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Brian Waagner

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Brian is the leader of the Government Contracts practice group at Husch Blackwell LLP. Brian represents contractors in federal, state, and local bid protests, contract administration and compliance matters, and in litigation involving complex claims and disputes.

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Federal agencies and contractors are working hard to address the realities of the COVID-19 pandemic. In some cases, work must stop. In others, the work will increase or change dramatically. While contractors should look to contracting officers for guidance with respect to specific contracts, agency-wide guidance documents are beginning to shed light on the government’s expectations. We will be using this blog entry to collect and share agency guidance on performance of government contracts during the Coronavirus pandemic.

Department of Defense—

Department of the Army—

  • Planning for Potential Novel Coronavirus Impacts (Mar. 12, 2020). Encourages increased communication, notes that contracting officers do not bear the responsibility to determine whether the excuse of COVID—19 applies, outlines causes for performance delays that are excusable and FAR provisions that excuse performance delays, and clarifies situations in which compensation is an option.

In response to the growing Coronavirus pandemic, President Trump announced that the federal government will invoke the Defense Production Act to obtain necessary medical equipment and supplies from private industry. In this post we address some of the most frequently-asked questions about the DPA.

What is the Defense Production Act?

Originally conceived during the Korean War, the DPA allows the President to divert goods and supplies from civilian use to promote the national defense. This authority is not limited to sourcing aircraft parts or ammunition, or to supporting active military operations. The text of the Act expressly extends to matters involving “national economic security and national public health or safety.”

The Defense Priorities and Allocations System regulations in 15 C.F.R. Part 700 implement the Defense Production Act. The DPAS regulations provide detail about how the government will issue rated orders and what contractors and commercial suppliers must do to respond.

How does the government prioritize orders for specific supplies?

The government specifies the relative priority for specific supplies by issuing a “rated order,” which may be designated “DX” or “DO.” A DX order has the highest priority. It must be fulfilled before any other DO or unrated order. A DO rated order must be fulfilled before an unrated order. A rated order must be fulfilled first, even if it means the contractor must divert items already in process or ready for delivery under another contract.

The spread of COVID-19 (Coronavirus) remains unclear, but its impacts are already being felt. Supply chains are being disrupted and companies are implementing preventative measures to protect their employees. Many businesses have already suspended non-essential travel, encouraged remote working arrangements, and advised employees to follow the Centers for Disease Control risk-reduction strategies. Given these delays and disruptions, it’s logical to wonder:  Are delays or impacts related to the Coronavirus an excusable delay?

The answer is yes, if you can prove it. Below we outline the standard contract clauses dealing with delays from epidemics and discuss how courts have interpreted those clauses in the past when contractors claimed their delays should be excused due to an epidemic.

In order to bring a bid protest in the Court of Federal Claims, you must have standing. To win the protest, you have to show prejudice. Although distinct, these two requirements are related and often confused. The Federal Circuit’s decision in American Relocation Connections, L.L.C. v. United States, No. 2019-1245 (Fed. Cir. Oct 2019), explains the difference between the “standing” needed to bring a bid protest and the “prejudice” needed to win.

Standing involves the threshold legal question of whether the protester has alleged a sufficiently direct economic interest to bring the case. It operates as a limit on the universe of plaintiffs eligible to file a protest. A protester has standing to challenge the award of a federal contract in the Court of Federal Claims only if it was an actual bidder or offeror that had a “substantial chance” of winning the contract. For pre-award protests, only a prospective offeror that would suffer a “nontrivial competitive injury” has standing to protest.

Unlike standing, “prejudice” is the ultimate factual question of whether the protester was actually harmed by a procurement error. Establishing prejudice is an element of the protester’s burden of proof. Without it, the protest will fail.

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.

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.

The 2017 National Defense Authorization Act, Pub. L. No. 114-328 (Dec. 23, 2016), introduces major changes to the Defense Department healthcare program known as TRICARE. By this time next year, we’ll see a new program to contain the cost of prescription drugs at retail pharmacies, contractual incentives for improving the quality of healthcare and…

Contractors interested in the application of FOIA Exemption 4 should take note of the Ninth Circuit’s decision in American Small Business League v. Dep’t of Defense, No. 15-15120 (9th Cir. Jan. 6, 2017). The issue in the case was whether a declaration submitted by a Sikorsky Aircraft Corporation employee was sufficient to show the competitive harm necessary to withhold small business subcontracting data obtained from Sikorsky. The Sikorsky declaration was short, but it identified Sikorsky’s competitors and asserted that its small business subcontracting data could be used to gain a competitive advantage.

In a November 2014 order, the District Court found the declaration too vague. It lacked “reasonably specific detail” as to the likelihood of competitive injury. It did not show how information found in the subcontracting plan would be “likely to cause substantial competitive injury.” Proof of competitive harm was based only on the fact that a Sikorsky competitor “could” use Sikorsky’s data to cause harm. In the words of District Judge William Alsup, “[t]hat is not enough to grant summary judgment for the agency.” The District Court ordered the government to produce Sikorsky’s master subcontracting plan, subject only to appeal.

GAO has published its decision denying multiple protests of the Defense Health Agency’s decision to award the T-2017 managed care support contracts to Humana Government Business, Inc. and Health Net Federal Services, LLC. Humana won the TRICARE contract for the east region with a total evaluated price of $40.7 billion. Health Net won the west region contract with a total evaluated price of $17.7 billion.

One of the key issues addressed in GAO’s decision was the challenge to Humana’s past performance rating. Anthem subsidiary WellPoint Military Care Corporation argued that DHA placed so much weight on prior experience as a TRICARE prime contractor that incumbency amounted to an unstated evaluation criterion. In WellPoint’s view, incumbency was the “golden ticket to attaining the highest Substantial Confidence rating.”

GAO found no merit to WellPoint’s argument. There was nothing in the record to suggest that DHA treated incumbency as an unstated evaluation criterion. Indeed, DHA considered WellPoint’s own past performance superior to that of two other incumbent TRICARE contractors—Health Net and UnitedHealth Military & Veterans Services, LLC.

GAO also rejected the legal basis for WellPoint’s argument. While incumbency is not necessarily a golden ticket, GAO also found that it was reasonable to give credit to Humana for its prior experience managing a large TRICARE regional contract. In GAO’s view, “it is not unreasonable for an agency to place particular emphasis on a firm’s performance as an incumbent contractor, since such performance may be reasonably viewed as a more accurate indication of likely future performance . . . .”

Incumbency is not necessarily a golden ticket, but it certainly can’t hurt.

The Supreme Court’s unanimous decision in Universal Health Services, Inc. v. United States ex rel. Escobar, No. 15-7 (U.S. June 16, 2016), upholds the viability of the implied certification theory of False Claims Act liability. But it also makes cases arising from minor instances of noncompliance much harder to prove. The Court held that a knowing failure to disclose a violation of a material statutory, regulatory, or contractual requirement can create False Claims Act liability. The requirement need not be an express condition of payment, but it must be material to the Government’s decision to pay.

The requirement for proof of a misleading half-truth

Those hoping that the Court would eliminate implied certification altogether will be disappointed with the decision. It opens up the possibility of new False Claims Act cases in the Seventh Circuit and in other jurisdictions that had rejected the implied certification theory or limited its application to conditions of payment. Some cases that might have been thrown out on a motion to dismiss might stand a better chance of surviving through discovery and trial.

The Court nevertheless takes strong steps to limit misuse of the implied certification theory. According to the opinion in Escobar, liability under the implied certification theory can be imposed only when two conditions are satisfied. First, the claim for payment must make “specific representations about the goods or services provided.” An invoice that makes no affirmative statement about the quality of a contractor’s goods or services cannot be the basis for an implied certification.