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.

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.

Decision 4. Bring an FSS Dispute to the One Contracting Officer Who Can Resolve It

Berenzweig Leonard is beginning the New Year with a summary of four important government contract legal decisions handed down in 2013. We began by describing in two blog articles the problems a government contractor can get into as a result of “apparent authority”, a one-sided legal concept that does not apply to the government but that does apply to a  government contractor and can be costly if not closely monitored. Later, we dealt with the two most fundamental, and most-ignored, rules in government contracting: an enforceable government contract decision can only come from the contracting officer and only if that decision is in writing.

We have saved THE most important decisions for last: decisions that dealt with disputes involving purchases under the GSA Federal Supply Schedule (FSS). Because a previous blog article on October 17, 2013 discussed these decisions in detail, we will only summarize their important conclusions here.

Decision 4. Bring an FSS Dispute to the One Contracting Officer Who Can Resolve It

In the GSA FSS process, two contracting officers are involved: the GSA contracting officer and the ordering agency contracting officer. Each has a different contract vehicle to deal with: the GSA contracting officer is responsible for the FSS contract with a vendor and the ordering agency contracting officer is responsible for the delivery or task order the agency uses to buy something off that vendor’s GSA FSS contract. When a schedule vendor has a dispute with the government over a delivery or task order, only one contracting officer is the correct one for a contractor to file a claim under the Contract Disputes Act. Which one is it?

According to the new rules developed by the U.S. Court of Appeals for the Federal Circuit (CAFC) and the Armed Services Board of Contract Appeals (ASBCA) in the decisions described in the earlier blog:

Contract interpretation issues: the GSA contracting officer is the only contracting officer to handle a dispute involves interpretation of the terms and conditions of the FSS schedule contract. However, when the dispute is over the terms and conditions of the FSS order, the ordering contracting officer must resolve the dispute.

Performance issues: the ordering agency contracting officer is the only contracting officer that can decide performance issues not involving interpretation of the FSS contract such as whether the contractor’s default was excusable.

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

Decision 3. Deal with the Contracting Officer and Get the Decision in Writing

Berenzweig Leonard is beginning the New Year with a summary of four important government contract legal decisions handed down in 2013. We began by describing in two blog articles the problems a government contractor can get into as a result of “apparent authority”, a one-sided legal concept that does not apply to the government but that does apply to a government contractor and can be costly if not closely monitored.   Today we deal with the two most fundamental, and most-ignored, rules in government contracting: an enforceable government contract decision can only come from the contracting officer and only if that decision is in writing. 

Decision 3. Deal with the Contracting Officer and Get the Decision in Writing

Every year, decisions show that government contractors break the two most critical rules in government contracting: if an agreement is to be binding on the government, it must be in writing and signed by the contracting officer.

No written document. 

A contractor thought it had reached a settlement agreement with the government on a termination for convenience because the government had agreed to a $485,000 settlement in a telephone conference with the contracting officer who advised the contractor that written confirmation of the amount would be forthcoming. When that written confirmation came, however, it said that the last signature on the currently unsigned agreement would have to be the government’s. When the government failed to go through with the settlement, the contractor tried to force the government to honor the oral settlement but lost. FAR Part 49 explicitly requires termination for convenience settlement proposals to be a written contract modification and the parties had not reached that point in their settlement process. Sigma Construction Co. v. United States, CFC No. 12-865, September 30, 2013.

No contracting officer approval. 

Getting to the contracting officer can be a serious problem. Because a contractor typically works closely with an agency’s technical personnel, the agency’s contract administration personnel, in particular the contracting officer, often is only in the distant background. This can be especially true for Department of Defense agencies that have multiple layers of authority: a contracting officer whose identity may change over the course of a multi-year contract,  a contracting officer’s representative (COR) or technical representative (COTR), plus perhaps some other contractors providing support to a project. However, regardless of how distant the contracting officer may seem to a contractor, it’s essential that the contracting officer be kept in the loop, especially when a contract clause demands it and warns a contractor that lack of contracting officer approval may be fatal.

A contractor recently ended up working for the government for free because the contractor had failed to get the contracting officer’s approval to continue working as required by a contract clause.   Because the contractor’s task order would be funded in two to three month increments, the government wanted to carefully monitor how much money had been spent and how much remained in any increment.  Monitoring would be done via a DFARS clause, 252.232-7007, Limitation on Government Obligation (LOGO) that required the contractor to notify the contracting officer in writing at least 90 days before the date the contract work would reach 85 percent of the total amount then allotted. In addition, the clause prohibited the contractor from spending more than the allotted amount, stating expressly that the government “will not be obligated in any event to reimburse the contractor in excess of the amount allotted to the contract.”

Despite these clear requirements, the contractor did not comply with them. In fact, the contractor kept on working after 100 percent of the increment had been spent, believing what other government personnel were telling it: that the money was in the pipeline. The additional money, however, never came through and eventually the government issued a stop work order due to lack of funding. Although the government paid the contractor 100 percent of the funds allotted to the work, it refused to pay the contractor the additional $288,000 the contractor claimed it had spent based on assurances received from the government personnel other than the contracting officer. A board of contract appeals agreed with the government that the contractor was not entitled to payment so the contractor ended up working for free. Dynamics Research Corp., ASBCA No. 57830, March 26, 2013.

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

Decision 1. Do Not Create "Apparent Authority"

With so many government contract legal decisions handed down during any year, it’s helpful at the start of the New Year to summarize those handed down the previous year that impact a government contractor’s bottom line. Over the next four days, we will provide a summary of an important decision from last year, typically one that serves as a reminder of the costly consequences of ignoring the often-obscure rules of government contracting.  

Today, we describe “apparent authority”, a one-sided legal concept that does not apply to the government but does apply to a government contractor and can cost a government contractor dearly.   

Decision 1. Do Not Create "Apparent Authority"

If a contractor is not vigilant, it can be harmed by “apparent authority.”  This dangerous concept is best explained by the Seven Seas Shiphandlers, LLC.  Seven Seas had a contract for work with the U.S. government in Afghanistan.  For convenience, Seven Seas let one of its subcontractor’s employees deliver Seven Seas’ invoices to the government. Also, on several occasions, the government gave him Seven Seas’ payments in cash which he gave to Seven Seas. But in early June 2009, the government gave him over $240,000 as full payment for five Seven Seas contracts and he has not been seen since then. A board concluded that the government could avoid paying Seven Seas for those five contracts if the government could prove that Seven Seas had given the subcontractor’s employee “apparent authority” to receive Seven Seas’ payments. Seven Seas Shiphandlers LLC, ASBCA 57875-79, 26 November 2012.

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

The Government Shutdown’s Impact on Payment to Contractors

All companies contracting with the Federal Government should ensure that they are doing everything they can to protect themselves and maximize their chances of payment once the government shutdown ends. Congress has approved back pay for federal workers once the shutdown is over, and President Obama recently signed a bill requiring the DoD to continue paying civilian Federal Government employees and contractors that provide support to the armed services.  Government contractors, however, have been put in limbo, and need to make careful decisions while navigating the shutdown.

Contractors who do not serve the armed services must typically operate on a case-by-case basis, and should stay in contact with their Contracting Officers (COs) and Contracting Officer Representatives (CORs), if they are working, to understand what the procuring agency is doing and how it is operating during the shutdown. The worst thing to do is to drop off the CO’s communication radar and give the CO proof by way of an email track record that your company did not contact him or her during the shutdown to confirm understandings on contract performance. Assumptions cannot be made during this uncertain time, so it will be beneficial to contractors to send regular written communications to agency representatives to ensure everyone is on the same page.

Each contract will have varying factors affecting its appropriation, but generally speaking, a contractor should not expect to get paid for work it does not perform – the Federal Government cannot accept payment for voluntary services under the Anti-Deficiency Act. However, contractors covering work that is fully funded, or incrementally funded and not yet reaching the funding limit, should still be funded by the Government, although each case can differ. Time and materials contracts are more problematic, and contractors should proceed with caution. FAR § 52.242-15 gives the Government discretion to terminate or suspend work independent of whether a contract is funded, and so if contractors have not already initiated creative cost-cutting mechanisms, now is the time to think outside the box and be protective.

Hopefully Congress can lead the way to a solution so that the current standoff can end, and hard working contractors can go back to work and slowly resume a normal and uninterrupted routine to help federal customers achieve their missions.

Katie Lipp is an attorney the Washington, DC regional business law firm Berenzweig Leonard, LLP. She can be reached at KLipp@BerenzweigLaw.com.  

Teaming Agreement’s Promise of Future Subcontract Was Not Enforceable

Enforcing vague provisions in a Virginia teaming agreement is difficult. Courts continue to consider some teaming agreement provisions to be an unenforceable “agreement to agree” as seen in a recent decision of the Federal District Court in Alexandria. Although finding the teaming agreement’s promise of a subcontract was unenforceable, the court did honor the teaming agreement’s choice of law provision. Thus, not all teaming agreement provisions are automatically unenforceable. To the extent that the parties can make teaming agreements precise, they may be enforceable.

The recent case involved Information Experts (IE) trying to get a contract with the Office of Personnel Management with the help of team member Cyberlock Consulting. Their teaming agreement contained standard provisions committing the parties, if successful in winning the contract, to a specific work-share (51 percent of the work to IE, 49 percent to Cyberlock), tasks each would perform, promises of good faith negotiations to enter into a subcontract if the proposal effort was successful, and a clause identifying Virginia law to be applicable to the teaming agreement.

After the IE-Cyberlock team won the OPM contract, their efforts to negotiate a subcontract acceptable to both parties failed. Cyberlock then sued IE for breaching the teaming agreement by alleging that IE failed to negotiate a subcontract in good faith. The court concluded that the promise of a subcontract was too vague to be enforceable.

Because an enforceable contract needed “terms reasonably certain under the circumstances … mere agreements to agree in the future are too vague and too indefinite to be enforced.” And in Virginia, “agreements to negotiate at some point in the future are unenforceable … Accordingly, an agreement to negotiate open issues in good faith to reach a contractual objective within [an] agreed framework will be construed as an agreement to agree rather than a valid contract.”

Looking at the title of the document itself—a teaming agreement—the court said: “calling an agreement something other than a contract or subcontract, such as a teaming agreement or letter of intent, implies that the parties intended it to be a nonbinding expression in contemplation of a future contract. Moreover, even if the parties are fully agreed on the terms of their contract, the circumstance that the parties do intend a formal contract to be drawn up is strong evidence to show that they did not intend the previous negotiations to amount to an agreement which is binding.”

Although admittedly the teaming agreement contained some very specific language such as the 51/49 work share, the court considered the teaming agreement as a whole, which “indicates that this particular language was not meant to provide a binding obligation but rather to set forth a contractual objective and agreed framework” for negotiating a subcontract “in the future along certain established terms.” For example, any seemingly mandatory teaming agreement language to award Cyberlock a portion of the prime contract “was modified by provisions indicating that: (1) the award of such work would require the negotiation and execution of a future subcontract; (2) the award of such work was dependent on the success of such future negotiations; (3) any future executed subcontract was subject to the approval or disapproval of OPM; and (4) that the framework set out for the work allocation in a future subcontract potentially could change as it merely was based on the work anticipated to be performed by Cyberlock as then-presently understood by the parties.”

To the court, the teaming agreement “was an agreement to negotiate in good faith to enter into a future subcontract” and “such an agreement is precisely the type of agreement to agree that has consistently and uniformly been held unenforceable in Virginia.”

The court’s decision does not mean that all teaming agreement provisions are unenforceable, only those that are too vague to enforce. Because the teaming agreement provision identifying Virginia law as applicable to the teaming agreement was specific and not vague, that provision was enforced.

If you want to put teeth into a teaming agreement, let Berenzweig Leonard help you tailor teaming agreement language that will be enforced.

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

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.

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.

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.

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.