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.