Equal Justice Under Law?

“Equal Justice Under Law.” Those words are engraved above the entrance to the United States Supreme Court building. They express an aspirational goal rarely achieved. The dispensing of “justice” is, more often than not, unequal. It is no secret that in litigation rich people have a great advantage over the less affluent. Or to put it in contemporary terms, the one percent has a big advantage over the ninety-nine percent. Just to illustrate the point, I recall a story that a friend told me long ago. One day he was in the federal courthouse at Foley Square in Manhattan. It was at a time when the paparazzi were pestering Jackie Kennedy Onassis, and she was in the midst of litigation against one of the paparazzi. My friend peeked into the courtroom, and there was Jackie Onassis sitting at counsel table with no less than six lawyers from a large, blue-stocking New York law firm. Can most people afford that style of representation? Obviously not! When it comes to legal disputes, big, well-heeled litigants can not only grind down less well-financed adversaries, but they are also far better able to defend against actions by the government, such as debarment. Justice is not exactly equal.

The lack of equal justice certainly applies to the debarment system. Big contractors have a huge advantage. The government rarely debars big contractors, or even proposes them for debarment; and that is not just because big contractors are clean as a whistle. The disparity results mainly from the sheer size and “market power” of big contractors. Big contractors employ thousands of people; they have operations in multiple states; they perform many contracts; they have numerous subcontracts; they have plenty of lawyers and lobbyists on retainer; they have political clout. Debarring a large contractor would throw many people out of work, adversely affect important government programs, and create headaches for elected officials and political appointees. So, it just isn't done. Several years ago, I heard a government official make an astonishing statement, astonishing for its candor and truth. He said: “If a small contractor does something wrong, we will debar the contractor; if a big contractor does something wrong, we will work it out.” There it is! Big contractors can rest easy, but small contractors, watch out. More often than not, debarment is lethal for small contractors. If debarred, or even proposed for debarment, a contractor cannot be awarded new business – no new contracts, task orders, options, etc. – and that includes subcontracts. (FAR 9.405) Debarment cuts off a contractor’s oxygen supply, and suffocation follows. The period of debarment is typically three years, and three years without new government business will end the life of most small government contractors.

The author, John W. Polk, is senior counsel to the law firm of Berenzweig Leonard LLP, a law firm located in the Washington D.C. Metropolitan Area. John can be reach at jpolk@berenzweiglaw.com.

Government Contractor’s Non-Compete Deemed Enforceable

The Virginia Supreme Court recently sent a strong message in favor of enforcing narrowly-drawn non-compete clauses in subcontracts between government primes and subs.

Preferred Systems Solutions, Inc. (PSS) was on a team led by Accenture that won a Blanket Purchase Agreement to support a Defense Logistics Agency (DLA) program called the Business Systems Modernization (BSM) Program. PSS had a subcontract with GP Consulting Services (GP) for the services of a GP programmer.  The subcontract had a non-compete clause in it that said GP “will not, either directly or indirectly, enter into a contract as a subcontractor for Accenture LLP and/or DLA to provide the same or similar support that PSS is providing to Accenture and/or DLA and in support of the DLA Business Systems Modernization (BSM) program."

In 2007, the BSM program became operational so the agency then needed only periodic maintenance of the program.  Money for that work came out of a new source: the Enterprise Business Systems (EBS) program, a program that also paid for projects that were not part of the BSM program.

In 2010, while doing work on the EBS for PSS, GP properly terminated the subcontract with PSS, but three days later began working for Accenture on EBS.  In the words of the lower court, the GP employee “three days after leaving PSS went to work for Accenture on the same DLA project, at the same desk, at the same computer, and on the same problems."

In a case that went all the way to the Virginia Supreme Court, PSS successfully enforced the non-compete agreement. Three rules can be drawn from the decision.

Be careful in drafting a non-compete clause because all the words will be given meaning. The non-compete clause had two phrases in it: GP could not be a sub to Accenture (1) for the same support PSS was providing Accenture and (2) in support of the BSM program. GP unsuccessfully argued that the clause was unenforceable because it was ambiguous. According to GP, the phrase “in support of the BSM program” could be read two ways: as a critical phrase narrowing the scope of the non-compete clause or as an extraneous phrase simply providing an additional description of the PSS work.

The court concluded that there was no ambiguity that would make the clause unenforceable: “although the language of the non-compete clause is not a model of artful construction, the ordinary meaning of the conjunctive ‘and’ suggests an additional requirement rather than a descriptive phrase. Moreover, if the phrase in question was merely descriptive, it would have been needlessly redundant."

Whether a non-compete clause is enforceable is based on the “function, geographical scope and duration” of the restriction in the non-compete clause.  The court then concluded that the non-compete clause was enforceable based on the three-prong test considering the clause’s restriction on “function, geographic scope, and duration.”

Here, the “function” of the restriction was “narrowly drawn to work in support of a particular program run under the auspices of the particular government agency, limited to the same or similar type of information technology support offered by PSS on the BSM program." There were 400 – 500 jobs “in the Washington DC area alone that were not proscribed by this agreement.”

Also, the narrowly drawn “function" of the clause eliminated any concern about the “geographical scope” of the restriction because it “is so narrowly drawn to this particular project and a handful of companies in direct competition with PSS."

In addition, the 12 month “duration” of the non-compete clause was narrow.

Using the word “indirectly” need not invalidate a non-compete clause. Although words like "indirectly" could make the clause unenforceable as overly broad, that was not the case here: "This wording merely bars circumvention of the otherwise valid restrictive covenant by engaging in the series of subcontracts so as not to directly enter into a contract with the proscribed competitors. In other words, GP cannot do indirectly what it is directly prohibited from doing. The clause, in sum, does not prohibit indirect competition but rather prohibits GP from entering into a contract as a subcontractor or sub-subcontractor with Accenture, DLA or any other competing business to provide the same or similar support that PSS is providing in support of the BSM program."

Terry O’Connor is the Director of Government Contracts with Berenzweig Leonard, LLP, a DC region business law firm that routinely drafts and litigates non-compete agreements in the Washington, DC area. He can be reached at TOConnor@BerenzweigLaw.com.      

Termination for Convenience Can Be Tricky

A recent Washington Post article pointed out that the government is increasingly terminating government contracts for convenience in order to stockpile agency funds in anticipation of severe budget cuts in FY 2013. According to the Post, terminations for convenience have doubled in just over several years.
Unfortunately for government contractors, getting fairly paid for terminations for convenience can be a significant problem because the specific termination for convenience clause in their contract could be one of almost a dozen different clauses available to the government. Not only are the compensation terms different-so are the paperwork requirements.  For example, the commercial item termination for convenience clause limits the government’s right to audit the contractor’s records.

The government may not use the right clause. Berenzweig Leonard has recently had to inform a Contracting Officer that the government had invoked a termination for convenience clause that was not even in the client’s contract. The clause the government wanted to use gave the government more rights than the correct clause.

Berenzweig Leonard can quickly review and advise government contractors on whether the government is doing a termination for convenience properly. And our advice would be at no cost to the client because legal fees associated with a termination for convenience are generally fully reimbursable as termination settlement expenses.

Terry O’Connor is the Director of  Government Contracts with Berenzweig Leonard, LLP a DC region business law firm. He can be reached at Toconnor@BerenzweigLaw.com.

Small Business Subcontractors: Accelerated Payments

The Office of Management and Budget has told federal agencies that they should accelerate their payments to prime contractors in order for the primes to pay their subcontractors sooner.  Instead of paying primes 23-30 days after they submit an invoice as is typical, agencies should now pay the prime’s invoices 15 days after submission and the primes are “required …to the maximum extent practicable” to make accelerated payments to their subcontractors.

The new policy is being carried out by a new clause in the Federal Acquisition Regulation (FAR), FAR Sec. 52.232-99, Providing Accelerated Payment to Small Business Subcontractors (DEVIATION).

Although technically this new policy can apply only to government solicitations issued on or after August 16, 2012, agencies can insert this new clause into existing contracts “with appropriate consideration.”
Berenzweig Leonard’s government contract experience is something prime contractors as well as small business subcontractors can count on to help them take advantage of this new accelerated payment policy.

Terrence M. O’Connor is the Director of Government Contracts at Berenzweig Leonard, LLP, a business law firm in the Washington, DC area. He can be reached at TOConnor@BerenzweigLaw.com.

Debarment Under the “Catch-All” Regulation

Government contractors do not like to think about debarment . . . and with good reason.  For a government contractor, debarment is like dreaded terminal illness.  It is unpleasant to contemplate.  Nonetheless, as unpleasant as it is, government contractors need to know a few basics about debarment: one of which is the “catch-all” regulation.

Probably, most contractors know that if a contractor is convicted of a crime related to federal procurement, then the government can propose the contractor for debarment without any other facts in the record.  The conviction is sufficient.  It is a prima facie basis for debarment.  The same is true of a civil judgment for procurement fraud; that too is prima facie basis for debarment.  But, how many contractors know about the catch-all regulation, which greatly expands a debarring official’s authority?

The catch-all regulation says that the government may debar a contractor for any cause of “. . . so serious or compelling a nature that it affects the present responsibility of the contractor . . . .”  (FAR 9.406-2(c))  Think about this broad language.  It seems to give a debarring official unbridled discretion to debar a contractor for any reason that the official thinks, in his or her subjective judgment, is serious or compelling.  The regulation lacks objective standards.  It is vague and overly broad, and one court, the U.S. Court of Appeals for the D.C. Circuit, held that the government can invoke the catch-all regulation only if a preponderance of the evidence shows that the contractor committed a crime related to federal procurement.  However, some debarring officials continue to apply the catch-all regulation more broadly, even though the evidence does not prove the commission of the crime.   If a contractor is proposed for debarment under the catch-all regulation, the contractor should consider challenging the regulation on the ground that it is unconstitutionally vague and over-broad.

The author, John W. Polk, is Special Counsel to Berenzweig Leonard LLP, a business law firm located in the Washington, D.C. region.  He can be reached at jpolk@BerenzweigLaw.com.

Teaming Agreement Was Enforceable Contract

The most important decision parties drafting a teaming agreement need to make is whether they want to make the teaming agreement an enforceable contract. The terms of the teaming agreement and the conduct of the team members can make a generally unenforceable teaming agreement enforceable in a breach of contract lawsuit.

After Cyberlock Consulting, Inc. performed a subcontract for Information Experts (IE) on a contract with the Federal Office of Personnel Management, both signed a teaming agreement for another OPM solicitation. According to the teaming agreement, in the event that IE was awarded a prime contract, IE “agrees to execute a subcontracting agreement” providing for Cyberlock to perform 49% of the work and providing also that IE “will perform 51% of the scope of work.”  Their conduct, as shown in an email between the parties, established that the 49% figure in the teaming agreement meant that Cyberlock was entitled to a 49% share of the value of the Prime Contract. Moreover, both exchanged information pertaining to the nature and scope of work. After Cyberlock did not get the expected subcontract, it sued IE for breach of contract. A federal district judge concluded that this language and conduct was enough to deny IE’s motion to dismiss the lawsuit.

Because a teaming agreement can be such a critical part of a joint marketing effort, the parties must carefully draft it. Berenzweig Leonard routinely drafts teaming agreements for its clients and can make sure that a teaming agreement clearly states the intentions of the parties and avoids the unwanted, unintended consequences of those agreements.

Terrence M. O’Connor is the Director of Government Contracting at Berenzweig Leonard, LLP, a business law firm in the Washington, DC area. He can be reached at TOConnor@BerenzweigLaw.com.

Should 8(a) Contractors Be Worried About An “Unconstitutional” 8(a) Solicitation?

In a decision that will surely be appealed and take years to resolve, a Federal District Court in Washington, DC has concluded that the Small Business Administration’s 8(a) program for small disadvantaged businesses is unconstitutional when the Navy tried to use it in a procurement involving the flight simulator and training industry.

Specifically, the Navy violated a small business’s rights under the 5th Amendment to the U.S. Constitution that guarantees the right to equal protection under the law and due process.  By excluding DynaLantic Corp., a non-disadvantaged vendor, from competing for the work, the Navy violated DynaLantic’s constitutional rights.

Despite the outcome in this case, an 8(a) contractor need not be worried about immediate, significant changes to the 8(a) program. The decision dealt with only one industry. More significant, perhaps, to advocates of the 8(a) program was the court’s conclusion that the SBA’s 8(a) program was constitutional in general. DynaLantic won its case because the government had no data proving discrimination in that one industry, the flight simulator and training industry.

Author Terrence O’Connor is the Director of Government Contracts for the Washington, DC regional business law firm of Berenzweig Leonard,LLP.  He can be reached at toconnor@BerenzweigLaw.com.

To Warn or Not to Warn? - That's the Hot Question

Sequestration is one of the hot issues in DC, thanks to huge budget cuts that are due to hit soon under the Budget Control Act, triggering across-the-board cuts that will eliminate many jobs in the federal government contract arena.  An important issue has now arisen under the Workers Adjustment and Retraining Notification (‘WARN’) Act, which provides that employers with 100 or more employees anticipating a significant layoff must provide at least sixty calendar days advance notice to those who could lose their jobs.  Companies face serious sanctions if they fail to follow the Act.

If sequestration hits as currently planned on January 1, government contractors face loss of funding and would therefore have some of their contracts terminated.  Their affected employees would need to receive WARN notice by the end of October – just a few days before the Presidential election.  Apparently recognizing the sensitivity of this issue, the White House has released a memo telling contractors they do not have to provide WARN notice to employees, and in the event they get hit with legal costs they can pass those along to the government as an ‘allowable cost.’  In our view, this advice is fraught with peril.  The FAR governs what costs are allowable, and running the risk of liability for not providing a statutory layoff notice is not an obvious allowable cost.  Without a contract modification confirming a waiver of indemnification, contractors cannot take the White House memo to the bank.

Some contractors should consider providing WARN notice as an abundance of caution, and let their employees know that if circumstances change to advert a layoff the company will provide timely notification.  “Throwing the dice” by doing nothing and having a general trust in the White House memo, especially when several Senators on the Hill have made it clear they will fervently oppose taxpayer subsidy of such costs, is a dangerous move.

Author Seth Berenzweig is the Managing Partner for the Washington, DC regional business law firm of Berenzweig Leonard, LLP.  He can be reached at sberenzweig@BerenzweigLaw.com.

Government Contractors Entitled to Attorneys’ Fees for Work Changes

Contractors doing changed work under a government contract are entitled to attorneys’ fees according to a recent appeals court decision re-affirming the availability of attorneys’ fees as part of an equitable adjustment for changed work.

When the government ordered Tip Top Construction to change the kind of air conditioner the government had originally wanted to be installed in a Postal Service facility in the Virgin Islands, the company hired a lawyer to help negotiate the price for the changed work. At the end of the negotiations that dragged on for almost a year, the government paid Tip Top for the higher price of the air conditioner but refused to pay for its attorneys’ fees. The Postal Services Board of Contract Appeals agreed, concluding that the attorneys’ fees "had nothing to do with performance of the changed work and were solely directed at trying to convince the contracting officer to accept the contractor's figure for the change and maximizing Tip Top monetary recovery."

The appeals court told the government to pay the attorneys’ fees because they are a typical cost of administering a contract. Whether the negotiations were successful is irrelevant. So is the fact that the attorney’s negotiations had nothing to do with the actual installation of the different air conditioner. Negotiating helps in the long run “regardless of whether a settlement was finally reached or whether litigation eventually occurs because the availability of the process increases the likelihood of settlement without litigation. Additionally, contractors would have a greater incentive to negotiate rather than litigate if these costs of contract administration were recoverable."

Not only are attorneys’ fees paid as part of an equitable adjustments for changed work.  They are also routinely paid as part of a termination for convenience settlement proposal. The rates that an attorney charges must be reasonable but they are not capped by law at any specific hourly rate.

Author Terrence O’Connor is the Director of Government Contracts for the Washington, DC regional business law firm of Berenzweig Leonard, LLP.  He can be reached at toconnor@BerenzweigLaw.com.

Debarment: A Potentially Deadly Problem for Small Government Contractors

A few years ago, a government official made a startling statement about debarment from government contracting.  The statement was startling not because of its content, but because it was made at all, considering the natural tendency of people, including government officials to spin the facts to put themselves and their agencies in the best light.  The government official said: “If you are a small contractor and you do something wrong, we will debar you.  If you are a big contractor and you do something wrong, we will work it out.”  Amazing: candor and truth all in one breath, and from a government official no less.  Big government contractors, fear not!  You are not only too big to fail, but also too big to be debarred.  Big contractors rarely, if ever, are debarred.  I cannot recall that it has ever happened to a big contractor.  The Air Force brags that more than nine years ago it temporarily suspended three business units of Boeing.  That was a long time ago, and even then the Air Force granted temporary waivers of the suspension to permit Boeing to bid on new work.

However, small contractors, watch out!  Debarments are on the rise.  Congress has been pushing departments and agencies to debar more contractors.  The game is on – that is, the numbers game.  Government agencies want to bolster their debarment statistics.  So, who will they debar?  You got it, small contractors!

Small government contractors should educate themselves on the potentially lethal remedy of debarment.  There is too much to cover in a short blog, but here is a fundamental point.  The government starts a debarment proceeding by proposing a contractor for debarment.  The contractor has an opportunity to respond in an effort to convince the government that the contractor should not be debarred.  But, here is the problem for a small contractor.  A proposal to debar has the same practical effect as a permanent debarment.  When the government proposes to debar a contractor, the contractor’s name goes on the Excluded Parties List maintained by the General Services Administration.  That means that the contractor cannot receive any new business from the government – no new contracts, no new purchase orders, no new task orders, and no options on existing contracts.  Bluntly put, the small contractor’s oxygen supply is cut off, and then the question is how long can the contractor hold its breath.

The author is John W. Polk, Special Counsel to Berenzweig Leonard LLP, a business law firm located in the Washington D.C. Metropolitan Area.  John can be reached at  jpolk@berenzweiglaw.com.

Whistleblowing Sounds Again

The Department of Justice recently joined a whistleblower’s lawsuit alleging that The Gallup Organization (Gallup) violated the Truth in Negotiations Act (“TINA”), 10 U.S.C. §2306a, in United States ex rel. Lindley v. Gallup, DCDC No. 1:09cv01985.

TINA provides that (in most cases), before the government awards a sole source contract, the contractor must submit and certify “cost and pricing data” on which the contractor bases its estimated cost of providing the goods of services, including labor hours required to perform the work.  If a contractor submits false cost or pricing data the contractor commits misconduct commonly referred to as “defective pricing.”  If a contractor knowingly engages in defective pricing, then the contractor violates the False Claims Act.

According to the allegations, Gallup compensated its employees based, in part, on the gross margin generated by projects for which the employees were responsible.  Under Gallup’s pay-for-performance system, employees received incentive compensation based on the projects gross margin – i.e., the difference between total costs and revenue.  Gallup had many years of historical data showing the cost of performing contracts.  The complaint alleges that Gallup employees submitted false cost and pricing data to the government, inflating the supposed cost of performing contracts in order to artificially increase the price of the contracts.  The employees kept a separate internal set of books showing the actual lower costs which the Gallup used to calculate its gross margin and the amount of the employees’ incentive pay.

The complaint also alleges other misdeeds by Gallup, including shifting costs from fixed-price to cost-plus contracts, improperly upgrading labor categories, and conflicts of interest.  But the flagship allegation is the alleged violation of TINA.  The fact that Department of Justice has joined the lawsuit shows that DoJ believes that the whistleblower’s claims have substantial merit.

Gallup’s compensation system is an example of how a compensation system that was intended to incentivize employees to increase the company’s gross margin by reducing costs can have the opposite effect of encouraging employees to increase profit margins by submitting false cost and pricing data, thereby fraudulently inflating the price of sole source contracts.  As this case illustrates, it is important for contractors to carefully assess their compensation systems to assure they do not encourage fraud.

The author, John W. Polk, is an attorney with Berenzweig Leonard LLP located in the Washington, D.C. region.  He can be reached at jpolk@berenzweiglaw.com.

Make It Easier To Do Business With The Government

Although vendors can give the government a “proposal acceptance period” after which the vendor’s prices are no longer valid, the government can ask vendors to extend that period so the government can have more time to evaluate offers. When asked to extend, it’s risky to refuse because reviving an expired bid, although possible, is by no means a sure thing.

In a recent case, Global Automotive, Inc. agreed to several extensions of its bid acceptance period but refused to extend the period to February 29, 2012 saying that “Our prices are valid until 1 February only and we reserve the right to adjust prices thereafter.” After the government awarded the work to another vendor on April 10th, Global protested to the Government Accountability Office (GAO) arguing that the government should have allowed Global to “revive” its expired bid.

According to GAO, it is possible for a vendor to revive an expired bid and extend its prices after-the-fact, but not under these circumstances. Global’s refusal to extend the acceptance period had tried to give Global “the right to adjust prices thereafter.”  This unfairly put Global in the position of unilaterally setting the revived price which, if market trends had allowed lower prices, would have been unfair to other vendors.

As this case shows, it’s easier to simply extend acceptance periods than to have to rely on the government allowing you to revive your expired prices.

Author Terrence O’Connor is the Director of Government Contracts for the Washington, DC regional business law firm of Berenzweig Leonard, LLP.  He can be reached at toconnor@BerenzweigLaw.com.

Are Small Business Set Asides Now Illegal?

In a recent legal decision that could have a big impact on contractors, the D.C. federal court has ruled that awarding contracts to minority owned companies under the government’s  Section 8(a) Program may be unconstitutional.  The 8(a) Program was designed to remedy past effects of discrimination against minority businesses by providing preferential award of certain contracts.

DynaLantic Corporation sued the Defense Department alleging that a DoD contract award to a minority owned company for flight training equipment was illegal, since the 8(a) set-aside Program was allegedly unconstitutional under the equal protection clause of the Fifth Amendment to the Constitution.  DynaLantic is a small business but is not minority owned.

The DC court ruled that the 8(a) Program is constitutional on its face.  However, the court also ruled that the way DoD applied the program with respect to the award involving DynaLantic was unconstitutional.  In its decision, the court upheld the overall Program due to the Congressional record reflecting statistical evidence of racial discrimination, but concluded that the Program “as applied” was unconstitutional because the government failed to present evidence of actual discrimination in the applicable industry.

The implications of this ruling are significant, since the government may not want to go through the steps of compiling a record of discrimination in each specific industry it wants to issue a contract under the 8(a) Program.  Certain industries may also have different statistics that may leave the question of discrimination subject to dispute.  Government contractors need to be aware of this decision and be prepared for new battles that may now involve a constitutional controversy impacting small businesses in DC and throughout the United States.

Author Seth Berenzweig is the Managing Partner of D.C. regional business law firm, Berenzweig Leonard, LLP.  He can be reached at sberenzweig@berenzweiglaw.com.

Does a Previous Equitable Adjustment Guarantee Another Under Similar Circumstances?

Although the government can be flexible and agree to pay an equitable adjustment for extra work on a fixed-price government contract instead of fighting a claim, doing so just once does not create a “course of dealing” that guarantees the government must always do so in the future.

In a recent decision, although the IRS had paid a snow removal contractor an extra $109,000 for removing 3 times the expected snowfall at its Ogden, Utah office during the 2007-2008 winter, a different Contracting Officer refused to pay extra for an equally-heavy snow removal effort by the same contractor the next winter. The Civilian Board of Contract Appeals (CBCA) agreed with the new Contracting Officer’s refusal to pay. Although precedent held that, for example, the government could not refuse to make an exception on the 8th time after agreeing to do so for 7 previous times, a single transaction cannot create a course of dealing.

As the decision shows, contractors cannot assume that the government will continue to pay for extras unless it has done so numerous times before. This is especially true because, over the course of a multi-year contract, the Contracting Officers will very likely change.  Therefore, it is critical that contractors get written confirmation before performing additional work and keep good records to demonstrate that costs for a future equitable adjustment are similar to expenses  previously covered by the government.

Author Terrence O’Connor is the Director of Government Contracts for the Washington, DC regional business law firm of Berenzweig Leonard,LLP.  He can be reached at  toconnor@BerenzweigLaw.com.

False Bidding Estimates = Fraud

Extreme competition among government contractors for ever-increasing federal dollars has sparked a wave of “how low can you go” bidding wars among contractors.  Although a bidder may want to submit low bid prices to win a cost-reimbursement contract, the bids must be the actual prices and must have the facts to support  them.  

A recent federal court case involving a large government contractor confirms that purposefully bidding prices lower than the actual charge can constitute fraudulent bidding under the False Claims Act.  In the case, the contractor’s initial bid prices came in too high so they lowered the bids without considering the actual cost.  The contractor won the contract but a whistleblower successfully claimed that the contractor’s bidding process violated the FCA.  Although bids are only estimates and opinions, they must have some facts justifying them.  This decision shows that courts will continue to broadly interpret the False Claims Act.

The decision highlights a solid government contracts principle:  always make sure that your bid prices are backed up with solid pricing and market research data to avoid costly bid protests, FCA treble damages, and findings of non-responsibility based on ethical and legal violations.

Katie Lipp is an Associate Attorney with Berenzweig Leonard, LLP, a business law firm in the DC region.  She can be reached at klipp@BerenzweigLaw.com.  Terry O’Connor is the Director of Government Contracts for Berenzweig Leonard, LLP and can be reached at toconnor@BerenzweigLaw.com.

The Federal Government Encourages Contractors to Adopt Policies Against Texting While Driving

The dangers associated with texting while driving are well known. Today, thirty-nine states, D.C., Guam and the Virgin Islands ban text messaging for all drivers.   On August 4, 2011, the FAR was amended to include Clause 52.223-18, Encouraging Contractor Policies To Ban Text Messaging While Driving. This rule was published in response to Executive Order 13513, entitled “Federal Leadership on Reducing Text Messaging while Driving,” which requires each Federal agency to encourage contractors and subcontractors to adopt and enforce policies that ban texting while driving.  Agencies are now required to insert FAR 52.223–18 in all solicitations and contracts.

Paragraph (c) of this Clause encourages contractors to: 

(1) Adopt and enforce policies that ban text messaging while driving--
(i) Company-owned or -rented vehicles or Government-owned vehicles; or
(ii) Privately-owned vehicles when on official Government business or when performing any work for or on behalf of the Government.
(2) Conduct initiatives in a manner commensurate with the size of the business, such as--
(i) Establishment of new rules and programs or re-evaluation of existing programs to prohibit text messaging while driving; and
(ii) Education, awareness, and other outreach to employees about the safety risks associated with texting while driving.

Paragraph (d) of the Clause also requires contractors to insert the substance of this clause in all subcontracts that exceed the micro-purchase threshold.

Although the implementation of the policies set forth in FAR 52.223-18(c) is not mandatory, government contractors and subcontractors should seriously consider the benefits associated with adopting policies against texting while driving. Not only could such policies head off possible accidents caused by distracted driving, but they could help insulate the company from liability should an employee cause an accident by texting while driving while arguably acting “in the scope” of his or her employment.

Stephanie Wilson is a Senior Associate at the business law firm Berenzweig Leonard, LLP, located in the Washington, DC region. She can be reached at swilson@berenzweiglaw.com.

Pay Attention to Payment Clauses in Contracts

Under a Labor Hour contract, a government contractor can legally be paid for 50 hours of work performed by a salaried employee in one week, even though that employee does not receive more than what his salary pays based on 40 hours per week. Although the government claimed that this would let a contractor “pocket undue windfall profits at taxpayer expense," the Armed Services Board of Contract Appeals (ASBCA) concluded that the contract required payment.

The contract’s payment clause (FAR 52.232-7 Payment Under Time-and-Materials Labor-hour Contracts [FEB 2007]) required the government to pay the contract’s “hourly rates …for all labor performed on the contract that meets the labor qualifications specified in the contract.” According to the board, as long as the salaried employees received their salary, the government was obligated to pay the contractor for the 50 hours worked by these employees, as long as the contractor paid those employees their salary based on a 40-hour work week.

As this decision makes clear, it is critical to carefully read the specific payment clause in the contract as there can be significant differences among the more than half-dozen payment clauses available to the government.

Author Terrence O’Connor is the Director of Government Contracts for the Washington, DC business law firm, Berenzweig Leonard, LLP.  Email Terrence O'Connor 

Be Safe: Interpret "Should" In An RFP To Mean "Shall"

Although the English language clearly distinguishes the words "should" and “may” from the word “shall,” GAO does not. Recently, an RFP from the CIA required offerors to provide resumes for all personnel. KPMG submitted resumes for all personnel to be used not only for the initial performance period but also for the out years despite a letter from the agency during discussions that it “should” do so. Based perhaps on an ambiguous agency discussions letter to Deloitte that also included the word “should” regarding resumes, Deloitte did not submit resumes for personnel to be used during the out years and won.   


When KPMG challenged the different way the CIA treated the resume requirement, the CIA defended this difference by claiming that "should" does not mean “shall.”

GAO disagreed: "in the context of the discussions at issue, a reasonable offeror would understand that the agency's discussions established a duty; that is, if KPMG wished to be considered compliant with the RFP, it was required to submit resumes for all proposed personnel from all five years of contract performance. As we have noted previously, terms like ‘may’ and ‘should’ are capable of expressing a mandate."

It’s smart to play it safe and interpret “should” as “shall” – especially with resumes that typically do not count against any proposal page limits that may be limiting how much material you can submit when seeking a government contract.

KPMG LLP, B – 406409; B – 406409.2; B – 406409.3; B – 406409.4, May 12, 2012.

Author Terry O’Connor is the Director of Government Contracts for the Washington, DC business law firm, Berenzweig Leonard, LLP and has written five books on government contracts law.

Consider a CTA to increase your profits

Government contractors may be missing out on new business opportunities available under the GSA Federal Supply Schedule (FSS). A recent decision shows how to take advantage of a teaming opportunity unique to the GSA Federal Supply Schedule: the GSA FSS CTA.  


Although teaming in government contracting is common among vendors, it can take a variety of forms. FAR Subpart 9.6, covering “Contractor Team Arrangements,” describes partnerships, joint ventures, and prime-subcontractor arrangements as CTAs.  A unique type of CTA is the GSA Schedule CTA, a particularly useful approach because it allows vendors who have an FSS contract for some but not all of the work the government needs under a particular solicitation to team with another vendor to fill in that gap with its own FSS contract.

Litigation highlighting the rights of CTA team members is rare. However, the Civilian Board of Contract Appeals recently concluded that an individual member of a GSA Schedule CTA, as opposed to the CTA’s team leader, can file and recover a payment claim for work that it did under its own FSS contract as part of the CTA.  Lockheed Martin Aspen Medical Services v. Dept. of Health and Human Services.  
Companies need to be aware of this important development and learn more about its business options including CTAs, which present a unique opportunity to directly generate and get paid for work without relying on any assistance from a prime or team leader.

Contracting options and rights expand

A recent Board of Contract Appeals case highlights that government contractors may be missing out on new business opportunities available under the GSA Federal Supply Schedule (FSS) by not taking advantage of a direct teaming opportunity unique to the GSA FSS.

Although teaming in government contracting is common among vendors, it can take a variety of forms.  FAR 9.601 describes some of them, including a “contractor team arrangement” (CTA).  This differs from more traditional arrangements, such as teaming agreements and joint ventures.  One variation of such an arrangement is the GSA Schedule CTA, a particularly useful approach because it allows vendors who have an FSS contract for some but not all work the government needs under a particular solicitation to team up with another vendor to fill in that gap with its own FSS contract.

Litigation highlighing the rights of CTA team members is rare. However, the Civilian Board of Contract Appeals recently resolved the issue of whether an individual team member, as opposed to the team leader, can file and recover a payment claim.  In Lockheed Martin Aspen Medical Services  v. Dept. of Health and Human Services, a CTA member appealed an adverse decision by a contracting officer rejecting a claim for payment, where the government asked the Board to dismiss the case since it was not filed by the CTA team leader whose name was actually on the underlying contract. According to the government, the company filing the claim was not in privity with the government, but was simply a subcontractor and therefore had no right to pursue the case.

The Board nevertheless rejected the government’s argument for dismissal and concluded that the member of the CTA was in privity with the government because the agency itself had dealt directly with each team member.  Since the petitioner provided services under its own FSS contract, the contractor was deemed to possess an existing government contract under which it was providing services to the government, rather than stemming from a prime contract that flowed down to subcontractor.  Companies need to be aware of this development and learn more about its options including CTAs, which present a unique opportunity to directly generate and get paid for work without relying on any assistance from a prime or team leader.