1. Recent OCI Opinion
In a case called NetStar-1 Government Consulting, Inc., Judge Allegra of the Court of Federal Claims recently has enjoined an award of a DHS/ICE contract for support services because DHS failed to properly mitigate an organizational conflict of interest. The successful awardee, ALON, Inc., had access as an incumbent contractor to databases of proprietary information which included labor rates for its competitor NetStar-1 Government Consulting, Inc. ALON also had access to the government's budget plan and other non-public information.
The contracting officer failed to obtain a nondisclosure agreement from ALON, belatedly reacted to the obvious conflict of interest and did nothing more to mitigate the situation than obtain declarations from ALON employees that they had not obtained NetStar-1's information or shared it with ALON officials. ALON did put up a firewall but it was merely a pledge that the ALON employees would not participate in ALON's proposal. Said the Court: 'This is a far cry from the sorts of detailed and verifiable firewall provisions that have been found adequate to mitigate other organizational conflicts of interest.'
The Court concluded that it was unprepared to accept the DHS remedy of obtaining declarations from the winning bidder that it did not take advantage of the unequal access to information that its employees possessed. Judge Allegra went on to conclude that a preliminary injunction should issue to stop performance of the awarded contract to ALON.
As you know, the final FAR rule on OCI, which expands the flexibility of contracting officers in deciding proper mitigation techniques, is still in the comment stage. Meanwhile, we continue to watch GAO and COFC decisions and opinions in this area.
2. Commercial Contracts Under FAR Part 12; Terminations; Accelerated Payments
You may have a commercial type FAR Part 12 contract (and not realize it). If you do, you will have a special termination for convenience clause which limits your recovery to the percentage of the contract price representing the performance of work performed plus 'charges' directly related to the termination itself. The Armed Services Board of Contract Appeals (ASBCA) has held in a case called Red River that this language precludes normal termination for convenience cost recovery (in particular, eliminating costs incurred in preparing to perform). Fortunately that opinion has been reversed by the appellate court. You can now recover all your costs subject to the test of reasonableness. The new opinion also recognizes the policy reasons why the FAR Part 31 Cost Principles do not apply in this context and the government has no right to audit. Also, as you probably know, there is an interim DOD rule to accelerate payments to all small businesses. It will be final soon. However, it does not apply to subcontracts, so you should insist that your prime contractor or higher tier subcontractor insert this new requirement in your subcontract. While we are on the subject of subcontracts, remember such clauses as changes, termination for convenience and default and disputes are not mandatory flow down clauses. In fact, mandatory flow down clauses are limited to socio-economic and certain pricing clauses. Let us know if you need assistance in reviewing what should and should not be in your subcontract terms and conditions.
3. GAO Will Hear Protests on IDIQ Task Orders; Advice on Protests
Recently, the GAO has decided it now does have jurisdiction to decide protests in IDIQ Task Orders. Technatomy Corporation, B-405130 June 14, 2011.
With regard to protests, our practical advice is simple. If there are errors, conflict, omissions or lack of clarity in the solicitation documents and the contracting officer either refuses or fails to correct them, protest or don't bid (you will assume the risk of the problems if you bid). If you lose a contract award, ask for a debriefing and consider protesting only if it appears a regulation has been violated. The most common successful protests involve cases where the agency failed to follow the announced evaluation factors or treated the offerors unequally. Forget protesting bias and whether the source selection decision was correct (we can explain). However, the source selection decision is always vulnerable to attack if it is not thoroughly rationalized and supported in the record.
4. Funding; The Anti-Deficiency Act; Investigation
During our recent seminar in Fredericksburg, I told the audience about a recent phone call I had received from a government criminal investigator looking into possible Anti-Deficiency Act violations by government employees. He asked me, off the record, to give him my opinion about situations he had found where the government employees were using current funds to liquidate prior year's debts. (The funding had expired or was exhausted.) I told him unequivocally that it is illegal for the government to use current funds to liquidate prior debts. The Anti-Deficiency Act clearly prohibits the government from obligating itself in advance of funding. I passed out an article I had written on the subject.
As I told the investigator, as I told the audience, that I likewise was concerned that if a contractor is award of the funding manipulation, the contractor could be criminally complicit (the Anti-Deficiency Act includes criminal penalties). If you are aware of such scheme, you should immediately report it to the proper authorities. In these days of funding delays, austerity and scrutiny, one must be careful not to run afoul of the Anti-Deficiency Act. The spotlight was on the Act during the threatened government shutdown and it is still shining brightly on all contracts.
5. Interrelationship of Changes and Termination Clauses
At our recent seminar, I explained the interrelationship of the changes and termination clauses in government contracts and subcontracts. (I pointed out these clauses are not mandatory flow down clauses in subcontracts.) Every compensable change is an excusable cause of delay or failure to perform in termination for default cases.
These sometime called constructive changes include the breach of the government's implied obligation in every contract to: 1) provide clear language in its solicitations and contracts; 2) provide solicitation and contract documents free of errors, conflicts and omissions; 3) provide commercially practicable requirements; 4) cooperate and communicate with the contractor and not interfere in its performance; and 5) disclose information vital to the contractor's performance. Yes, these obligations are implied in every contract and subcontract.
In the case of termination for default, use the changes clause both as a shield and a sword. Changes are defenses and affirmative avenues for recovery of costs and profit. (Even if the termination for default is upheld, you can still recover costs and profit under the changes clause.) In the case of termination for convenience, changes can eliminate the application of the adjustment for loss formula and provide a means for recovery of costs and profit beyond the original contract price. A changes claim (we explained in detail at our seminar how these claims are written) should always be considered when you are facing termination for default or convenience, especially at the cure notice or show cause stage. The interrelationship of these clauses is so critical that I sometimes refer to them as one clause, the 'termanges' clause. Let us know if you'd like to hear more.
A LEADING GOVERNMENT CONTRACT EXPERT WARNS THAT FEDERAL GOVERNMENT CONTRACTORS HAVE HAD WORK ON THEIR DELIVERY AND TASK ORDER CONTRACTS REDUCED AND MOVED INSTEAD TO GOVERNMENT WORKERS. WILLIAM J. SPRIGGS, AN INDEPENDENT GOVERNMENT CONTRACT AND SUBCONTRACT CONSULTANT, POINTS OUT: "ALTHOUGH THIS WORK WAS AWARDED CONTRACTORS ON A FIXED PRICE BASIS, WE ARE SEEING A NUMBER OF CASES WHERE THE WORK IS PULLED BACK IN HOUSE FOR FEDERAL EMPLOYEES TO PERFORM." HE OBSERVES THAT THIS IS IN APPARENT REACTION TO CRITICISM THAT TOO MUCH "INHERENTLY GOVERNMENTAL" WORK HAS BEEN FARMED OUT TO CONTRACTORS.
"QUITE ASIDE FROM THE DEBATE OVER THE MEANING AND INTENT OF OMB CIRCULAR A-76 AND RECENT PRONOUNCEMENTS FROM THE OBAMA ADMINISTRATION, THE ACTION OF TAKING WORK AWAY FROM CONTRACTORS VIOLATES THEIR CONTRACTUAL RIGHTS," HE ADDS. MR. SPRIGGS, A LONG TIME ADVOCATE OF THE SUSTAINMENT OF THE NATION'S INDUSTRIAL BASE OF SERVICES, SUPPLIES AND CONSTRUCTION, SEES THE SHIFT OF DIRECTION AS A BLOW TO BUSINESS GROWTH AND COMPETITION. "WHY WOULD A CONTRACTOR SUBJECT ITSELF TO A MARKETPLACE WHERE WORK AWARDED ON A FIXED PRICE BASIS CAN BE TAKEN AWAY TO SATISFY THE BUYER'S CHANGING POLICY NEEDS?" HE ASKS.
"WE HAVE HEARD COMPLAINT AFTER COMPLAINT THAT DELIVERY ORDER AND TASK ORDER CONTRACTS HAVE BECOME A SHAM." CONTRACTORS ENTER INTO THESE CONTRACTS WITH CERTAIN CONTRACTUAL EXPECTATIONS, AND GEAR UP TO PROVIDE SERVICES OR SUPPLIES ON A FIXED PRICE BASIS, ONLY TO FIND THE GOVERNMENT SAYS "NEVER MIND, WE'LL DO IT OURSELVES." SMALL BUSINESSES ARE PARTICULARLY HARMED BY THIS BEHAVIOR, MR. SPRIGGS OBSERVES. "SMALL BUSINESSES CANNOT JUST DIVERT RESOURCES SET ASIDE FOR GOVERNMENT WORK TO OTHER WORK. THEY LACK THE CAPACITY TO TRANSFER RESOURCES THAT LARGE FIRMS MAY POSSESS. THE RESULT IS THAT SOME, OR PERHAPS MANY, SMALL BUSINESSES MAY GO OUT OF BUSINESS," SAYS A CONCERNED MR. SPRIGGS.
MR. SPRIGGS CONCLUDES, HOWEVER, THAT THERE IS A REMEDY. EACH GOVERNMENT CONTRACT CONTAINS IMPLIED OBLIGATIONS REQUIRING THE GOVERNMENT TO GIVE CONTRACTORS FAIR WARNING THAT WORK WILL GO AWAY. IN ADDITION TO PURSUING CLAIMS FOR BREACH OF THESE OBLIGATIONS, CONTRACTORS ALSO CAN PURSUE REMEDIES UNDER THE TERMINATION FOR CONVENIENCE CLAUSE. "IN THE FINAL ANALYSIS," SAYS MR. SPRIGGS, "THESE CONTRACTS HAVE BEEN CONSTUCTIVELY TERMINATED FOR CONVENIENCE. DEPENDING ON THE NATURE OF THE CONTRACT, CONTRACTORS HAVE A BREACH OF CONTRACT OR CONSTRUCTIVE TERMINATION CLAIM WHICH THEY CAN PURSUE."
CONTACT: BILL SPRIGGS AT BILL@SPRIGGSCONSULTINGSERVICES.COM OR (540) 439-9250