Recent Developments in Federal Procurement 2009-2010

1. Recent Developments in Federal Procurement2009-2010

2. Statutory and Regulatory Developments • DOD Rule protects “whistleblowers” • Effective November 19, 2009 • Prohibits adverse employment action against employee who makes disclosure of wrongdoing related to a government contract • Protection is in addition to other whistleblower laws/regs • Applies to all DOD contracts, regardless of the source of DOD funding • Prohibition on Arbitration of Employment Disputes • So called “Franken Amendment” • Applies to contractors receiving $1M or more in funds from 2010 DOD Appropriations Act • Implemented by DFARS § 252.222-7999

3. Statutory and Regulatory Developments (con’d) • Effective December 22, 2009 – prohibits enforcement of mandatory arbitration clauses in employment agreements for claims under Title VII or certain claims related to sexual assault or harassment • Interim Rule effective June 17, 2010 – contractor must certify that all covered subcontractors meet same requirement • DOD IG Gets Subpoena Authority • 2010 DOD Authorization Act gives DOD IG subpoena authority to require attendance and testimony of witnesses. (Pub. Law No. 111-84, October 28, 2009) • Previously, subpoena power extended only to document production • DOD Proposes New Cyber Security Rules • March 3rd issued rules for safeguarding unclassified “DOD information” • Applies to contactors and subcontractors

4. Statutory and Regulatory Developments (con’d) • Must provide “adequate security” to safeguard DOD information • Requires reporting of security breaches of information “resident on or transiting” their information systems. • Must continue to comply with other security standards, such as “FOUO,” Privacy Act, ITAR and HIPAA • DCAA issues guidance on revised travel cost rule • FAR 31.205-4(a) & (c) - allowable air fare costs are the “lowest available to the contractor.” • Guidance issued March 22nd – “lowest available” means available through direct negotiations with airlines or travel agents. See FAR 31.305-46. • Will need: • Competing quotes • Advanced planning • Use of unrefundable airfares

5. Statutory and Regulator Developments (con’d) • FAR Executive Compensation Reporting Requirements • July 8 interim rule requires contractors to report executive compensation information for it and its first tier subcontractors on the USA Spending website • Significant impact on privately owned contractors • FAR clause at 52.204-10; required in all contracts over $25,000 • DHS Rule Impacts “Lead System Integrators” (LSI’s) • July 15 interim rule • Tracks similar DOD rule • Restricts contractors from acting as LSI’s if they have direct financial interest in individual systems or elements of any system they integrate

6. Statutory and RegulatoryDevelopments (con’d) • “FAPIIS” Information to be Publicly Available • July 29 amendment to the “Clean Contracting Act of 2008” • Federal Awardee Performance and Integrity Information System “FAPIIS” requires posting of certain contract performance information • Past performance reviews excluded from requirement

7. Contract Performance • Appeal brought in wrong name denied • Wackenhut International v. Department of State (September 22, 2009), 2009-2 BCA ¶ 34,255 • Civilian Board of Contract Appeals (CBCA) dismissed claim for lack of jurisdiction • Claim filed by partner of JV; not the JV itself • Only JV had privity with government; fact that partner was 51% owner and had permission from other partner was irrelevant Bottom line: Make sure correct party is bringing the claim. • Clarity of teaming agreement workshare critical • Trianco, LLC v. International Business Machines Corporation; (3rd Cir. October 6, 2009), 347 Fed. Appx. 808 • Exclusive teaming agreement where IBM as prime obligated to negotiate a subcontract in “good faith” if awarded a contract

8. Contract Performance (con’d) • IBM awarded contract and conducted a competition for the work scope Trianco thought it was getting under the teaming agreement. IBM awarded subcontract to another company. • Trianco sued in NY Federal Court for breach of contract to enforce the teaming agreement. • Trial and Appellate courts dismissed the case. • Court held that under NY law, IBM by conducting a competition was a form of “good faith” negotiations and that was all IBM promised. Bottom Line: If subcontractor, Teaming Agreement should require the award of a contract with a specifiedportion of the workshare to subcontractor if prime wins.

9. Contract Performance (con’d) • “In-house” costs should be separately tracked if part of REA • States Roofing Corporation (January 19, 2010), 2010-1 BCA ¶ 34,360 • REA proposal containing “in-house” labor, accounting and legal costs were not segregated by the contractor and were therefore “unreliable.” • Board applied “jury verdict” approach to these costs and awarded less than 12% of the contractor’s claims. Bottom Line: If in-house costs part of an REA, segregate and account for them at the outset.

10. Contract Performance (con’d) • DCMA decision to release manufacturing data overturned • United Technologies Corporation v. DOD (March 23, 2009), 601 F.3d 557 • DC Circuit Court of Appeals set aside a DCMA decision to release under FOIA certain information alleging problems with contractor’s manufacturing processes. • Court held that Exemption 4 of the FOIA applied and found that disclosure would make available proprietary information to competitors to the detriment of the contractor. Bottom Line: Be sure to clearly mark information provided to the government as proprietary using FAR mandated language.

11. Contract Performance (con’d) • Right to Terminate for Convenience Not Absolute, Wrongful T for C can be a Breach of Contract. • Sigal Construction Corporation (May 13, 2010),10-1 BCA ¶ 34,442, CBCA 508 • GSA contract for building repair. When amount of repairs exceeded estimate, GSA awarded separate contract at lower prices to another contractor, instead of using the Variation in Estimated Quantities clause of Signal’s contract. • Sigal alleged breach of contact and sought to recover costs plus profit on work awarded to other contractor. • GSA defended on basis of the T for C clause of Sigal’s contract therefore no recovery of lost profits. • Board held that T for C clause not available to get a better price. Abuse of discretion and bad faith by contracting officer is a breach of contract.

12. Contract Performance (con’d) • Only Significant “OCI’s” Require Mitigation • PAI Corporation v. U.S. (August 5, 2010), 2010 U.S. App. Lexis 16201 • Federal Circuit held that CO’s have duty to mitigate “significant” OCI’s but not apparent or “non-significant” conflicts. • CO can determine what is or isn’t significant • FAR 9.504(a) doesn’t require CO’s to document initial identification and evaluation of potential conflicts. Bottom Line: Not very helpful decision; no bright line as to what is or isn’t “significant.”

13. Contract Performance (con’d) • Buyer Beware! • Agredano v. U.S., February 17, 2010, 595 F.3d 1278 • Federal Circuit reverses Ct. of Federal Claims decision that U.S. Customs and Border Protection (CBP) breached an implied in fact warranty. • CBP sold car at auction which was later discovered to contain marijuana, resulting in the purchaser spending a year in a Mexican prison. • No such implied “drug free” warranty existed; no contractual obligation to remove contraband. • Agency expressly disclaimed all warranties at the auction. Bottom Line: Caveat Emptor!

14. Audit and Accounting • Software (SW) Development Effort Costs Not Allocable to Government • Teknowledge Corporation. v. U.S. (November 3, 2009), 350 Fed. Appx. 452 • Federal Circuit finds that SW costs not allocable to Government Business because no “demonstrated benefit” to the Government. • Highly criticized decision since it ignores CAS 420 which addresses this allocation issue and would yield a different result. • Plaintiff never argued the CAS 420 rationale

15. Audit and Accounting (con’d) • IR&D Definition Finally Clarified • ATK Thiokol v. U.S. (March 19, 2010), 598 F.3d 1329 • Federal Circuit Court held that R&D effort must be “specifically required” by the terms of a contract in order to be excluded from definition of allowable IR&D costs. • Settles long standing conflict with this decision and other Federal Court of Claims decisions (i.e. NewportNews decision) Bottom Line: If contractor is consistent in classifying IR&D costs, then chances of being held allowable enhanced.

16. Audit and Accounting (con’d) • Government Defective Pricing Claims Time Barred • McDonnell Douglas Services, Inc., ASBCA No 56568, December 2, 2009, 2010-1 BCA ¶ 34,325 • Board held that Government failed to satisfy the applicable CDA Statute of Limitations therefore its claim for defective pricing was dismissed. • First time CDA 6 year statute of limitations applied against the government. • Board construed FAR 33.201 as applying to both government and contractor: “Claim accrues when all events that fix the liability and permit assertion are known or should have been known.” • Rejected government argument that CDA should be more liberally construed in a government claim.

17. Audit and Accounting (con’d) • GAO rejects DCAA determination of a Contractor’s Accounting System as being inadequate. • McKissak and Delcan JV II (January 13, 2010), B-401973.2, B-401973.4 • GAO sustained a protest because agency improperly relied on a DCAA determination resulting in the rejection of an offeror’s proposal. • Agency must evaluate an offeror’s business systems and bid protest is only viable forum to contest such inadequate findings. • Government Bounty Hunters Authorized • Presidential memo dated March 10, 2010 • Directs heads of all departments to expand use of “recovery audits” or “Payment Recapture Audits” • Orders OMB to develop guidance within 90 days to carry out memo’s directives • Already in place for Medicare and Medicaid