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.