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Congressional, Executive, and Legal Developments for Government Contractors to Consider | August 2018

August 2018

The month of August brought a number of legal developments that will impact government contractors, including proposed legislation, reports, amended regulations, and judicial decisions. This article provides a brief review of noteworthy recent updates to the legal landscape against which government contractors operate.

Legislative Developments

The 2019 National Defense Authorization Act (NDAA) was enacted on August 13, 2018, and contained a number of provisions impacting government procurement. Of note, Section 822 requires the Secretary of Defense to conduct a study of the "frequency and effects" of bid protests of the same procurement that have been filed at both the U.S. Government Accountability Office (GAO) and the U.S. Court of Federal Claims, including the "number of such protests where the tribunals differed in denying or sustaining the action," as well as the timing between filings, whether the protester was a large or small business, and whether the protester was the incumbent contractor. Additionally, the NDAA requires the Secretary of Defense to develop a plan and schedule for an "expedited" bid protest process for U.S. Department of Defense (DoD) contracts valued at less than $100,000. Other significant provisions include the delineation of the definition of "commercial items" into "commercial products" and "commercial services" (Section 836), a new policy to avoid the use of lowest price, technically acceptable source selection criteria for certain procurements (Section 880), and a pilot program to accelerate contracting and pricing processes associated with contracts in excess of $50,000,000 (Section 890), among others.

On August 21, 2018, Senator Elizabeth Warren introduced S. 3357, Anti-Corruption and Public Integrity Act, in the Senate. If signed into law, the bill would alter the framework surrounding post-employment restrictions to government workers transitioning to the private sector. For a more detailed analysis of this bill and its impact on government contractors, please see our recent Government Contracts Update.

Congress introduced a bill that would phase out the use of private military contractors in certain areas. H.R. 6534, Stop Outsourcing Security Act, seeks to phase out the performance of "mission critical or emergency essential functions" by private military contractors "in all areas of contingency operations or other significant military operations." Congressional findings that prompted the bill included the U.S. Government's increased reliance upon the private sector to perform these services, which has, at times, placed the U.S. mission in jeopardy. "Mission critical or essential emergency essential functions" is defined broadly, to include the provision of protective services, security advice and planning, and prison administration, among others. If passed, contractors performing those services for the Government could face a steep decline in opportunities.

The "Fair Trade with China Enforcement Act," S. 3361, has been introduced in the Senate, which would, in part, prohibit agencies from procuring or contracting with any other entity that uses "covered telecommunications equipment or services." This definition includes any telecommunications equipment produced by Huawei Technologies Company, ZTE Corporation, or other identified Chinese telecom entities, any telecommunications services provided by such entities or using such equipment, or other entities an agency head "reasonably believes to be an entity owned or controlled by, or otherwise connected to, the Government of the People's Republic of China."

Regulatory Developments

On August 10, 2018, the U.S. Department of Labor, Office of Federal Contract Compliance Programs (OFCCP) issued a directive to "incorporate recent developments in the law regarding religion-exercising organizations and individuals." Such guidance is consistent with the existing religious exemption from certain non-discrimination and equal opportunity laws for government contractors or subcontractors qualifying as religious entities under applicable laws and regulations. These "recent developments" include court decisions addressing the "broad freedoms and anti-discrimination protections that must be afforded religion-exercising organizations and individuals under the United States Constitution and federal law," as well as Executive Orders furthering a similar message. As a result, the directive instructed OFCCP staff to bear certain principles in mind to ensure individuals and organizations are able to participate in government programs "'without having to disavow [their] religious character.'"

On August 1, 2018, the DoD published Volume 2 of DoD Manual 5220.22, "National Industrial Security Program: Industrial Security Procedures for Government Activities." This latest volume "prescribes industrial security procedures and practices applicable to USG activities using the DoD as their cognizant security agency" and "ensures maximum uniformity and effectiveness in DoD implementation of the National Industrial Security Program…"

On August 22, 2018, DoD, the General Services Administration (GSA), and the National Aeronautics and Space Administration (NASA) issued final rules amending the Federal Acquisition Regulation (FAR) to implement regulations governing labor and employment issues for federal contractors. First, the interim rule implementing the Executive Order, Establishing Paid Sick Leave for Federal Contractors, was finalized without change, and now codifies its provisions which allow federal contractor employees to earn 7 or more days of paid sick leave annually, among other benefits. Similarly, DoD, GSA, and NASA finalized the interim rule implementing the Executive Order, Non-Retaliation for Disclosure of Compensation Information, without changes. The final rule prohibits federal contractors from discriminating against employees and job applicants "who inquire about, discuss, or disclose their own compensation or the compensation of other employees or applicants."

Reports

The Office of the Inspector General (OIG) for the U.S. Department of State, Broadcasting Board of Governors, issued a report, "Management Assistance Report: Use of Confidentiality Agreements by a Department of State Contractor." The OIG report involved the Department's investigation of a 2016 contract awarded to MSA Security, Inc. (MSA) to operate a Canine Validation Center. MSA required its employees to sign a non-disclosure agreement which broadly defined confidential information, and contained no exceptions for the disclosure of fraud, waste, and abuse. As a result, the Report stated that the Department could not expend appropriated funds to MSA until it modified or rescinded these agreements, or else, the Department would risk violating the Anti-Deficiency Act. The OIG recommended that if the agency did not "promptly rescind or modify these agreements, [the agency] should terminate its contracts with MSA for default."

The GAO issued a report, "Improved Information Sharing Could Help DOD Determine Whether Items Are Commercial and Reasonably Priced." (GAO-18-530). Noting that the effectiveness of determining commerciality of items and fair and reasonable prices will depend on what meaningful information the government successfully obtains to conduct its analysis," the report highlighted the need to enhance information-sharing efforts, given that DoD currently faces challenges including limited availability of market information and difficulties efficiently collecting such data from contractors and subcontractors.

Developments from the Courts, Boards, and GAO

On August 24, 2018, the U.S. Court of Appeals for the Ninth Circuit deemed satisfaction of the two-prong test promulgated by the U.S. Supreme Court in Universal Health Servs., Inc. v. United States ex rel. Escobar, mandatory in implied certification cases under the False Claims Act. See U.S. ex rel. Rose v. Stephens Institute, No. 17-15111, 2018 WL 4038194 (9th Cir. August 24, 2018). The Ninth Circuit panel held that Escobar's standard for proving implied false certification—"the claim does not merely request payment, but also makes specific representations about the goods or services provided," and "the defendant's failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths" must be met in order to satisfy the implied certification element under the False Claims Act, which amounts to a higher threshold for proving liability.

On August 24, 2018, the U.S. District Court for the District of Columbia denied Skanska USA Building, Inc.'s (Skanska) motion to dismiss a suit by Garcia and other employees seeking unpaid wages for construction work under the Fair Labor Standards Act, D.C. Minimum Wage Act Revision Act, and the D.C. Wage Payment Collection law. See Garcia v. Skanska USA Building, Inc., No. 17-cv-0629, 2018 WL 4053377 (D.D.C. Aug. 24, 2018). In Garcia, the Court rejected Skanska's argument that the Davis Bacon Act foreclosed any relief under the other labor and employment laws alleged, and for purposes of the motion to dismiss, construed the counts of Garcia's complaint to avoid the Davis Bacon Act entirely, permitting the employees' claims to go forward.

A recent decision by the Armed Services Board of Contract Appeals granted summary judgment to The Boeing Company and clarified the scope of the Government's rights to software developed by a contractor under a Technology Investment Agreement (TIA). See The Boeing Company, ASBCA No. 60373, 2018 WL 3953638 (July 17, 2018). There, the Board held that such software was considered to have been developed "at private expense" under DFARS 252.227-7014(a)(8), and that TIAs alone "do not make a blanket award of government purpose rights, or greater rights, to the government."

The U.S. Court of Federal Claims handed a rare win to a contractor-Plaintiff where the Court concluded that the Department of Veterans Affairs (VA) acted arbitrarily in assigning the awardee credit for the experience of "what could be, at best, only a very minor subcontractor." Advanced Management Strategies Group, Inc./Reefpoint Group, LLC, No. 18-326C, 2018 WL 3999675 (Fed. Cl. Aug. 21, 2018). While the Court often defers to the reasoned judgment of the Contracting Officer, the Court here found the VA was arbitrary and capricious in crediting the awardee with the "experience of an entity that the agency had no apparent reason to think would meaningfully support the work or would otherwise influence [the awardee's] performance in a significant way." As a result, the Court held, the agency was required to set aside the award.

In another uncommon victory for the protester, the GAO held that the Department of Health and Human Services, Centers for Medicare and Medicaid Services (CMS) failed to meaningfully consider potential "impaired objectivity" and "unequal access to information" organizational conflicts of interest (OCIs) where the record reflected a review that was not "comprehensive" and failed to analyze the facts against the relevant standards for the existence of OCIs. See C2C Innovative Solutions, Inc., B-416289, B-416289.2, 2018 WL 3854044, July 30, 2018. The GAO thus recommended CMS undertake an investigation into the OCIs alleged.