What Clauses in Your Teaming Agreements Are Enforceable?

If teaming agreements are not enforceable, are they worth the time and effort government contractors spend negotiating them? Ideally, every clause in a procurement staple like a teaming agreement should be enforceable in every courtroom in the country. That is not the case, however. Recently, a judge on the Fairfax County Circuit Court in Virginia refused to enforce a standard teaming agreement clause calling for post-award good faith negotiation of a subcontract between team members.

Government contractors, however, should not misinterpret this decision from one state court dealing with one teaming agreement clause. The decision applies only Virginia legal precedent. The court’s interpretation of the teaming agreement’s post-award “subcontract negotiation” clause did not involve interpretation of pre-award teaming agreement clauses like those protecting a team member’s proprietary bidding information, or requiring team cooperation in preparing a potentially winning proposal. Thus, the decision does not mean that all the terms of any teaming agreement are unenforceable in every court.

The critical take-away here is that a teaming agreement remains a valuable document:

• A teaming agreement’s pre-award provisions are enforceable in Virginia and other states. 
• A teaming agreement’s post-award provisions are enforceable in other jurisdictions including Delaware, New York, D.C. 

In addition, the value of teaming agreements to both the government and contractors is acknowledged in FAR 9.602(a):

Contractor team arrangements may be desirable from both a Government and industry standpoint in order to enable the companies involved to (1) complement each other's unique capabilities and (2) offer the Government the best combination of performance, cost, and delivery for the system or product being acquired. 

Teaming agreements will continue to be valuable documents. The lesson the Virginia decision teaches is that government contractors need to know the limits of a teaming agreement in their jurisdiction and understand how to work within these limits.

Terrence O'Connor is the Director of Government Contracts for Berenzweig Leonard, LLP, a business law firm in the D.C. region. Terry can be reached at toconnor@berenzweiglaw.com.

New Rules Create Opportunities for Government Contractors

In the last several months, the government issued new regulations that can benefit all government contractors and especially small businesses. Berenzweig Leonard wanted to summarize them so government contractors can take advantage of these opportunities as well as be aware of the two “Cautions” we describe at the end.  

NEW SBA RULES

The SBA adopted new rules that (1) let a small business prime use the work of another small business to meet the 50% performance of work requirement; and (2) let all small businesses qualify as protégés to joint venture with large business for small business set-aside work.  

1. Now, when complying with the performance of work requirements in the Limitation on Subcontracting clause:  

• A small business prime does not have to reach that 50% on its own. A small business first-tier subcontractor may contribute to the prime’s 50% performance requirement so long as both are the “same” kind of small business; e.g., an 8(a) prime and an 8(a) first-tier sub, HUBZone prime and HUBZone first-tier sub, now called “similarly-situated entities.”
  
• Compliance must be year-by-year. Compliance cannot be met over the total life (e.g., base year plus options years) of the contract.  
  
• The total contract award (cost plus profit) will be used to measure compliance. Gone is compliance based on the cost of personnel.

2. Now, under the greatly expanded Mentor-Protégé program:

• Any small business can be a protégé. Thus, a large business mentor may joint venture with any small business protégé to compete for small business contracts. However, to be eligible to joint venture for a HUBZone contract, for example, the protégé must be a HUBZone small business.
  
• Any small business can be a mentor. Not only a large business can be a mentor; any small business can also be a mentor. Thus, a small business may joint venture, for example, with a HUBZone small business to compete for a HUBZone contract.     

NEW FAR RULES

New FAR rules penalize large businesses that abuse small business subcontractors.

Large businesses must report “bait-and-switch” of small business subcontractors. The large business’s Small Business Subcontracting Plan must contain “assurances” that it will make a good faith effort to use a small business during contract performance as its solicitation promised; failure to use small business subcontractors must be reported to the contracting officer at the end of performance, apparently for the contracting officer’s use in the contractor’s past performance evaluation.

Large businesses cannot silence small businesses. The Subcontracting Plan must also contain assurances that the contractor will not prohibit a subcontractor from discussing payment or utilization issues with the contracting officer.

TWO CAUTIONS 

First, although government contractors must pay close attention to these changes because they affect future contract opportunities, retroactivity should not be a concern. These new regulations will not change existing contracts.    

Second, delay in applying to the SBA for the Mentor-Protégé program can be costly. Because the SBA expects a flood of applications, the SBA itself has raised the possibility of closing the application process down temporarily. Contractors should file Mentor-Protégé applications as soon as possible after August 24, 2016, the effective date of the new regulations.

Terrence O'Connor is the Director of Government Contracts for Berenzweig Leonard, LLP, a business law firm in the D.C. region. Terry can be reached at toconnor@berenzweiglaw.com.

SBA Opens $2 Billion Market to Expanded Mentor-Protégé Program

An estimated $2 billion annual government contract market has been opened up to an estimated 2,000 small businesses, according to the SBA, as a result of its recently-expanded Mentor-Protégé program.

All small businesses, and not just 8(a) firms, may now become protégés to joint venture with large businesses – and even other small businesses – competing for small business set-aside contracts as part of the SBA’s “all small business” Mentor-Protégé program.

The SBA has expanded the reach of the new program even wider, to include specific types of small business: HUBZone small businesses, Service Disabled Veteran Owned Small Businesses, 8(a) firms and Woman Owned Small Businesses. For example, a HUBZone small business can joint venture with a non-HUBZone firm (large or small) on a HUBZone set-aside solicitation.

Getting these benefits requires, at minimum, that the Mentor-Protégé team submit an application to the SBA for approval. Modeled after the 8(a) Mentor-Protégé program application, the all small business Mentor-Protégé application must describe the protégé’s needs, the assistance the mentor will provide (e.g., management and/or technical assistance, loans and/or equity investments, cooperation on joint venture projects, or subcontracts under prime contracts being performed by the mentor), and how this assistance will meet the protégé’s needs.

Also modeled after the 8(a) Mentor-Protégé program is the written joint venture agreement that the SBA requires to allow mentors and protégés to get the expanded contract benefits described above.

Berenzweig Leonard is well equipped to help its clients apply for the expanded Mentor-Protégé process as well as execute compliant JV agreements because we have helped our clients through the 8(a) Mentor-Protégé program on which the new Mentor-Protégé program is modeled.

We add one caution: SBA expects that the significant opportunities opened up by the new Mentor-Protégé program will lead to a flood of applications, and has raised the possibility of closing the Mentor-Protégé application process temporarily to deal with any backlog.

For that reason, we are urging interested clients to file Mentor-Protégé applications as soon as possible after the October 1, 2016 start of SBA acceptance of applications. Delay in applying can seriously delay benefitting from the new Mentor-Protégé program.

Terrence O'Connor is the Director of Government Contracts for Berenzweig Leonard, LLP, a business law firm in the D.C. region. Terry can be reached at toconnor@berenzweiglaw.com.

New Laws May Not Impact Your Existing Contract

Government contractors trying to cope with the current flood of new laws, executive orders, and regulations need to remember that these changes generally do not re-write their existing government contracts. Although the President may sign new Executive Orders and federal agencies may adopt new regulations, the terms and conditions of an existing contract do not automatically change. A “deal is a deal” even with the government.

This stability may seem strange to contractors familiar with the various FAR Changes clauses that allow the government to make unilateral changes to existing contracts. Those clauses, however, do not allow the government to unilaterally re-write a government contract. The standard FAR Changes clause in a non-commercial item contract typically allows unilateral changes to the contract’s drawings and specifications but the terms and conditions are generally considered not part of the contract’s “specifications” subject to the Changes clause. New FAR clauses can, of course, be inserted into non-commercial item contracts if the contractor receives consideration.

Nor can the government unilaterally change the terms and conditions of a commercial-item contract. The standard Changes clause in those contracts requires both the government and the contractor to agree to any changes.  Again, new FAR clauses can be inserted into commercial item contracts if the contractor receives consideration.

What are the rules for FAR clauses in a pending solicitation? According to FAR, new FAR regulations generally apply only “to solicitations issued on or after the effective date of the change.” FAR 1.108(d)(1). New FAR provisions, however, can apply to a solicitation if they were in a solicitation issued before that effective date and the contract was awarded after that effective date.

This “effective date” rule is also followed by the SBA. The SBA regulations in effect on the date the government issues the solicitation are the applicable SBA regulations according to the SBA’s Office of Hearings and Appeals. Size Appeal of VMD-MT Security, LLC, SBA No. SIZ-5380 (2012).

Finally, the Executive Orders issued over the past several years also focus on the date a solicitation was issued. For example, Executive Order 13658, Establishing a Minimum Wage for Contractors applies to contracts for which the solicitation was issued on or after January 1, 2015.

Bottom line: although you have to pay close attention to this deluge of changes because they affect your future contract opportunities, retroactivity should not be a concern. The deal you have already made with the government stays unchanged.  

Terrence O'Connor is the Director of Government Contracts for Berenzweig Leonard, LLP, a business law firm in the D.C. region. Terry can be reached at toconnor@berenzweiglaw.com.

Reports of New Balance's "Bribe" Claim Are Off Balance

As government contractors are well aware, media efforts to accurately report government procurement issues are often unsuccessful. A Washington Post article inaccurately reported in 2013 that “Fewer than 15” GAO  protests, about 1% of the roughly 1600 GAO protests filed in 2010, resulted in the protester winning the contract. However, detailed studies by government contract experts put the number much higher at approximately 20-29%.

This week, several media reports have suggested that shoe manufacturer New Balance decided to publicly oppose the U.S. government’s proposed trade deal, the Trans-Pacific Partnership (TPP), because the Department of Defense (DoD) has so far refused to award New Balance a contract for military shoe business. One story led with “The Obama administration offered the American shoe company New Balance government contracts so that they wouldn’t call foul on the Trans-Pacific Partnership.” Another referred to the Obama Administration “bribing” New Balance with the promise of a DoD contract in exchange for New Balance not opposing TPP.

In reality, New Balance had specifically denied that there had ever been any bribe. The reported stories grew out of a press conference New Balance CEO Rob DeMartini held on April 12th at which he discussed New Balance’s recent opposition to TPP. However, unreported is his statement denying any bribe: “There was no quid pro quo deal. We didn’t want an earmark contract,” DeMartini said at the press conference. “We wanted to compete for a piece of business we’re very confident we can win.”

So the “bribe” part of these reports is fiction.

Other outlets added helpful context. Although DeMartini expressed an interest in competing for the work, Fox News reported that New Balance has in fact competed – unsuccessfully so far. Fox quoted an Obama administration trade official saying that New Balance “has not yet been able to provide a model that meets DoD’s requirements for our servicemembers.” Another outlet reported that “none of the three New Balance shoes offered for consideration met the agency’s cost requirements and one did not meet durability standards.”

In sum, New Balance has had the opportunity to compete but few media outlets discussed the procurement concepts of best value to the government and war fighter. The complexity of the procurement process makes our profession an easy target for sensational claims. Where are the fact-checkers when we need them?

Terrence O'Connor is the Director of Government Contracts for Berenzweig Leonard, LLP, a business law firm in the D.C. region. Terry can be reached at toconnor@berenzweiglaw.com.

If an Agency Does Not Answer Your Questions, Keep Asking

If used wisely and persistently, the Q & A part of the solicitation process can mitigate numerous contractor risks. One of those risks is the risk of winning a contract with a vague statement of work that exposes a contractor to overruns; another is the risk of losing a contract because a bidder misinterpreted ambiguous solicitation instructions to bidders.

As a recent GAO decision shows, it pays for a bidder to keep asking the agency to clarify a vague solicitation if the Q&A fails to do so and even, as another decision holds, if the government has said it will take no more questions.

In a solicitation that limited offerors to giving past performance references on no more than 3 projects, the RFP’s instructions were unclear about whether the offeror’s involvement in the 3 projects had to be as a prime or as a subcontractor. During the Q&A, several offerors asked for clarifications, but the government’s answers only confused things more. One offeror wanted a clear answer so, six days before the offer due date, it asked the government to further clarify its previous answer. After the government failed to do, the offeror submitted its offer but lost to a company that, under the vague instructions to offerors, the agency concluded had better past performance references and a slightly lower price.

The offeror protested to GAO and won in two ways. First, GAO recommended that the agency clear up the ambiguous past performance requirements via an amendment and get new offers, giving the protester a second chance to win the work. Second, GAO said the protester – a small business – was entitled to get protest costs and attorneys’ fees from the agency.

GAO’s decision is consistent with other protest decisions, one of which held that an offeror should keep asking the government questions even if the government has said it would not accept any more.

This persistence the case law demands seems to run against the business instincts of many offerors; they are reluctant to challenge the agency in the middle of a solicitation because it seems like a bad business strategy and may cause offense.

It is not. Keeping after the government for a clear answer can benefit a government contractor, win or lose. If it wins the work, its pre-award attempt to clear up an ambiguity generally entitles it to an equitable adjustment to pay for the work the government had only vaguely described in the solicitation. On the other hand, if it loses the work, it can argue that its continued questioning protects its right to protest.

In addition, bidders sometimes must take bidding risks because the risk of not bidding seems unacceptable. Especially in these cases, persistent questioning is a must and can help protect the company in an already challenging environment.  

Terrence O'Connor is the Director of Government Contracts for Berenzweig Leonard, LLP, a business law firm in the D.C. region. Terry can be reached at toconnor@berenzweiglaw.com.

Don’t Hedge Your Bets on a Fixed-Price Bid

Because a firm fixed-price contract commits a contractor to paying for overruns and unexpected performance costs, a bidder might be tempted to hedge its bets when submitting a bid for a fixed-price contract. For example, a bidder might “reserve all rights” to a future equitable adjustment if some costly, unexpected event occurs.

Doing so, however, can be fatal to winning the contract. A bidder trying to hedge its bets can end up submitting a “contingent offer” that disqualifies the bidder from winning the work. In one case, a bidder’s offer to provide professional radiology services at a government clinic was a disqualifying conditional offer because the bidder required “reimbursement for the full cost of adequate malpractice insurance coverage, whatever this cost may be, during the life of any contract awarded.” GAO concluded that the bidder had not submitted a firm, fixed-price offer.

A more subtle example of a disqualifying conditional offer involved a contract where, according to the solicitation, most of the work would be performed at the contractor’s site although some work would be done at the government site. The bidder’s offer was found to be a disqualifying conditional offer because its bid was based on more work being done at the lower-priced government site than the solicitation anticipated.

Whether a bid is firm or conditional depends on the precise wording a bidder uses. A recent GAO decision distinguished between a disqualifying “right to receive a price adjustment” vs. an allowable “right to request a price adjustment.” According to GAO, a bidder can properly reserve the right to negotiate an equitable adjustment or the right to ask the Government to consider a specific extra cost because the agency in turn could refuse any increase.

Hedging bets in any way, however, is risky. A reservation that seems proper to a bidder might be considered improper by GAO. A recent GAO decision concluding that a bidder’s “reservation” was proper involved this bidder statement: “It is assumed that as the Technical Landscape changes over time and the team requires new or additional skills, the pricing of the team can be renegotiated.” Does that statement sound more like a right to “receive” or a right to “request” an increase?

Moreover, although winning the protest at GAO was good news for the bidder, the win was costly. The bidder’s language needlessly gave a competitor an argument for a protest that the bidder then had to spend money to defend.

In the end, although reservations of rights might make a bidder feel better, they are risky and often unnecessary. Contractors always have the right to request an equitable adjustment for changes. The most prudent approach, therefore, is to avoid altogether using any language that could be construed as qualifying your bid or giving a competitor a protest argument. Hedging your bid with a conditional offer is risky business and could cost you the contract.

Terrence O'Connor is the Director of Government Contracts for Berenzweig Leonard, LLP, a business law firm in the D.C. region. Terry can be reached at toconnor@BerenzweigLaw.com.

The Best Way to Negotiate a Fair Profit on Equitable Adjustments

When the government changes a contractor’s work, the contractor is entitled to an equitable adjustment under the Changes clause for not only any increased costs but also for profit on those costs.

Negotiating a fair profit presents a problem. The typical contractor is reluctant to harm its relationship with its customer, particularly in this time of dwindling agency budgets. The result is often that the contractor agrees to profit being based on one of two low-profit approaches: the loss-leader profit percentage the contractor used to win the contract or the profit percentage a contracting officer says is typical and not controversial for the agency.

FAR, however, rejects both approaches: “Negotiation of extremely low profits, use of historical averages, or automatic application of predetermined percentages to total estimated costs do not provide proper motivation for optimum contract performance.” FAR 15.404-4(a)(3).

Case law agrees with FAR, explaining that, even though a contractor wins with loss-leader profit figures, “a contractor is not then generally bound to those markups for all and any subsequent changed work…a change is priced separately as an equitable adjustment and as such is to reflect the normal costs and markups for the work.” Flathead Contractors, LLC, v. USDA, CBCA No. 118-R, October 2, 2007.

FAR demands, instead, that profit act as “a motivator for efficient and effective contract performance” and makes profit depend generally on contractor effort and contract cost-risk.

For example, there is more “contractor effort” required for removing asbestos from a room than for painting the room. Profit then should be higher on an equitable adjustment for the asbestos removal work. There is also more “contract cost-risk” in fixed-price work than in cost-plus-fixed-fee work because the contractor is responsible for any overruns on a fixed-price contract. Profit, therefore, should be higher for fixed-price work.

Moreover, although federal law limits profit on a cost-reimbursement contract’s estimated costs, there is no federal law limiting profit on fixed-price work.

Clearly, profit is not a dirty word in FAR. The government is supposed to use profit to motivate quality contractor performance based on contractor effort and contract cost-risk. When it bases equitable adjustment profit on loss-leader percentages or agency-accepted percentages, the government does not motivate contractors nor comply with FAR.

Contractors should use the FAR profit principles in negotiating a fair profit on an equitable adjustment. These principles provide a profit rationale that the government must by law consider.  

Terrence O'Connor is the Director of Government Contracts for Berenzweig Leonard, LLP, a business law firm in the D.C. region. Terry can be reached at toconnor@berenzweiglaw.com.

Agencies Cannot Use Their Websites as Substitutes for FedBizOpps.gov Notices

Although government contractors have a duty to keep alert for contracting opportunities, agencies have a duty to use FedBizOpps.gov, and not their own websites, to give contractors FAR-required notice of those opportunities. Posting notices of solicitations, amendments, and awards on internal websites like the DLA internet bid board system (DIBBS) or the Army Single Face to Industry (ASFI) website is not enough. Unless the agency has posted notices on FedBizOpps.gov, the agency has not given contractors proper notice, according to several recent protest decisions of the Government Accountability Office (GAO).

In one case, the Army issued via ASFI a significant solicitation amendment one week before the due date for bids, but for technical reasons the amendment was not posted on FedBizOpps.gov until 7 PM the night before bids were due. GAO concluded that the Army did not give vendors sufficient FedBizOpps.gov notice, and recommended that the Army reopen the solicitation and set a new due date for bids.

In another case, a contractor learned about a DLA opportunity only after seeing in FedBizOpps.gov DLA’s notice of a purchase order award. After the contractor protested to GAO the agency’s failure to give FedBizOpps.gov notice of the solicitation itself, DLA claimed that the contractor should have seen notice of the solicitation posted on DIBBS and therefore the contractor’s protest was too late. GAO disagreed, holding that the contractor’s protest clock began only after DLA posted notice of the award on FedBizOpps.gov.

Contractors surprised by agency contract awards should not let an agency claim they should have known about the opportunity. Notice of a potential business opportunity is at the heart of full and open competition. Notice of an agency’s award of that business opportunity is at the heart of a contractor’s right to protest.

Terrence O'Connor is the Director of Government Contracts for Berenzweig Leonard, LLP, a business law firm in the D.C. region. Terry can be reached at toconnor@berenzweiglaw.com.

Documents With Short Approval Deadlines Must Be Carefully Drafted

Short deadlines leave little room for error. When the government gives a contractor a short document approval deadline, the contractor’s initial submission should strictly follow regulations because there may not be time for required revisions, as an 8(a) joint venture found out recently.

In that case, the only remaining approval the JV needed to be awarded an 8(a) Army contract was the Small Business Administration (SBA)’s approval of the 8(a) JV Agreement. Unfortunately for the JV, the SBA by law had only five business days to approve the agreement. Because the JV had not properly drafted the agreement it originally submitted to the SBA, five business days was not enough time for the SBA to review and approve a revised agreement. After time ran out on both the SBA and the JV, the Army awarded the work to another 8(a).    

The JV’s loss of the Army contract was unfortunate and probably preventable. The agreement initially drafted by the JV and sent to the SBA for approval omitted several provisions specifically required by SBA regulations. If experienced legal counsel had been involved in the drafting of the JV agreement from the start, these required clauses would have been included in the initial JV agreement, and the short SBA deadline would most likely not have prevented the JV from getting the work.

The decision shows that getting experienced legal counsel to carefully draft foundation documents is essential to winning government contracts, especially when approval deadlines are short and leave little time for error.    

Terrence O'Connor is the Director of Government Contracts for Berenzweig Leonard, LLP, a business law firm in the D.C. region. Terry can be reached at toconnor@berenzweiglaw.com.

Poorly Drafted Subcontract “Work Share” Clauses Can Be Costly

Work share – how much work a prime contractor is guaranteeing a subcontractor -- is perhaps one of the most important clauses in a subcontract. It is a mistake, therefore, to draft this critical clause without considering the language of the other subcontract clauses. Language in a subcontract’s “Definitions” section can severely limit a subcontractor’s work share.

After winning an Army contract for interpreter and translation services, a prime contractor in a recent case signed subcontracts with various linguist providers. One linguist subcontract established a work share of “15% of the services to be provided under the Prime Contract.”  That subcontractor believed that it was entitled to 15% of all prime contract revenue. However, the prime contractor pointed out that the Definitions clause defined “services” in a more severely limited way -- to mean “all linguist services” to be provided under the Prime Contract. The court concluded that the prime’s interpretation had merit.

As this case shows, it is not wise to focus solely on any one subcontract provision-- here the work share provision. Nor is it wise to routinely rely on “model” or template subcontracts. Time spent thinking more clearly about subcontract clauses, especially critical clauses like work share clauses, is time well spent.  

Terrence O'Connor is the Director of Government Contracts for Berenzweig Leonard, LLP, a DC regional business law firm. Terry can be reached at toconnor@berenzweiglaw.com. 

Pay Transparency Final Rule Imposes New Obligations on Federal Contractors

The Office of Federal Contract Compliance Programs (OFCCP) recently published a final rule imposing new obligations on federal contractors when it comes to pay transparency. This new rule, which according to the Administration seeks eliminate pay secrecy that can inhibit employees from exercising their rights to seek redress for discriminatory pay practices, is another in a line of several new labor obligations placed on federal contractors.

The final rule issued by the OFCCP prohibits contractors from discharging or discriminating against any employee or job applicant because the employee or applicant inquired about, discussed, or disclosed the compensation of the employee or applicant or another employee or applicant. An exception exists for employees that have access to compensation as part of their essential job functions. The rule does not require contractors and employees to disclose such information upon request, but rather prohibits adverse action against those who choose to do so.

The pay transparency final rule also imposes affirmative obligations on federal contractors and subcontractors. Specifically, the final rule requires that the equal opportunity clause included in covered federal contracts and subcontracts state that contractors and subcontractors are prohibited from discharging or discriminating against employees or applicants who inquire about, discuss, or disclose their compensation or the compensation of other employees or applicants. The final rule also requires that federal contractors incorporate a prescribed nondiscrimination provision into their existing employee manuals or handbooks and disseminate the nondiscrimination provision to employees and job applicants.

Federal contractors will need to take affirmative steps in the coming months to comply with this new rule, which goes into effect on January 11, 2016. They must make sure that their subcontracts include the amended equal opportunity clause that includes the prohibition against retaliation or discrimination for discussing employee compensation. Federal contractors must review and amend their policies and practices to avoid any implication that they prohibit or tend to prohibit employees or applicants from discussing pay, as well as update their employee manuals and handbooks to include the prescribed nondiscrimination provision. Federal contractors must also disseminate through electronic and/or physical postings the prescribed provision to their employees and job applicants, and post the updated “EEO is the Law” poster if they enter into or modify federal contracts or subcontracts after the rule goes into effect. Because employees with access to compensation information as part of their essential job functions are excepted from this rule, federal contractors should review job functions and descriptions to determine whether a given position has access to pay information as an essential job function, and amend job descriptions as necessary to reflect that essential function.

Federal contractors should be aware that this new rule may lead to tension in the workplace now that previously confidential compensation information may be disclosed. Not only must employers take the steps necessary to be in compliance with this rule, but they should begin reflecting from an HR perspective how they will deal with the potential impact on employee morale once this rule goes into effect.

Stephanie Wilson is an attorney Berenzweig Leonard, LLP. She can be reached at SWilson@BerenzweigLaw.com.

New SBA Rule Promotes Growth and Development of Women-Owned Small Businesses

Women-owned small businesses are growing three times faster than their counterparts, yet they currently receive less than 5% of federal contracting dollars. The U.S. Small Business Administration (SBA) recently issued a final rule that is “a major step forward in leveling the playing field and supporting our country’s dynamic female entrepreneurs,” said SBA Administrator Maria Contreras-Sweet. This new rule encourages more women entrepreneurs to grow and start new businesses and create more jobs.

The SBA’s new rule, effective October 14, 2015, gives contracting officials the authority to award sole-source contracts to women-owned businesses without first placing the work out for bid. The rule seeks to provide greater opportunities for women-owned small businesses in the federal contracting marketplace, on par with the opportunities afforded to other types of small businesses. Contracting officials are currently able to award sole-source contracts to minority or service-disabled veteran-owned small businesses.

The rule sets out certain requirements that must be met before a sole source contract is awarded. First, a contract can only award up to $4 million (or $6.5 million for manufacturing contracts). Second, the selected woman-owned small business must be deemed a responsible contractor. Third, the selected woman-owned small business must be the only women-owned small business that can perform the work. Fourth, the award must be made at a fair and reasonable price.

The SBA is hopeful that this new rule will help the federal government achieve its goal of awarding 5% of its contract dollars to women-owned businesses. Women-owned businesses should be aware of this rule, which gives them a new competitive advantage in the federal marketplace and provides new opportunities to grow their business and revenues.

Stephanie Wilson is an attorney Berenzweig Leonard, LLP. She can be reached at SWilson@BerenzweigLaw.com. Sara Almousa is an intern with Berenzweig Leonard, LLP.

AIG Bailout – Government Was Wrong But Shareholders Get No Damages

The federal government’s 2008 loan of $85 billion bailing out insurance giant AIG during the financial crisis was illegal but literally “harmless,” according to a recent court decision. Although the government had the right to loan AIG money to keep AIG from certain bankruptcy, the government illegally demanded that AIG make the government a part-owner by acquiring 80% of AIG’s stock.  The court, however, awarded the AIG shareholders no damages, because it concluded that the shareholders had lost no money as a result of the government’s unlawful actions. The court found that the government’s loan actually helped the AIG shareholders, because it kept their stock from being completely worthless in bankruptcy.  

Illegal government loan terms. The terms of the government’s AIG loan went beyond what the law allowed. Although the government – as AIG’s banker of last resort – could demand that AIG pay interest on the government loan and demand collateral, the law did not allow the government to become a part-owner of AIG. It would be like a home mortgage loan in which the bank loans the homeowner money, but demands that the bank also become part-owner of the home. Worse yet, in this case, the government would remain a part-owner of AIG even after AIG had completely paid off the government loan.

The government’s loan terms were deemed unfair as well as illegal: “Operating as a monopolistic lender of last resort, the government imposed a 12 percent interest rate on AIG, much higher than the 3.25 to 3.5 percent interest rates offered to other troubled financial institutions such as Citibank and Morgan Stanley.” Also uniquely imposed on AIG was government voting control: “with the exception of AIG, the Government has never demanded equity ownership from a borrower in the 75–year history” of the law the government had based the loan on.

The issue in the lawsuit, however, was not “whether this treatment was inequitable or unfair, but whether the Government's actions created a legal right of recovery for AIG's shareholders.” The court agreed with the AIG shareholders on this issue, concluding that the government had acted illegally under the Federal Reserve Act.

No shareholder damages. But after concluding that AIG’s shareholders had proved that the Government was wrong, the court then reluctantly concluded that, according to legal precedent, the shareholders had not suffered any economic loss and were, therefore, not entitled to damages.
The issue here was whether their damages were to be measured by what the government gained -- $22.7 billion it received from ultimately selling the AIG stock – or by what the AIG shareholders lost – the value of their AIG stock, which would have been zero when, without the government loan, AIG would have gone into bankruptcy.  

According to the court, “common sense suggested” that the damages were the $22.7 billion the government had received “from selling the AIG common stock it illegally exacted from the shareholders for virtually nothing.” Legal precedent, however, focused on the AIG shareholders’ loss on the theory that, if the government has deprived a victim of something, compensation should be based on what the victim was actually deprived of.

The court followed legal precedent, concluding that the AIG shareholders had suffered no loss from the government’s illegal extraction of almost 80% of AIG’s stock. As a practical matter, the shareholders were undoubtedly better off with 20% of a company avoiding bankruptcy than they would be with 100% of a company forced into bankruptcy.

This necessary conclusion based on existing precedent, however, was not one the court welcomed. It sent the message that “Any time the Government saves a private enterprise from bankruptcy through an emergency loan, as here, it can essentially impose whatever terms it wishes without fear of reprisal.”

Whether the court’s concerns are valid will depend on the way appellate courts resolve the appeals that are sure to follow. This decision is not expected to be the final word on the AIG saga.

Terrence M. O'Connor is the Director of Government Contracts at Berenzweig Leonard LLP. He can be reached at TOConnor@BerenzweigLaw.com. 

Have Contingency Plans in Place for Your Proposal Submissions

Although a contractor in one recent case had a contingency plan that covered a variety of unforeseen events that would delay the delivery of its proposal to the Government, its plan did not account for the possibility that local flights could be grounded by severe weather. The result was that the contractor’s proposal was not submitted on time, and the Government rejected the proposal as untimely.

Global Military Marketing, Inc. (“Global”) protested the Defense Commissary Agency’s (“DeCA”) rejection of its offer in response to a solicitation for the supply of fresh pork products. The solicitation made proposals due at the Government facility in Fort Lee, Virginia, by 3:00 p.m. on April 30, 2014. Although Global made two attempts to submit its proposal on time, both attempts failed.

Global first provided its proposal to Federal Express in Pensacola, Florida on April 29, 2014, to be delivered before the 3:00 p.m. deadline the next day. However, on April 29th, there was severe rainfall, and due to the extreme weather, FedEx rerouted Global’s proposal package via ground to Mobile, Alabama, where it was to be put on a courier plane. Mobile also was under a flood emergency, and the FAA restricted aircraft ground operations in Mobile due to the extreme weather. As a result, FedEx did not deliver Global’s proposal until May 1, 2014 – the day after the deadline.

Global’s normal contingency plan was to fly an employee by commercial airlines to deliver the proposal, but the weather prevented this. Due to flooded roads, Global’s employees were not able to reach their offices in Pensacola until two hours before the proposal deadline, at which time Global arranged for a Kinko’s near Fort Lee print, prepare, and deliver the proposal to the Agency. Kinko’s delivered the proposal just forty minutes after the 3:00 p.m. deadline.

The solicitation included FAR 52.212-1, which provides that untimely proposals would not be considered. Global cited FAR 52.212-1(f)(4), which provides a limited exception to this “late is late” rule, where “an emergency or unanticipated event interrupts normal Government processes so that offers cannot be received at the Government office designated for receipt of offers by the exact time specified in the solicitation[.]”
Global argued that the delay in the delivery of its proposals “was caused by the FAA’s restriction of aircraft ground operations at Mobile and Pensacola due to the flood emergency in the extreme weather.” According to Global, the delay was due to an interruption of normal Government processes – i.e., the FAA restricted aircraft ground operations at Mobile and Pensacola – which was naturally not Global’s fault.

The Court of Federal Claims rejected this argument, because the exception applies only to the Government operations at the Government offices designated for receipt of offers, not for any Government operations at the bidder’s location. Quoting the Federal Circuit, the Court of Federal Claims noted that “the FAR provision focuses upon whether unforeseen events prevent the Government from receiving proposals at the site designated, not on whether unforeseen events prevent the offeror from transmitting the proposal.”

Because Fort Lee, Virginia was operating under normal Government processes, FAR 52.212-1(f)(4) did not apply, and the court agreed with the Government that Global had not submitted a timely proposal. This case provides a hard lesson that adequate contingency plans for delivery of a proposal should always be kept in mind.

Global Military Marketing, Inc. v. United States, No. 140622C, Sept. 29, 2014 available at https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2014cv0622-21-0.

Stephanie Wilson is an attorney at the Washington, DC business law firm, Berenzweig Leonard, LLP. She can be reached at SWilson@BerenzweigLaw.com.

New Executive Order Will Require Contractors to Report Labor Law Violations

On July 31, 2014, President Obama signed the “Fair Pay and Safe Workplaces Executive Order.” The primary purpose of this Executive Order ‒ which is expected to be implemented beginning in 2016 ‒ is to encourage federal contractors receiving taxpayer dollars to maintain lawful working conditions for their employees. It imposes significant new requirements for federal contractors to ensure their compliance with fourteen federal statutes, executive orders, and equivalent state laws, including the FLSA, FMLA, ADA, Age Discrimination in Employment Act, Title VII of the Civil Rights Act, the Davis Bacon and Service Contract Acts, and recent Executive Order 13658 – “Establishing a Minimum Wage for Contractors.”

MANDEL NGAN/AFP/Getty Images

The Executive Order requires contractors bidding on procurement contracts valued at $500,000 or more to disclose “whether there has been any administrative merits determination, arbitral award or decision, or civil judgment” issued against the contractor during the preceding three years for violations of the federal and state labor laws covered under the Executive Order. It also requires federal agencies to appoint a “Labor Compliance Advisor” to help contracting officers review contractors’ disclosures during the procurement process and contract performance, and requires contracting officers to consider this information in determining whether an offeror has a satisfactory record of compliance, integrity, and business ethics.

The Executive Order directs the FAR Council to propose to amend the FAR to identify considerations for determining whether serious, repeated, willful, or pervasive labor law violations demonstrate a lack of integrity or business ethics. It also directs the Secretary of Labor to develop guidance to assist agencies in determining whether adverse rulings were issued for serious, repeated, willful, or pervasive violations.

It is too soon to tell how the FAR Council, Department of Labor, and federal agencies will implement this Executive Order, and what the Order’s ultimate effect will be. Compliance with labor laws and maintenance of lawful working conditions should always be an important goal of all employers, including federal government contractors receiving taxpayer dollars. The Executive Order’s goals ‒ to protect employees and crack down on unethical and irresponsible contractors ‒ are admirable. However, the Executive Order introduces additional complexity to an already complicated process that, if not implemented correctly, could result in delays in the contracting process, place additional burdens on contracting officers, and potentially insert a subjective element into the process that opens the door to abuse by federal agency officials.

The White House has stated that contractors will be able to participate in “listening sessions” to provide input on how to ensure the policies and practices associated with the Executive Order will be fair and effective, and that the draft regulations and guidance will be subject to public comment before being finalized. Contractors should take advantage of these opportunities to make their concerns known to the government when the time comes.

Stephanie Wilson is an attorney at the Washington, DC business law firm, Berenzweig Leonard, LLP. She can be reached at SWilson@BerenzweigLaw.com. 

Do Not Read All FAR Clauses Literally

A literal reading of some FAR clauses can cost you money. One such clause is the Changes clause (FAR 52.243-4) requiring the contractor to give the contracting officer written notice of suspected government changes within 30 days. Although a contracting officer or COTR might want to demand strict compliance with the clause, all government contractors need to know that courts do not require strict compliance. A contractor may be entitled to an equitable adjustment for a contract change even though the contractor notifies a government employee other than the contracting officer of a suspected change long after 30 days have passed and even if the notice is oral. A recent court decision shows how broadly courts construe the Changes clause notice provision.

A construction contractor claimed that it was entitled to an equitable adjustment for design changes that the government imposed in the comments it made to the contractor’s design plans. But the first time the contractor raised the issue was in court pleadings three years after the government had made its design comments and long after the building was built. The contractor should have given the contracting officer notice of its disagreement immediately after receiving the government comments.  

Although the court concluded that this contractor’s notice was too late, its decision discusses precedents that established the defining issue in “notice” disputes. It is not whether 30 days have passed, nor whether the notice was oral, or even whether the contracting officer was the government employee who got notice. The issue is what harm has the government suffered by a contractor’s failure to give 30 days written notice? In this recent case, the harm was that timely notice would have given the parties a chance to resolve the issue years ago, making litigation unnecessary.

But in many situations, the lack of 30 days written notice to the contracting officer may not harm the government. For example, the contractor had complained orally to the COTR immediately after being told to do extra work.

Of course, the best policy is to rigidly follow the rules in the clause. However, a government contractor needs to know that all FAR clauses should not be taken literally. Nor should a government contractor be deterred from filing a request for an equitable adjustment by a contracting officer’s rigid interpretation of a notice provision.

If you believe the government has made costly change to your contract without modifying it to add money, let the Government Contracts Team at Berenzweig Leonard help you make sure you give the government proper notice. A small investment in legal advice can have a large return for you.


Terrence M. O'Connor is the Director of Government Contracts at Berenzweig Leonard LLP. He can be reached at TOConnor@BerenzweigLaw.com. 

DOL Debars Contractor for Wage and Hour Violations

The Department of Labor (“DOL”) recently debarred Garcia Forest Service LLC (“Garcia”) and its president for three years for violating the McNamara-O’Hara Service Contract Act (“SCA”) and the Contract Work Hours and Safety Standards Act (“CWHSSA”).

The SCA requires that contractors performing services on covered federal contracts pay their service workers no less than the wages and fringe benefits prevailing in the locality. Garcia violated the law by paying its employees on a production-based wage, rather than the required hourly wages that were incorporated into its Forest Services contract. Garcia failed to pay its employees working on a reforestation project the required fringe benefits, minimum wage, overtime, and holiday way. The contractor also failed to maintain accurate pay and time records.

The president testified that he made the decision to pay one of his crews on a production basis to ensure that the work would be completed on time. The DOL investigation revealed that although the workers all traveled to and from the worksite together, they had “wildly inconsistent hours of work.” The DOL determined that “it was clear from this that the time sheets had been manipulated to make it appear that they were being paid on an hourly basis.”

Although it appeared that Garcia’s decision to switch the employees to a production-based wage was motivated by a good faith attempt to incentivize the workers to complete the contract on time, the SCA requires mandatory debarment for most violations absent “unusual circumstances.” The burden of establishing unusual circumstances lies with the contractor. DOL considers the seriousness of the violation; whether the violation was deliberate, willful, or the result of deliberate neglect; whether the contractor cooperated with the investigation, repaid amounts owed, and assured future compliance; and whether the contractor has previously been investigated for non-compliance.

In recent years, the DOL has increased the number of investigators in the Wage and Hour Division workforce. While SCA audits are often initiated as a result of an employee complaint, the DOL had recently started initiating audits on its own, conducting both random audits as well as following up on previous offenders. Now more than ever, contractors must make sure that their human resources department and back office are knowledgeable about the SCA and the requirements for compliance.

Stephanie Wilson is an attorney at the Washington, DC business law firm, Berenzweig Leonard, LLP. She can be reached at SWilson@BerenzweigLaw.com. 

SCA Contract Bids Must Account for Applicable CBA Wages and Benefits

Service employees working on a federal contract subject the Service Contract Act must be paid wages and fringe benefits not less than the prevailing wage determination or the wage rates and fringe benefits contained in a predecessor contractor’s Collective Bargaining Agreement (“CBA”). Because an existing CBA sets the floor for wages and benefits on follow-on contracts, offerors need a copy of the CBA to be able to adequately price their bid. A recent decision by the Armed Services Board of Contract Appeals confirmed that the agency is required to provide a complete copy of the CBA to offerors as part of the solicitation, so they can accurately bid for a contract.

In CAE USA Inc., ASBCA No. 58006 (Jan. 27, 2014), the Air Force posted a solicitation for services in support of the KC-135 Aircrew Training System at thirteen Air Force bases. The copy of the predecessor contractor’s CBA incorporated into the solicitation referred to but did not attach information regarding the fringe benefits the predecessor contractor provided to its employees on the current contract.

CAE USA, Inc. (CAE) was the successful bidder on the contract. During the solicitation process, CAE was aware that the copy of the CBA the agency provided to the bidders did not include details of the fringe benefits. Instead of bringing this to the attention of the contracting officer, CAE decided to base its bid on its estimate of what those benefits would cost. After award, CAE met with the Union and was provided with the missing information. CAE realized that the estimate used in its bid understated the actual fringe benefits provided in the CBA. As required by the Service Contract Act, CAE paid the higher fringe benefits. CAE then submitted a request for equitable adjustment to the contracting officer for the additional benefits that were not identified in the CBA provided during the solicitation process.

The contracting officer denied the request for equitable adjustment and CAE filed an appeal with the ASBCA. The Board addressed two questions: (1) does the Service Contract Act place an affirmative duty on the contracting officer to provide a complete copy of the CBA, including attachments, to bidders; and, (2) if so, does a bidder’s failure to advise the government of a CBA’s incompleteness and decision to formulate a bid on its own assumptions preclude it from recovery? The answer to both questions is yes.

The ASBCA held that “there can be no reasonable doubt that pursuant to FAR, it was the responsibility of the CO to provide a complete CBA.” Without the details of the fringe benefits included in the CBA, an offeror could not know the wage and fringe benefits it would be required to pay if it won the follow-on contract.

However, in this particular case, the offeror was aware that the CBA provided during the solicitation process was incomplete. Rather than asking the government to provide a complete copy, CAE chose to make assumptions about the fringe benefits in its offer. While the Service Contract Act imposes requirements on what the contractor must pay its employees, it does not dictate what an offeror must put in its offer. The Board held that “having chosen to submit an offer on the basis of its own assumptions, without notice to the government of the incompleteness of the CBA or what CAE’s assumptions were, it cannot now be heard to complain that its assumptions were not correct.

If an offeror becomes aware that an agency has not provided a complete copy of any applicable CBAs along with the solicitation, it should bring this to the attention of the contracting officer during the solicitation phase. If the offeror waits until it is awarded the contract, it will be stuck with any assumptions it made about applicable wages and benefits when submitting its bid and put at a big disadvantage.

Stephanie Wilson is an attorney at Berenzweig Leonard, LLP, a business law firm in the Washington metro area. She can be reached at swilson@berenzweiglaw.com.

What’s the Real Impact of the New Federal Contractor Minimum Wage Increase?

On February 12, 2014, President Obama signed an Executive Order raising the minimum wage to $10.10 per hour for federal contractors, starting January 1, 2015. Although the Administration has stated that the increase will apply only to new federal contracts, in reality it may end up applying to some existing federal contracts as well. The immediate impact of the minimum wage increase will vary depending on job and locality, but there are potential long-term implications of which companies should be aware. 

The Service Contract Act requires federal contractors performing service contracts to pay service employees no less than the wage rates set forth in Department of Labor wage determinations that are based upon local prevailing wages. The Service Contract Act recognizes that prevailing wages may change during the course of a service contract, and new wage determinations are incorporated into existing contracts when option years are exercised.

It is likely that, beginning no later than January 1, 2015, the prevailing wages set in the Department of Labor’s wage determinations will be at least $10.10, as that will be the new “prevailing wage” for the lowest-paid labor categories. If this happens, then when an option period on an existing service contract is exercised following the issuance of the new wage determination, these new minimum wages will apply. As with all increases in wage determinations, contractors will be entitled to a price adjustment to reflect any increases in wages and fringe benefits required by a new wage determination.

Because the majority of federal contractors are already being paid wages greater than $10.10 an hour, the immediate impact of the wage increase is minimal for most contractors in most areas of the country. The impact will be the greatest in the middle of the country where prevailing wages are lower, and for workers throughout the country working in lower-skilled service jobs, such as janitorial and food service positions. Raising the minimum wage of these traditionally lower-paid positions will likely cause a ripple effect eventually leading to an increase in the prevailing wages for other labor classifications and nearby regions, which will in time come to be reflected in the Department of Labor’s wage determinations.

Federal contractors should keep in mind both the immediate and long-term impact this minimum wage increase may have on their existing contracts and be aware of their right to request a price adjustment for any increases to the wages and fringe benefits required by a new wage determination.  The lawyers at Berenzweig Leonard have experience helping government contractors navigate the complexities of the Service Contract Act.

Stephanie Wilson is an attorney at Berenzweig Leonard, LLP, a business law firm in the Washington metro area. She can be reached at swilson@berenzweiglaw.com.