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On May 18, 2012, the United States House of Representatives voted 299-120 to approve HR 4310, the National Defense Authorization Act for Fiscal Year 2013 [pdf]. The House vote rejects two amendments that had been the topic of some discussion within the government contracts community. One would have restricted the definition of “commercial item”…

The James Zadroga 9/11 Health and Compensation Act of 2010, Public Law No. 111-347 (Jan. 2, 2011) [pdf] establishes a program to provide health evaluations and medical treatment to emergency responders and other individuals directly impacted by the September 11, 2001 terrorist attacks on the World Trade Center. Funds for the program are to be generated by a two percent excise tax on any “specified Federal procurement payment” received by a “foreign person.” 26 U.S.C. § 5000C. 

In addition to imposing the tax, the Act requires federal agencies to make sure that taxes paid under this law are not “reimbursed.”

The FAR Councils published a proposed rule implementing this requirement on February 22, 2011. See 77 Fed. Reg. 10461 (Feb. 22, 2011). The proposed rule changes amend FAR 31.205-41 “to inform the Government and contractors that costs of the 2 percent tax are not allowable.” It also proposes changes to four FAR contract clauses “to provide that the costs for the 2 percent tax are not included in foreign fixed-price contracts . . . .”

DCAA’s March 28, 2012 memorandum summarizes DCAA’s approach to the new DFARS Contractor Business Systems rules. As we discussed in our earlier entries, the DFARS regulations and clauses call for a determination of the adequacy of a contractor’s business systems—accounting, estimating, purchasing, material management—and allow a contracting officer to withhold five percent of contract payments…

What happens when a government contractor who thinks its contract performance complied with applicable statute or regulation later learns that it actually was out of compliance?  Are its invoices for that performance false claims that violate the False Claims Act?

The answer depends on whether the contractor acted “knowingly.”  A March 30, 2012 decision of the Fourth Circuit Court of Appeals highlights the fact that proving a False Claims Act violation requires not only the submission of a claim that is false, but also that the false claim was submitted “knowingly”—the contractor knew the claim was false or acted with deliberate ignorance or reckless disregard for the truth or falsity of the claim. United States ex rel. Drakeford v. Tuomey Healthcare System Inc., No. 10-1819 (4th Cir. Mar. 30, 2012) [pdf].

Courts often look at a party’s conduct for help in interpreting ambiguous contract terms. But this concept has broader application. Actions and positions that one side takes before a dispute arises may actually override a clear contract requirement. The Civilian Board of Contract Appeals’ recent decision in TKC Aerospace, Inc. v. Department of Homeland Security, CBCA No. 2119 (Jan. 31, 2012) [pdf] illustrates the point. The Board’s opinion identifies the contractor’s response to a problem during performance as the key factor in resolving the case.

The Court of Federal Claims has issued an important decision establishing that offerors will be held accountable for making inaccurate representations in proposals. According to the Court’s decision in GTA Containers, Inc. v. United States, No. 11-606C (Fed. Cl. Feb. 22, 2012) [pdf], proof that an offeror made a misrepresentation in its proposal is sufficient to sustain a bait-and-switch protest if the agency relied on the misrepresentation.

As part of the SBA’s 8(a) Business Development Program, participants are permitted to form mentor-protégé relationships and to establish joint venture (JV) entities eligible for award of 8(a) set aside contracts. Before a mentor-protégé JV can be eligible for set-aside awards, its JV Agreement has to be approved by the SBA Office of Business Development. Approval is conditioned upon compliance with applicable regulations, including 13 C.F.R. § 124.513. After award of a set-aside contract, other offerors have the option of filing a size protest with the SBA challenging the awardee’s status as small.

In Size Appeal of Trident, LLC, SBA No. SIZ-5315 (Jan. 24, 2012) [pdf], the SBA Office of Hearings and Appeals (OHA) held that an SBA area office has no authority to review the substance of an 8(a) mentor-protégé JV agreement as part of a size appeal if it has already been approved by the SBA Office of Business Development and determined to be in compliance with applicable regulations. In that case, Trident appealed the area office’s determination that it was “other than small” and accordingly ineligible for award of an 8(a) set-aside for weather observation and forecasting services.

The FAR Cost Principles and federal cost reimbursement contracts provide that only reasonable allowable costs are recoverable, including costs for executive compensation. A January 18, 2012 decision of the Armed Services Board of Contract Appeals rejected a government challenge to the reasonableness of compensation one contractor paid to executives and rejected the DCAA’s methodology for determining the reasonableness of the compensation. See J.F. Taylor, Inc., ASBCA Nos. 56105, 56322 (Jan. 18, 2012) [pdf].

Contributed by Ike Skelton and Russell Orban of Husch Blackwell’s Government Affairs Practice Group

The United States Department of Defense is the world’s biggest purchaser of goods and services, spending some $381 billion on contracts in FY 2011. But serious changes are on the way. The Iraq war is over and the Obama Administration is planning to withdraw from Afghanistan in the near future. Last summer’s hard-fought budget agreement requires $487 billion in cuts to the defense budget over the next 10 years. The President will soon recommend a defense budget that shaves $51 billion from its previous 2013 projections.

Just one month after its decision in United Space Alliance, the District Court for the District of Columbia has again addressed the question of limits on OFCCP’s audit rights. In Bank of America N.A. v. Solis, No. 09-2009 (D.D.C. Dec. 13, 2011) [pdf], United States Magistrate Judge Deborah A. Robinson issued a report and recommendation adopting the Fourth Amendment’s prohibition against unreasonable search and seizure as a limit on OFCCP’s ability to select contractors for audit.