS spent nearly $16 billion on purchases in FY 2018, about $900 million more than last year.  Not surprisingly for an agency charged with moving the mail, six of the top ten contractors provide transportation services or equipment.

The Top 150 list has been compiled annually since 1999 by David Hendel, a partner in the firm’s Technology, Manufacturing, and Transportation group and leader of the firm’s Postal Contracting team.  The list is compiled from data received in response to Freedom of Information Act requests.

The Postal Service spent $15.9 billion on all outside purchases in FY 2018, of which $9.8 billion went to the agency’s Top 150 suppliers. The Top 150 received $540 million more than last year’s Top 150 group, and $1.5 billion more than those in FY 2016.

The top 10 largest suppliers earned $4.2 billion, which is one quarter of the Postal Service’s total spend and $700 million more than last year’s Top 10.  They also collected $3 billion more than the next ten largest suppliers.

Transportation suppliers

As it has since 2002, Federal Express Corporation soared again to the top of the list as the Postal Service’s largest supplier.  FedEx increased its USPS revenues by $400 million, jetting to the $2 billion mark for the first time and landing a new record for single-year supplier revenue. FedEx carries package and letter mail for the Postal Service under a contract that continues through September 29, 2024.

As a whole, air transportation suppliers elevated their USPS revenue in 2018 from 2017’s totals.   United Parcel Service had $206 million in revenue in FY 2018, which ups its total from last year by $34 million and raises its ranking five notches from no. 10 to no. 5. Similarly, United Airlines gained $3 million; Delta Airlines, $11 million; American Airlines, $6 million; and cargo carrier Kalitta Air, $19 million.  These across-the-board increases suggest that the Postal Service is moving more mail volume by air than before, or paying more to do so.

Mail haulers Hoovestol Inc., and its affiliated company Eagle Express Lines, again took second place with $480 million in revenue, freighting an additional $28 million from last year.  We no longer consolidate entries from three separate companies held by parent Salmon Companies Inc., so the next largest ground carrier is Postal Fleet Services Inc. with $161 million in revenue.  Wheeler Bros., Inc., which provides automotive parts for the Postal Service’s aging fleet, road to $171 million in revenue to patch up the no. 8 spot.

FCA US, LLC (formerly Chrysler Group LLC) sped from no. 22 to no. 6 with $178 million in revenue.  FCA is supplying the Postal Service with roughly 19,000 commercially available ProMaster vans from Fiat Chrysler Automobiles.

Technology and services

Technology companies also figured prominently in the Top 10 for FY 2018.  EnergyUnited Electric Membership Corporation, which provides telecommunication and energy billing services, called in at no. 3, this time with $429 million in revenue, an increase of $27 million over last year. HP Enterprise Services, LLC, a provider of computer equipment, remained at no. 7, but with $21 million less revenue than last year.

Northrop Grumman Corporation/Solystic SAS ranked no. 9 with $169 million in revenue.. Accenture Federal Services saw a revenue decline of $39 million to $165 million, making it the no. 11 supplier.

The only company in the Top 10 not providing technology or transportation-related items is packaging products supplier Victory Packaging. Victory, ranked fourth this year, wrapped up $220 million in revenue, almost exactly the same amount as the last two years.

2018 TOP 10 USPS SUPPLIERS

Rank Company FY18 Revenues ($) Billing Location
1 Federal Express Corporation* 2,001,154,548.78 Pasadena, CA
2 Eagle Express Lines, Inc. / Hoovestol Inc.* 480,806,282.38 South Holland, IL
3 EnergyUnited Electric Membership Corporation* 429,307,400.89 Statesville, NC
4 Victory Packaging 220,139,733.80 Houston, TX
5 United Parcel Service of America, Inc* (UPS) 205,556,407.98 Louisville, KY
6 FCA US, LLC (Formerly: Chrysler Group LLC) 178,607,251.00 Auburn Hills, MI
7 HP Enterprise Services, LLC* 177,293,718.97 Plano, TX
8 Wheeler Bros., Inc. 171,581,828.95 Somerset, PA
9 Northrop Grumman Corporation /Solystic SAS* 169,690,459.91 Merrifield, VA
10 United Airlines, Inc.* 167,470,951.91 Pasadena, CA

*Denotes consolidated entry

Entries for companies believed to be affiliated or have common ownership were consolidated under the company with the highest individual ranking or best known name. City/state designations are based on the information in USPS payment records and may not be the contractor’s primary location. The data covers payments made by the Postal Service in FY 2018 (October 1, 2017 – September 30, 2018). As in past years, purchases made under credit cards (including U.S. Bank and Voyager card fuel purchases) are not included in the rankings.

About Husch Blackwell’s Postal Service Contracting Team

Husch Blackwell’s Postal Service Contracting team assists clients in contracting with the U.S. Postal Service, and its members are knowledgeable regarding the needs specific to the postal industry. The team has compiled annual reports on the top U.S. Postal Service suppliers since 1999, developed and presented dozens of seminars on Postal Service contracting to thousands of attendees, and written the definitive treatise on successfully doing business with the USPS. Previous lists of the Top 150 postal suppliers.

 About Husch Blackwell

 Husch Blackwell is an industry-focused law firm with offices in 18 cities across the United States. The firm represent clients around the world in major industries including energy and natural resources; financial services and capital markets; food and agribusiness; healthcare, life sciences and education; real estate, development and construction; and technology, manufacturing and transportation. For more information, visit huschblackwell.com.

 

Every year or so, the U.S. Postal Service changes the standard Terms and Conditions that apply to its newly awarded Highway Contract Route (HCR) and Contract Delivery Service (CDS) contacts. When this occurs, the new terms only apply to newly awarded contracts–existing contracts are unaffected and retain the same terms as when awarded.

But this year, the Postal Service has sought to apply new Terms and Conditions to existing CDS contracts as well as newly awarded ones. In an email to its CDS contractors, the Postal Service asked them to sign, without any “alterations or additions,” a contract modification that incorporated the new terms. If the contractor did not so, the Postal Service’s email threatened contract termination:

“Because of the Postal Service’s interest in maintaining consistency across its many CDS contracts, please note that a failure to respond to this correspondence … may lead the Postal Service to consider termination of the subject contract.”

After receiving this email, many contractors asked me: “Can the Postal Service really do this?” In my opinion, several legal arguments, if upheld, would make the resulting modification unenforceable. For example, the modification might fail for lack of consideration, because it gave the Postal Service what it wanted without giving anything that contractors valued in return. And it might fail for violation of the implied covenant of good faith and fair dealing, because it seeks to recapture benefits that were foreclosed at the time of contract award. But I think the best argument against its enforceability is based on the legal theory of coercion and duress. Normally, this is a difficult argument to make, but here the elements seem apparent from the Postal Service’s email itself.

Proving duress

To be relieved from a contract modification you signed on the basis of duress or coercion, you need to prove three things. First, you need to show that you involuntarily agreed to the modification. One common way of showing this is writing “under protest” next to your signature. But that was not an option here, because the Postal Service’s email said you must sign with “no alterations or additions” or it would nullify the document. No contractor sought the modification, nor was asked how they viewed it. The Postal Service’s email itself thus establishes involuntary action, as it permitted no response other than the contractor’s signature on an unaltered modification.

Second, you need to show that the circumstances permitted no other alternative than signing the modification. Once again, the Postal Service’s email again establishes this for you. The email says you must sign the modification or you risk having your contract terminated. In these circumstances, you have no other reasonable alternative to signing, because if you do not sign, you will lose the contract.

The Postal Service might argue that the email said a refusal to sign would only “lead the Postal Service to consider termination of the subject contract,” not that it was dead certain to be terminated. But viewed in context of the entire email, there was little reason to believe a non-conforming contract would survive. The Postal Service’s email explained that it was seeking uniformity in contract terms among all of its CDS contracts. If you did not sign the modification, then your contract would run counter to this policy. The email gave no reason to hope that your non-uniform contract would remain in place if you refused to sign the modification.

Third, you need to show that the circumstances you were faced with were the result of the Postal Service’s coercive acts and not a predicament of your own making. Once again, this is established by the Postal Service’s email. Contractors did nothing to place themselves into this predicament.

Gurdak case found similar coercion

A dozen years ago, the Postal Service tried something similar and the resulting modification was found to be coerced and unenforceable. In George P. Gurdak, PSBCA No. 5049, 05-2 BCA ¶ 33,092, the parties had previously agreed to a 10-year facility lease that required the contractor to make some renovations. When it came time for the Postal Service to approve the design of the renovations, the Postal Service balked, but not because of any problems it had with the design. Instead, the Postal Service wanted to pay a lower rent because it had re-measured the usable space and it was smaller than USPS had thought. The contractor strenuously objected to the modification, but the Postal Service said, “Take it or leave it.”  Without USPS’s design approval, the contractor could not proceed with the project, so the contractor signed the modification that reduced the lease rate.

After the building was renovated, the contractor submitted a claim for the original, higher lease rate. The contracting officer denied the claim, contending that the contractor had agreed to the lower rate in the signed modification. The contractor appealed to the Postal Service Board of Contract Appeals, contending the modification was coerced and unenforceable. The PSBCA agreed. Even though the Postal Service had the contractual right to approve the renovations design, its use of that right must still be exercised in good faith. The Board held that the Postal Service could not threaten exercise of a legitimate contract right if the exercise of that contract right would violate notions of fair dealing due to its coercive effect.

Just as in Gurdak, the Postal Service has threatened CDS contractors with exercise of a legitimate contract right (here, termination) in a way that violates notions of fair dealing and is coercive. In both cases, a “take it or leave it” threat was made for the wrongful purpose of forcing the contractor to accept new contract terms.

The Board in Gurdak held that the coerced modification was not binding on the contractor. Did this mean that the contractor could hold the Postal Service to those parts of the modification that it wished to enforce? In its email to CDS contractors, the Postal Service stated that the modification would also remove “outdated supplier obligations.”  If that is indeed true, then under Gurdak, is it possible that the Postal Service would still be bound to those parts of the modification?

What’s next?

In most cases, the modification will likely have little impact on performance, but it does increase the risk of disputes arising from the modification’s new obligations and approval requirements. Should USPS seek to enforce one of these new obligations, you may need to assert that such directive constitutes a constructive change because it arises from a coercive and unenforceable modification. If a mutually agreeable solution cannot be reached, you may need to bring a claim for the cost impact of the new directive under the Claims and Disputes clause of the contract.

Iran sanctions lifted as part of the Iran Nuclear Deal went back into effect today, November 5, 2018. Companies seeking or performing US government contracts should take this opportunity to confirm that none of their international vendors, suppliers, and subcontractors are on the Office of Foreign Assets Control’s Specially Designated Nationals and Blocked Persons list.

As discussed in more detail in this blog post by our firm’s Export Controls and Economic Sanctions team, the reimposed sanctions extend to a wide range of individuals and companies, including those in the petroleum, shipping, and shipbuilding sectors, as well as to non-U.S. financial institutions and insurance companies that facilitate transactions with SDNs.

Further reading on this topic—

OFAC’s Specially Designated Nationals and Blocked Persons List (SDN)

OFAC’s Press Release on Iran Sanctions

OFAC Amendments to Iranian Transactions and Sanctions Regulations (Nov. 2, 2018)

 

 

Arbitration is often seen as a way of getting a more predictable result in complex construction disputes. The subject matter expertise available with experienced arbitrators and the finality of the arbitration process itself are certainly important considerations. But resolving disputes in arbitration can sometimes lead to surprising results, even ones that might be inconsistent with the underlying contract or with applicable state law.

The Eighth Circuit’s recent decision in Beumer Corp. v. ProEnergy Services, LLC, No. 17-2862 (8th Cir. Aug. 9, 2018), is an example of such a case. The arbitrator in this case awarded attorney’s fee of nearly a million dollars more than the liability cap in the contract. Despite the possibility that this result was inconsistent with state law, the Eighth Circuit let the award stand.

Continue Reading Why getting the wrong result in arbitration may be what you bought

The False Claims Act case against Lance Armstrong lasted longer than his 7 year Tour de France win streak.

While the settlement of the False Claims Act case against Lance Armstrong has generated a press release, a quick online search didn’t produce a copy of the actual agreement. So I filed a Freedom of Information Act request and the next day the Department of Justice provided me a copy of the Lance Armstrong settlement agreement.  Thank you, Team DOJ!  Below is my take on that agreement and what it tells us about the case.

The settlement amount

The settlement agreement provides that Lance Armstrong will pay $5 million to the Government and $1.65 million to the relator Floyd Landis. To put this in context, the Postal Service had paid about $40 million to sponsor Team Postal. Trebling that amount, and throwing in civil penalties and investigative costs, bumps up potential damages to well over $100 million. The settlement amount was thus less than 7 cents on the dollar.

Damages was always the Government’s weakness – because there weren’t any. This should have been apparent at the outset from the contemporaneous USPS reports on how much publicity and new revenue the Team Postal sponsorship had generated. These reports were poppycock, of course, but they still posed insurmountable problems for the Government’s case.

Continue Reading What the Lance Armstrong Settlement Agreement Tells Us about the Government’s Case

As part of our postal industry practice, we annually compile a list of the Top 150 USPS suppliers based on data received under the Freedom of Information Act.

In FY 2017, USPS spent $13.9 billion on outside purchases and rental payments, an increase of $181 million over last year.  The biggest increase went to the top 10 USPS suppliers. That group received a total of $3.9 billion, up $400 million from last year and accounting for 28 percent of the Postal Service’s total spend. The Top 150 suppliers received $9.2 billion, about two-thirds of the agency’s total spend. Only 81 suppliers collected revenues exceeding $25 million in 2017.

As it has since 2002, Federal Express Corporation lands atop the list, this year with $1.61 billion in revenues—about a $68 million drop from its 2016 earnings. FedEx carries package and letter mail for the Postal Service. FedEx’s air cargo network contract with the Postal Service has been extended several times, and the latest extension takes it to September 29, 2024.

Continue Reading Top 150 U.S. Postal Service suppliers get more in FY 2017

Contractors are now familiar with the Supreme Court’s June 2016 decision in Universal Health Services, Inc. v. United States ex rel. Escobar [PDF]. That decision recognizes False Claims Act liability for implied false certifications. But it also holds that FCA liability is available only when the false statement or omission is “material” to the Government’s decision to pay a claim. Our discussion of Escobar is available here.

Over the last 18 months, courts across the country have been asked to determine the impact of the Escobar decision. Ten of the eleven U.S. Circuit Courts of Appeal have interpreted Escobar. Numerous U.S. District Courts have applied Escobar in resolving pre-trial motions. Cases based on “garden-variety breaches of contract or regulatory violations” are being thrown out. Even jury verdicts are being overturned for insufficient evidence of materiality. There is one inescapable conclusion from these post-Escobar decisions: materiality matters.

In this entry, we discuss two recent decisions that illustrate the impact of Escobar. One reaffirms the notion that, after Escobar, minor non-compliance with a regulatory requirement will not normally support FCA liability. The other highlights the critical role the government’s actions can play in establishing materiality. Together they reject jury verdicts imposing more than $1 billion in False Claims Act liability. Continue Reading After Escobar, materiality matters

The General Services Administration estimates the size of the federal market for commercial products to be about $50 billion a year. Manufacturers and distributors of commercial products have seen GSA’s multiple award schedule contracts as a good way to way to access federal customers. But a GSA schedule contract does not guarantee sales and the process of obtaining and adhering to such a contract presents its own headaches.

Soon there will be a better way.

Section 846 of the National Defense Authorization Act for FY 2018 establishes a program that will allow federal agencies to purchase commercially available off-the-shelf (COTS) items through commercial e-commerce portals that are currently available only to the private sector. As long as the procurement is under the new $250,000 Simplified Acquisition Threshold, COTS products (not services) will be available for purchase Government-wide, presumably without additional competition and without a lengthy list of FAR clauses incorporated by reference.

Under the program, GSA will enter into “multiple contracts” with “multiple e-commerce portal providers.” To the maximum extent possible, the Government will adopt and adhere to standard terms and conditions established by the e-commerce portals themselves.

Continue Reading Will e-commerce portals replace the Federal Supply Schedules?