Public Procurement & Government Contracts 2021

Last Updated April 07, 2021

USA

Law and Practice

Authors



Holland & Knight LLP has more than 1,300 lawyers and a reputation for understanding clients’ business issues and staying abreast of the knowledge and trends that shape their industries. Interdisciplinary practice groups and industry-based teams provide clients with access to attorneys throughout the firm, regardless of location. Holland & Knight's government contracts group guides clients through all phases of the procurement process, including forming teaming arrangements, responding to solicitations, and compliance with contractual requirements and the Federal Acquisition Regulation. The firm provides guidance in handling bid protests, prime/subcontractor litigation, claims and disputes, and defence of enforcement matters, including suspension and debarment matters, False Claims Act litigation, FCPA compliance, and government audits and investigations. The group represents government contractors of all sizes and across a wide array of industries, and works closely with the firm’s government contracts M&A practice, which is among the largest in the country.

Under the US system of federalism, government functions are carried out by the federal government, as well as state and local governments. Each level of government has its own laws, processes and procedures, including those that govern the procurement of goods and services. For companies entering the federal procurement market, understanding these distinctions, and which rules apply, is essential. This chapter focuses primarily on the US federal government’s procurement processes and regulations, but will mention some notable points about state and local procurement laws.

US Federal Procurement Statutes and Regulations

Within the US federal procurement legal structure, there are a number of significant federal statutes, regulations and executive orders that directly frame and govern the federal procurement process. The primary, overarching governing statutes and regulations are:

  • Title 41 of the US Code, which addresses key elements of procurement for civilian agencies;
  • Title 10 of the US Code, which does the same for Department of Defense (DOD) agencies, the National Aeronautics and Space Administration (NASA) and the Coast Guard;
  • within Titles 10 and 41 of the US Code are other specific procurement laws, such as the Competition in Contracting Act (CICA), which encourages competition for the award of US government contracts, and the Truthful Cost or Pricing Data Act (formerly known as the Truth in Negotiations Act, and still commonly referred to as "TINA"), which generally permits the US government (in certain circumstances) to obtain certified cost or pricing data from contractors; and
  • the Federal Acquisition Regulation (FAR), codified at Title 48 of the US Code of Federal Regulations (CFR), which implements many aspects of the statutes listed above as well as others.

Socio-Economic Laws

The federal government also uses the procurement process to advance various socio-economic objectives, including those related to trade, labour and employment, the environment, national security and industrial preparedness. In some cases these socio-economic objectives are enacted by executive orders issued by the president, which can lead to their adoption into the FAR or agency FAR supplements without congressional involvement. The requirements of these socio-economic objectives are largely woven into the FAR and agency FAR supplements, and in some cases appear in Titles 10 and/or 41 of the US Code. For example, US government contractors are subject to the following socio-economic laws.

  • Labour and employment laws – laws establishing heightened minimum wages, benefits and other employee protections, such as:
    1. the McNamara-O’Hara Service Contract Act (41 U.S.C. ch. 67) (applies to services contracts);
    2. the Davis Bacon Act (40 U.S.C. § 3141) (applies to construction contracts);
    3. the Walsh Healey Public Contracts Act (40 U.S.C. ch. 65) (applies to manufacturing contracts);
    4. the Contract Work Hours and Safety Standards Act (40 U.S.C. ch. 37) (applies to contractors employing labourers and mechanics); and
    5. requirements that contractors develop affirmative action plans and compile and file equal employment opportunity (EEO) reports.
  • Trade-related laws – laws creating domestic preferences in US acquisitions, including:
    1. the Buy American Act (BAA) (41 U.S.C. §§ 8301 et seq) (establishing a preference for US-manufactured products);
    2. the Trade Agreements Act (TAA) (19 U.S.C. §§ 2501 et seq) (establishing an exception to the BAA for products manufactured by “designated countries”; ie, those countries with which the United States has a trade agreement); and
    3. the Berry Amendment (10 U.S.C. § 2533c) (requiring absolute domestic production and sourcing of certain products procured by the DOD, such as clothing and textiles).
  • Small-business preference laws – laws granting procurement preferences to US-owned small businesses, including the Small Business Act (15 U.S.C. §§ 632 et seq).

Contractor Compliance Laws

In addition to these laws designed to advance US socio-economic objectives, there are numerous federal laws focused on contractor compliance. These laws are designed to uphold integrity and transparency in the procurement process, by imposing significant compliance obligations and prescribing substantial enforcement consequences for non-compliance. These are discussed in more detail in 1.5 Key Obligations and include:

  • the Anti-Kickback Act (41 U.S.C. ch. 87);
  • the False Claims Acts (31 U.S.C. §§ 3729, 3731) (imposes both civil and criminal penalties); and
  • the Procurement Integrity Act (41 U.S.C. §§ 2101 et seq).

Federal Funding of State and Local Government Projects

Where the federal government is funding projects carried out by state and local governments, similar federal requirements may apply, such as the Buy America Acts, which impose domestic preference requirements, similar to the BAA.

Assistance Agreements

Finally, the federal government also distributes hundreds of billions of dollars in assistance through grants and co-operative agreements (collectively referred to as “assistance agreements”). These assistance agreements are governed by the Federal Grant and Cooperative Agreement Act (31 U.S.C. §§ 6301 et seq) and regulations found in Title 2 of the US Code of Federal Regulations. While there are similarities in the laws governing procurement contracts and those governing assistance agreements, it is important to note that separate statutory and regulatory authorities exist and govern.

Federal executive branch agencies are subject to the FAR, and the various procurement laws noted above, when acquiring goods and services. By its terms, the FAR, and the statutes it implements, apply to “all executive agencies” – defined to mean an “executive department, a military department, or any independent establishment within the meaning of 5 U.S.C. 101, 102, and 104(1), respectively, and any wholly owned Government corporation within the meaning of 31 U.S.C. 9101”. Executive agencies are permitted to supplement the FAR with agency-specific requirements.

Certain federal entities – such as the Federal Aviation Administration (FAA), the US Post Service (USPS) and the Federal Deposit Insurance Corporation (FDIC) – are exempt from the FAR. Nonetheless, these agencies have adopted their own procurement regulations.

State and local governments are not subject to the FAR, and have also adopted their own system of procurement laws and regulations. As noted above, where federal funding is provided for certain state and local projects, the state and local governments must incorporate certain federal requirements (eg, those set forth in Title 2 of the Code of Federal Regulations and, where applicable, the Buy America Acts).

The FAR and related procurement laws apply when executive agencies are acquiring goods or services for the agencies’ own benefit and use. When executive agencies are acquiring goods and services for their own benefit and use, agencies are required to use procurement contracts. Procurement contracts are distinct from “assistance agreements” (grants and co-operative agreements), which are not considered to be “procurement” actions.

Acquisition Methods

When engaging in procurement actions, the FAR provides for several types of acquisition methods, depending on the nature of the goods or services being acquired and the value of the anticipated acquisition. The major acquisition methods include:

  • commercial item acquisitions (FAR part 12) – provides simple, streamlined procedures and lessened requirements for acquiring goods and services readily available in the commercial marketplace;
  • simplified acquisition procedures (FAR part 13) – provides simplified procedures for acquiring goods and services when the anticipated value of the acquisition is below USD250,000 (known as the “Simplified Acquisition Threshold”, or SAT) and allows for the use of blanket purchase agreements (BPAs), a simplified method of filling anticipated repetitive needs for supplies or services;
  • sealed bidding (FAR part 14) – provides a method of contracting that involves competitive bids, the public opening of sealed bids, and award to the bidder offering the lowest price, whose bid is responsive to the terms of the solicitation; and
  • contracting by negotiation (FAR part 15) – provides a method of contracting for competitive and non-competitive (ie, “sole source”) negotiated acquisitions, utilising a request for proposal (RFP) process.

Contract Types

FAR part 16 defines contract types (ie, the type of contract that may result after a particular acquisition method is used). Some contract types are defined by the manner in which the contract pricing is determined (eg, firm fixed price or “lump sum” pricing, FAR subpart 16.2; fixed unit or labour rate pricing, known as labour-hour or time and material contracts, FAR subpart 16.6; or cost reimbursement, FAR subpart 16.3).

Firm fixed price contracts generally do not provide for adjustments to contract price, except in limited circumstances. The contractor typically bears the risk if its costs of performance exceed the agreed-upon price (the “fixed price”). Compare firm fixed price contracts with cost reimbursement contracts, where the government reimburses the contractor for its costs incurred (subject to the contractor’s costs being reasonable, allocable to the contract performed, and allowable under the FAR). Cost reimbursement contracts shift some risk away from the contractor and on to the government. Profit under cost reimbursement contracts is defined as “fee” and can take various forms and is often structured to incentivise performance.

FAR subpart 16.5 establishes indefinite-delivery, indefinite-quantity (IDIQ) contracts in which contract pricing and other terms are set at award, but the timing and quantity of orders is not known at the time of contract award. Typically, task orders or delivery orders are issued to IDIQ contract holders once a definitive requirement is identified. IDIQ contracts are often awarded to multiple awardees, who then compete among themselves for individual task or delivery orders. In some cases, an IDIQ contract may also be designated as a “requirements” contract, in which case the agency will use that particular contract vehicle for all its needs within the prescribed ordering period and subject to a maximum limitation.

Alternative Methods of Filling Acquisition Needs

Beyond these core contract types, executive agencies can use a number of variants to fill acquisition needs, including BPAs (discussed above) and basic ordering agreements (BOAs). In addition, some agencies are authorised to make their procurement programmes available across the federal government (ie, available for other executive agencies to utilise and place orders). This includes the General Services Administration’s (GSA's) Federal Supply Schedule contracting programme (known as “FSS” or “GSA Schedules”), which is governed by FAR subpart 8.4. The way these types of contracts work is that GSA has established set contract terms and conditions for a host of commercial goods and services. Other executive agencies can simply look to the GSA Schedules, and if the needed goods or services are available, place an order directly under an existing GSA FSS contract, with relatively few additional competitive procedures, simplifying the acquisition process. More than USD30 billion of goods and services are acquired through the GSA FSS programme each year.

Similar to GSA’s FSS programme is the Department of Veterans Affairs’ (VA's) Medical/Surgical Prime Vendor programme, which streamlines the procurement of medical products and services, and totals more than USD10 billion a year in sales.

Finally, the US government’s procurement of real property, and related goods and services, is subject to special regulations and requirements.

US federal procurement laws establish mechanisms to ensure integrity and transparency in the procurement process, to include a presumption that the government’s requirements can be actively competed among businesses, a requirement that such acquisitions be announced publicly, and a mandate that agencies take the steps necessary to utilise the breadth of the US government contracting market. Such a mechanism for enforcing these requirements is the US government’s bid protest process, which is discussed later in this chapter. Bid protests serve as an important “check” on agency actions to ensure their compliance with federal procurement laws and regulations.

CICA, one of the procurement statutes mentioned above, requires procuring agencies to use “full and open competition” to the “maximum extent practicable” in their acquisitions of goods and services. While full and open competition is the goal, CICA includes a number of exceptions to this requirement (implemented by FAR part 6). Some such exceptions to CICA include situations where:

  • there is only one responsible source and no other supplies or services will meet the agency’s needs;
  • an unusual and compelling urgency exists;
  • an exception is required to maintain important areas of the US industrial base or critical research, engineering or development capabilities;
  • statutes authorise other than full and open competition, such as those authorising sole source or limited competition among certain small-business participants in the US Small Business Administration’s (SBA's) federal procurement programmes; and
  • publication of the requirement would compromise national security.

With the exception of the last scenario, agencies generally must announce their intention to use other than competitive procedures. Agencies must also document their bases for doing so through executing a written “determinations and findings” document (D&F), and by developing justification documents and requiring approval from higher levels within the agency (commonly referred to as "J&As").

FAR part 5 requires that agencies publish all anticipated contracting actions exceeding USD25,000 in a centralised public database. Until recently this database was known as “FedBizzOpps”, but was cleverly renamed “Contracting Opportunities” and moved to a new online platform called “beta.SAM.gov”. Agencies must also publish summaries of contract awards on this platform.

Finally, FAR part 10 encourages agencies to engage with industry prior to beginning the acquisition process, and requires agencies to conduct “market research” for purposes of identifying potential sources of supplies or services.

Beyond the express exceptions to competition included in CICA, there are other federal contracting requirements that effectively serve to limit competition, such as domestic preference requirements (ie, BAA) and small-business programmes that limit participation to small, US-owned companies. National security considerations concerning export controls and foreign ownership control and influence (FOCI) create tension with CICA’s goal of full and open competition, but nonetheless serve important national interests. The same can be said for orders placed under IDIQ contracts and GSA Schedules, where publication and competition requirements are limited to holders of the particular IDIQ or GSA FSS.

Beyond setting forth the core business terms typically included in contractual arrangements (eg, price, description of product or services, inspection and acceptance, invoicing and payment), federal procurement law imposes a number of additional obligations on contractors, including socio-economic conditions and provisions barring certain “improper” business practices and conflicts of interest, as noted above.

  • Socio-economic requirements – generally summarised in 1.1 Legislation Regulating the Procurement of Government Contracts, these requirements impose obligations on federal contractors in the areas of:
    1. labour and employment;
    2. domestic preference and trade restrictions; and
    3. promoting US small businesses.
  • Limits on improper business practices and conflicts of interest – principally through FAR part 3, the FAR imposes several limitations on improper business practices, many of which are defined by statute. FAR part 9 also requires that federal government contractors be “responsible” – meaning both ethically and financially responsible, technically capable, and required to avoid organisational conflicts of interest (OCIs). These limitations stem from the following statutes, and are contained in the following parts of the FAR.
    1. Bribery (18 U.S.C. § 201(b)).
    2. Gifts and Gratuities (18 U.S.C. § 201(c); FAR subpart 3.2).
    3. Antitrust and Bid Rigging (FAR 3.103 and subpart 3.3).
    4. Anti-Kickback Statute (41 U.S.C. ch. 87; FAR subpart 3.5).
    5. Procurement Integrity Act (41 U.S.C. § 2101 et seq; FAR 3.104), which contains requirements governing:
      1. employment discussions with federal officials;
      2. gifts and gratuities to federal procurement officials; and
      3. procurement sensitive information (source selection information and competitor proprietary information).
    6. OCIs (FAR subpart 9.5).
    7. Personal Conflicts of Interest (FAR subpart 3.11).
    8. Whistleblower Protections (FAR subpart 3.9).
    9. Covenant Against Contingent Fees (FAR subpart 3.4).
    10. Anti-Lobbying Rules (FAR subpart 3.8).

Consistent with these prohibitions on improper business practices and conflicts of interest, FAR subpart 3.10 requires most contractors to maintain ethics and compliance programmes. The requirements of such programmes mandate reporting to the government of fraud or criminal activity in connection with any federal contract, in further support of the procurement system’s goals of integrity and transparency.

As noted in 1.4 Openness of Regulated Contract Award Procedure, FAR part 5 requires executive agencies to advertise all anticipated contracting actions exceeding USD25,000 on beta.SAM.gov.

Advertisement of agency procurement actions (eg, through publishing the solicitation or RFP) typically includes information such as the name of the federal agency procuring the goods or services, instructions on how to submit a response, the date and time responses are due, and whether the contract is reserved or “set aside” for entities meeting a certain criteria – such as those participating in the SBA’s small-business programme, which includes businesses owned by military veterans, women-owned small businesses and businesses located in historically underutilised business zones (known as “HUBZones”).

As noted in 1.4 Openness of Regulated Contract Award Procedure, FAR part 10 requires executive agencies to engage in preliminary “market research” prior to advertising the solicitation on beta.SAM.gov. FAR part 10 directs agencies to conduct research to, among other things, determine whether enough small businesses exist in a particular market, such that the contract award should be “set aside” for small businesses; determine if commercial items exist that meet the agency’s needs; and determine, generally, if sources in fact exist that are capable of satisfying the agency’s requirements.

Generally, executive agencies solicit responses to their requirements through issuing RFPs or invitations for bids (IFBs). RFPs and IFBs are generally referred to simply as the “solicitation” for the procurement. As noted in 1.3 Types of Contracts Subject to Procurement Regulation, proposals submitted in response to RFPs are governed by FAR part 15, and are subject to further discussions between the agency and the “offeror” (ie, the entity seeking the award), though such discussions are not mandated. RFPs are designed to solicit a proposed solution to the agency’s published requirements. By contrast, bids submitted in response to IFBs (governed by FAR part 14) are sealed and not subject to negotiation between the agency and the offeror (or “bidder”). IFBs specify the exact goods or service required by the agency, and do not leave open the possibility of multiple contractor solutions. Hence, there is no need for the discussions or negotiations contemplated by FAR part 15.

Solicitations issued for orders from pre-existing contracts, such as GSA Schedules or IDIQ contracts, may take a slightly different form (eg, requests for quotations (RFQs), but generally follow a similar construct to standalone solicitations. In addition, different procedures apply to certain procurement types, such as commercial procurements and procurements valued at less than the current SAT, as noted in 1.3 Types of Contracts Subject to Procurement Regulation (FAR parts 12 and 13).

The particular acquisition method utilised (eg, FAR part 12, 13, 14, or 15), as discussed in 1.3 Types of Contracts Subject to Procurement Regulation, is generally up to the procuring agency’s discretion. With that said, the FAR and agency FAR supplements do provide guidance on the various acquisition methods, and which type is most likely to meet the agency’s objectives under a particular set of circumstances.

Procurement actions that are likely to result in a contract award generally must be publicised at least 15 day prior to the agency’s issuance of a solicitation or award of a sole-source contract. The procuring agency may set a shorter period for commercial acquisitions.

Agencies generally must provide at least 30 days for offerors or bidders to submit proposals or bids in response to a solicitation. Most research and development solicitations require a 45-day response time. Agencies are afforded additional discretion with respect to commercial acquisitions.

Parties interested in responding to federal agency solicitations must first be registered in the US government’s System for Award Management (SAM), which is the US government’s official, centralised repository for all entities wishing to do business with the government.

The registration website, SAM.gov, also provides information regarding the additional requirements for registering to do business with the US government, such as the requirement to have a Data Universal Numbering System (DUNS) number, a Commercial and Government Entity (CAGE) code and a US taxpayer identification number.

Procuring agencies may restrict competition for certain requirements if, based on the agency’s market research, it determines that a sufficient number of small-business contractors (eg, businesses owned by military veterans, women-owned small businesses) are available and capable of performing the services or providing the goods required by the agency.

Procuring agencies may also restrict competition for particular requirements to a limited number of offerors or only one qualified supplier, if the agency demonstrates in a published J&A (discussed in 1.4 Openness of Regulated Contract Award Procedure) that the required supplies or services are available from only one responsible source and no other types of supplies or services will satisfy agency requirements.

Procuring agencies enjoy discretion in fashioning the evaluation criteria for a particular procurement, subject to the requirements of the FAR and any applicable agency FAR supplements, which provide guidance regarding suggested (and sometimes required) evaluation factors and award procedures. The guidance varies depending on the acquisition method utilised (eg, FAR part 15) and the contemplated contract type (eg, firm fixed price), but common evaluation criteria include technical capability, price and past performance.

With respect to RFPs, procuring agencies are required to set forth in the solicitation the method by which it will evaluate proposals – for example, if the agency will use a best value trade-off (allowing it to select a higher-priced proposal that offers a superior technical solution) or a "lowest price technically acceptable" approach (requiring it to select the proposal with the lowest price that meets minimum qualifications).

For competitive procurements, CICA requires procuring agencies to include a statement of all significant factors and subfactors the agency intends to consider in evaluating competitive proposals, along with the relative importance assigned to each of those factors and subfactors.

CICA requires procuring agencies to disclose these factors and subfactors – the agencies’ evaluation criteria and methodology – in the solicitation (ie, before offerors/bidders submit proposals/bids). Contracts pursuant to sealed bids are awarded to the responsive bidder offering the lowest price. The purpose behind this requirement is to ensure that all offerors/bidders are on equal footing in competing for government contract awards.

In competitive procurements under FAR part 15, procuring agencies are required to notify offerors (pre-award) when their proposals are excluded from the competitive range or otherwise eliminated from the competition. Such notices must state the basis for the agency’s determination and that any proposal revisions from the offeror will not be considered. For the required post-award notices, see 3.3 Obligation to Notify Bidders of a Contract Award Decision.

Within three days after contract award, the procuring agency (and, specifically, the contracting officer) is required to provide notice to each offeror whose proposal was not selected for award (provided the offeror did not receive a pre-award notice described in 3.2 Obligation to Notify Interested Parties Who Have Not Been Selected). Such notices must include the number of offerors solicited; the number of proposals received; the name and address of each offeror receiving an award; and, in general terms, the reason the offeror’s proposal was not accepted.

There is no statutory or regulatory requirement for a “standstill period” between the notification of contract award and the beginning of contract performance. As discussed in 4.3 Interim Measures, if a disappointed offeror or bidder files a bid protest, there may be a “stay” in contract performance, such that there is a delay between the notification of award and the beginning of contract performance. Aside from a bid protest triggering a stay of performance, no standstill period is required.

An interested party may seek review of an awarding agency’s actions by:

  • filing an agency-level protest;
  • filing a protest at the US Government Accountability Office (GAO); or
  • filing a protest at the US Court of Federal Claims (COFC).

All agency-level protests must be addressed to the contracting officer. In accordance with agency procedures, an interested party may seek independent review of the contracting officer’s decision at a level above the contracting officer (but still within the agency). This agency “appellate review”, however, does not extend GAO’s timeliness requirements. A protester may opt to file a subsequent protest at GAO (within ten days of initial adverse agency action) or at COFC (no strict timeline).

GAO is an independent, non-partisan legislative agency that adjudicates bid protests on behalf of protesters, procuring agencies and intervenors. Protesters, procuring agencies and intervenors involved in a GAO protest may request reconsideration of an unfavourable GAO decision. Such requests must be filed within ten days after the basis for reconsideration is known or should have been known, whichever is earlier. A protester may file a subsequent protest at COFC (no strict timeline). Relatedly, a protester may file suit at COFC challenging a procuring agency’s decision to disregard a GAO recommendation.

COFC is the only judicial forum authorised to adjudicate bid protests. An interested party may file a protest at COFC alleging that the agency’s actions were “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law” in violation of the Administrative Procedure Act. Unfavourable COFC decisions may be appealed to the US Court of Appeals for the Federal Circuit by filing a notice of appeal within 60 days from COFC’s entry of judgment.

The following remedies may be available to a protester if a solicitation, proposed award or award does not comply with a procurement statute or regulation. The procuring agency may:

  • refrain from exercising any options under the contract;
  • re-evaluate proposals;
  • reopen discussions;
  • request revised proposals;
  • recompete the contract entirely;
  • cancel or amend the solicitation;
  • issue a new solicitation;
  • terminate the award;
  • award a contract consistent with the requirements of such statute or regulation; or
  • implement any combination of the above.

As a legislative agency, GAO lacks authority to issue binding decisions on procuring agencies – by statute, GAO is only permitted to issue “recommendations”. Nonetheless, executive agencies almost always implement GAO recommendations, and COFC gives “due weight and deference” to GAO recommendations in reviewing challenges to an agency’s decision to disregard a GAO recommendation.

COFC, unlike GAO, has the authority to issue an injunction against the procuring agency.

Interim relief may be available to a protester, depending on where and when the protest is filed. At the agency level and GAO, if an interested party files a protest before contract award, the agency is prohibited from awarding a contract pending the resolution of the protest (suspension of award). If an interested party files a GAO protest within ten days after contract award, or within five days after a requested and required debriefing, the agency must immediately suspend contract performance pending resolution of the protest (suspension of performance).

However, to obtain interim relief at COFC (whether pre-award or post-award), a protester must file a motion for a preliminary injunction – there is no “automatic stay” of award or performance. To succeed on a motion for preliminary injunction, a protester must demonstrate:

  • it is likely to succeed on the merits of its protest;
  • it will suffer irreparable harm absent an injunction;
  • granting the injunction will serve the public interest; and
  • the harm the protester will suffer absent an injunction outweighs any harm to the government caused by the injunction.

That said, it is not uncommon for the government to agree to a stay of performance in a COFC protest.

Only “interested parties” have standing to challenge a procuring agency’s actions, and all three forums utilise the same definition of “interested party”. An interested party is “an actual or prospective bidder or offeror whose direct economic interest would be affected by the award of a contract or by the failure to award a contract”. An awardee is generally deemed to be an interested party.

The time limits within which a procuring agency’s actions must be challenged generally depend upon the type of protest and the protest forum.

  • Agency level:
    1. pre-award – protests challenging alleged apparent improprieties in a solicitation must be filed before bid opening or the closing date for receipt of proposals; and
    2. all other protests – all other protests must be filed no later than ten days after the basis of protest is known or should have been known, whichever is earlier.
  • GAO:
    1. pre-award – protests challenging alleged apparent improprieties in a solicitation must be filed prior to bid opening or the time set for receipt of initial proposals; improprieties subsequently incorporated into a solicitation must be protested not later than the next closing time for receipt of proposals following the incorporation;
    2. protests following agency-level protests – if a protester filed a timely agency-level protest, any subsequent GAO protest must be filed within ten days of actual or constructive knowledge of initial adverse agency action; and
    3. requested and required debriefings – for procurements conducted on the basis of competitive proposals, under which a debriefing is requested and required, the initial protest must not be filed prior to the debriefing date offered to the protester but must be filed not later than ten days after the date on which the debriefing is held; to obtain a stay of performance, the protest must be filed within five days of the debriefing; and
    4. all other protests – all other protests must be filed within ten days after the basis of protest is known or should have been known, whichever is earlier.
  • COFC:
    1. unlike agency-level and GAO protests, there are no statutory or regulatory deadlines for filing protests at COFC. With that said, in Blue & Gold Fleet v United States, COFC held that a protester waives its right to challenge the terms of a solicitation unless it files a protest prior to the close of the bidding process – effectively adopting the timeliness standard for pre-award protests at the agency level and GAO.

Further, while there are no statutory or regulatory deadlines for filing COFC protests, the court may apply the doctrine of laches to bar post-award protests where a protester unreasonably and inexcusably delayed filing suit after the protester knew or should have known its basis for protest and where the protester’s delay caused prejudice to the other party (either economic prejudice or prejudice in defending the protest).

The length of protest proceedings depends upon the venue in which the unsuccessful offeror files its protest:

  • agencies are required to “make their best efforts” to resolve agency-level protests within 35 calendar days after the protest is filed; and
  • by statute, GAO is required to resolve protests within 100 calendar days after the protest is filed.

There is no statute or regulation limiting the length of COFC bid protests. As a result, rulings on COFC protests may take longer as compared with rulings in agency-level and GAO protests.

On average, GAO considered 2,468 protests between fiscal years (FYs) 2016 and 2020, sustaining between 13% and 23% of the protests filed in a given year. In GAO’s Bid Protest Annual Report to Congress for FY 2020, GAO reported a protest “effectiveness rate” of 51%. The effectiveness rate is based on a protester obtaining some form of relief from the agency (either as a result of corrective action or GAO sustaining the protest). In FYs 2019 and 2018, GAO reported an effectiveness rate of only 44%. It is possible that the COVID-19 pandemic may have affected agencies’ ability to defend protests, which could explain the higher effectiveness rate for FY 2020 compared to prior years.

GAO also reported a 15% sustain rate, up from 13% in FY 2019. The most prevalent protest bases upon which GAO sustained protests were:

  • unreasonable technical evaluation;
  • flawed solicitation;
  • unreasonable cost or price evaluation; and
  • unreasonable past performance evaluation.

A 2018 RAND report noted that approximately 950 COFC protests had been filed between 2008 and 2017. Otherwise, there is no publicly reported data on the number of agency-level or COFC protests reviewed per year.

The costs involved in challenging a procuring agency’s actions depend largely on the protest forum, and the size and complexity of the protest issues and administrative record.

The most inexpensive venue for filing a protest is the agency level, followed by GAO, then COFC. The expenses vary because of the required procedures at each forum (protests at the agency level are less formal, whereas protests at COFC are akin to civil litigation). Protests to GAO and COFC also involve filing fees (USD350 to file a protest at GAO and USD402 to file a bid protest complaint at COFC).

Contracts can be modified, subject to certain limits, and the FAR provides specific processes for modifications.

As a threshold matter, contracts generally may not be modified to add goods or services that were outside the scope of the original contract. Such actions are held to constitute new contracting actions and generally must be offered for competition. In addition, contracts may only be modified by an authorised contracting officer or procurement official.

Proper contract modifications can arise in several ways. They may be bilateral, where both the agency and the contractor agree to and execute the modification document (typically a Standard Form 30). The agency may also issue unilateral modifications in certain circumstances, where the agency alone issues and executes the modification document. In either case, a contractor may be entitled to an “equitable adjustment” to the contract to account for additional costs or impacts on schedule resulting from the modification. In limited circumstances, contractors may be entitled to a modification and equitable adjustment for external events.

In some circumstances, contracts must also be modified to adjust for changes dictated by law. For example, when prevailing contractor wages are revised by the Department of Labor (DOL), the contract may be revised to provide the contractor with a price adjustment reflecting the new wage. Finally, where a contract fails to include provisions required by law, those provisions are deemed to be incorporated in the contract by operation of law under what is known as the Christian doctrine.

Direct contract awards are permitted in certain circumstances, such as where the procuring agency demonstrates urgent and compelling circumstances. Additionally, the procuring agency may make a “sole-source” award (ie, a direct award to a single offeror) where it can show that supplies or services required by the agency are available from only one responsible source and no other type of supplies or services will satisfy agency requirements.

The government contracts bid protest and dispute forums issued several significant decisions in 2020, including the following.

Bid Protests

In Inserso Corp. v United States, 961 F.3d 1343 (Fed. Cir. 2020), the Federal Circuit, over a dissent, affirmed a COFC decision finding that a protester had waived its right to challenge the improper disclosure of information useful to the subset of offerors who received the information by failing to protest the solicitation as written prior to submitting its proposal. Inserso involved a solicitation for an IDIQ contract.

The agency divided competition into two “suites”. One competition would award a “suite” of contracts in a “full and open” competition; the other would award a suite of contracts to small businesses. The solicitation stated that small businesses could compete in both competitions but could only receive one award. Bidders in both competitions submitted their proposals by the same date.

Inserso, a small business, only competed in the small-business competition. Following proposal submission, the agency first notified successful and unsuccessful offerors in the full and open competition of their award status. The agency completed the debriefing process less than a week later, disclosing certain details of the agency’s source selection decision to the winners and losers. The agency had not yet completed evaluating the proposals submitted in the separate small-business competition and engaged in discussions with the small-business offerors. The agency did not request final proposal revisions from the small-business offerors until over six months after the agency had completed the award notice and debriefing process with the full and open offerors. Inserso did not receive an award because its total evaluated price was comparatively higher than that of the other offerors.

Inserso filed a protest first at GAO, and then later at COFC, alleging that the agency’s debriefing of the full and open competition offerors provided small-business offerors who had competed in both competitions an advantage over those small-business offerors who competed only in the small-business competition.

COFC ruled against Inserso, finding that even if the agency’s actions were improper, there was no prejudice to Inserso. Relying on the standard announced in Blue & Gold Fleet v United States, the Federal Circuit’s majority held that because Inserso “did not object to the disparity in provision of competitively advantageous information until after the awards were made in the small-business competition”, it “forfeited the objection”. The Federal Circuit noted that Inserso “knew, or should have known, that [the agency] would disclose information to the bidders in the full-and-open competition at the time of, and shortly after, the notification of awards”.

Less than two months after the Inserso decision, the Federal Circuit decided Boeing v United States, No 2019-2148, 2020 WL 4578988 (Fed. Cir. 10 August 2020), in which the Federal Circuit again revisited “the Blue & Gold Fleet waiver rule”. This time, the case involved a Contract Disputes Act claim.

In 2017, Boeing filed an action in COFC under the Contract Disputes Act, 41 U.S.C. §§ 7101–7109, alleging that the government breached the contract at issue by failing to negotiate an equitable adjustment in accordance with the cost accounting standards (CAS) statute, 41 U.S.C. § 1503(b). Specifically, Boeing challenged the validity of FAR 30.606, which prohibits the offsetting of cost increases and cost reductions arising from multiple, simultaneous changes in cost accounting practices. Boeing argued that the regulation conflicted with the CAS statute, which provides that the government “may not recover costs greater than the aggregate increased cost to the Federal Government”. Alternatively, Boeing argued that the regulation effected an “illegal extraction”.

COFC agreed with the government’s argument that, by failing to challenge the legality of FAR 30.606 before entering into the contract, Boeing waived its breach of contract claim that depended on challenging FAR 30.606 as unlawful. The COFC concluded that the conflict between FAR 30.606 and the CAS statute was a “patent ambiguity”, which Boeing was required to seek clarification of prior to contract award. With regard to Boeing’s “illegal extraction” argument, the COFC found that it lacked jurisdiction because the CAS statute upon which Boeing’s claim rested was not a “money-mandating statute”.

Again looking to the waiver standard announced in Blue & Gold Fleet, the Federal Circuit this time sided with Boeing and reversed COFC’s decision. The Federal Circuit found Boeing could not have “waived” a challenge to the validity of FAR 30.606 because adherence to the regulation was mandatory and the government conceded that it could not lawfully have declared the regulation inapplicable in entering into the contract. The Federal Circuit also reversed COFC’s dismissal of Boeing’s illegal extraction claim, explaining that Boeing sought to recover money already paid over to the government, in direct violation of the CAS statute. The Federal Circuit concluded that there was no further requirement to identify a money-mandating statute.

Claims/Disputes

In Pernix Serka, CBCA No 5683, 20-1 BCA ¶ 37,589 (22 April 2020), the CBCA denied a contractor’s appeal seeking costs incurred as a result of an Ebola epidemic outbreak while performing a firm fixed price contract in Sierra Leone. Following the outbreak, the contractor sought direction from the government on how to respond to the epidemic (ie, whether it should leave the job site), but the government refused to provide any direction. The contractor took certain actions to protect its personnel, to include demobilising, and later remobilising and expanding its onsite medical facility. The contractor subsequently sought equitable relief from the government, which denied the contractor’s claims.

On appeal, the Board found that the contractor’s firm fixed price contract obligated the contractor to perform and receive “only the fixed price”. The Board, in referencing FAR 52.249-10, the Default clause, found that the contractor was entitled to additional time, but not additional costs, as a result of the epidemic (see FAR 52.249-10, excusing a contractor’s delay in completing the work attributable to unforeseeable causes such as “acts of God” and “epidemics”).

This is a particularly important decision, issued during the COVID-19 pandemic, as it may provide insight into how the Boards of Contract Appeals will review COVID-19 impact claims.

Intellectual Property

In Boeing Co. v Secretary of Air Force, No 2019-2147, 2020 WL 7484750, at *1 (Fed. Cir. 21 December 2020), the Federal Circuit concluded that the Armed Services Board wrongly determined that Boeing cannot mark non-commercial technical data delivered to the government in the performance of a government contract as “proprietary”, to protect its interests from third parties. Boeing entered into two contracts with the Air Force to provide work under the F-15 Eagle Passive/Active Warning Survivability System (providing offensive and defensive electronic warfare options for Air Force pilots and aircraft). The contracts required Boeing to deliver technical data to the Air Force with “unlimited rights” – the “rights to use, modify, reproduce, perform, display, release, or disclose technical data in whole or in part, in any manner, and for any purpose whatsoever, and to have or authorize others to do so” pursuant to DFARS 252.227-7013(a)(16).

Boeing marked each technical data deliverable that it submitted to the Air Force with a legend describing Boeing’s rights as they pertain to third parties (“Non-U.S. Government Notice Boeing Proprietary Third Party Disclosure Requires Written Approval”). The Air Force rejected Boeing’s technical data deliverables because of the legend. The Air Force concluded that Boeing’s legend was non-conforming because it was not in the same format authorised by 252.227-7013(f).

The ASBCA sided with the Air Force. On appeal, the Federal Circuit reversed, finding that DFARS 252.227-7013(f) is only applicable when a contractor is asserting restrictions on the government’s rights and that it did not apply to Boeing’s legends, which purported to restrict third parties’ rights.

The takeaway here is that DFARS 252.227-7013(f) applies only in situations in which a contractor seeks to assert restrictions on the government’s rights. Going forward, contractors should feel comfortable placing legends restricting the rights of third parties on non-commercial technical data delivered to the government.

False Claims Act

In United States ex rel. CIMZNHCA v UCB, Inc., 19-2273, 2020 WL 4743033 (7th Cir. 17 August 2020), the Seventh Circuit articulated a third standard of review to be applied when evaluating a motion to dismiss a qui tam action by the government over a relator’s objection. The FCA requires that relators first present their qui tam complaint to the DOJ so that the DOJ can investigate the allegations and decide whether “to intervene and proceed” as the primary plaintiff and prosecute the lawsuit, pursuant to 31 U.S.C. § 3730(b)(2), (c)(1). If the DOJ declines to intervene, the relator has the right to proceed with the lawsuit without government involvement. The FCA, however, gives the DOJ the right to dismiss the action over the relator’s objection if the relator is provided notice and an opportunity for a hearing. Prior to CIMZNHCA, there were two prevailing standards of review applied to a government motion to dismiss under Section 3730(c)(2)(A):

  • the standard in Swift v United States, 318 F.3d 250, 253 (D.C. Cir. 2003), which gives the government “unfettered” discretion to dismiss; and
  • the more burdensome standard announced in United States ex rel. Sequoia Orange Co. v Baird-Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998), which requires the government to first identify a “valid government purpose” and then show “a rational relation between dismissal and the accomplishment of the purpose”.

If the government does so, the burden then shifts to the relator to show that “dismissal is fraudulent, arbitrary and capricious, or illegal”.

The CIMZNHCA case involved a qui tam action against pharmaceutical companies alleging unlawful kickbacks to physicians for prescribing or recommending certain drugs. The DOJ declined to intervene in the action and a series of motions extended the defendants’ time to answer.

A year later, before the defendants’ had answered, the DOJ moved to dismiss the action pursuant to Section 3730(c)(2)(A), stating that the qui tam claims “lack sufficient merit to justify the cost of investigation and prosecution to otherwise be contrary to the public interest”. The district court, following the Sequoia Orange test, determined the DOJ’s decision to dismiss was “arbitrary and capricious” and “not rationally related to a valid government purpose”.

On appeal, the Seventh Circuit rejected the Sequoia Orange standard and declined to follow the Swift standard. Instead, the Seventh Circuit adopted a new standard, treating a motion to dismiss under Section 3730(c)(2)(A) as necessarily including a motion to intervene and applying the voluntary dismissal standard set forth in Fed. R. Civ. P. 41(a).

Fed. R. Civ. P. 41(a)(1)(A)(i) gives a plaintiff an absolute right of voluntary dismissal before the opposing party serves either an answer or a motion for summary judgment. Because neither had occurred, the Seventh Circuit found that the DOJ had an absolute right to dismiss the case.

The key takeaway is that the CIMZNHCA standard is “much nearer to Swift than Sequoia Orange”, at least with respect to early dismissal under Fed. R. Civ. P. 41(a), seeming to give the government an unfettered right to intervene and dismiss before the defendants file an answer.

Both Congress and federal executive agencies are continually considering revisions and updates to the FAR and agency FAR supplements, to address evolving issues and incorporate best practices. Amendments to federal procurement laws may also be brought about by the White House.

In his first 100 days, President Biden signed an executive order proposing significant changes to promote the enforcement of the Buy America/American Act’s preference for domestic end products, including directing the FAR council to consider a number of amendments, including ones to increase the numerical threshold for domestic content requirements for end products and construction materials, and increase the price preferences for domestic end products and domestic construction materials.

Additionally, the annual National Defense Authorization Act (NDAA) for FY 2021 enacted a number of important procurement provisions for government contractors, including those concerning:

  • acquisition policy and management;
  • amendments to general contracting authorities, procedures and limitations;
  • supply chain and industrial base matters;
  • small-business issues; and;
  • provisions related to software acquisition.

Enacted as part of the NDAA, the Corporate Transparency Act requires that amendments to the FAR be implemented within two years of the effective date of the Act, to provide that “any contractor or subcontractor” subject to the Act disclose its beneficial ownership information as part of any bid or proposal for a contract valued above the simplified acquisition threshold (currently USD250,000, subject to certain exceptions). This will expand the current requirements under the FAR, which requires prime contractors to provide certain information about corporate ownership in bids or proposals.

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Trends and Developments


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Holland & Knight LLP has more than 1,300 lawyers and a reputation for understanding clients’ business issues and staying abreast of the knowledge and trends that shape their industries. Interdisciplinary practice groups and industry-based teams provide clients with access to attorneys throughout the firm, regardless of location. Holland & Knight's government contracts group guides clients through all phases of the procurement process, including forming teaming arrangements, responding to solicitations and compliance with contractual requirements and the Federal Acquisition Regulation. The firm provides guidance in handling bid protests, prime/subcontractor litigation, claims and disputes, and defence of enforcement matters, including suspension and debarment matters, False Claims Act litigation, FCPA compliance, and government audits and investigations. The group represents government contractors of all sizes and across a wide array of industries, and works closely with the firm’s government contracts M&A practice, which is among the largest in the country.

The US government continues to offer opportunities as the largest public procurement marketplace. But with the rewards come risks – from adjustments in procurement methods and competition to new compliance requirements and active enforcement. This chapter summarises the key trends and developments in US government procurement

Procurement Policy Priorities of the New Biden Administration

The Biden administration has already influenced federal contracting policy. It has sought to increase preferences for the domestic sourcing of goods, utilise the Defense Production Act to combat the COVID-19 pandemic and ensure the domestic production of key electronic and medical products, and enforce wage and benefit requirements for contractor employees.

Strengthening domestic preferences

The previous administration sought to increase domestic production of certain products and the Biden administration is expected to continue to enact similar policies.

In the first week of his administration, President Biden issued Executive Order (EO) 14005, which strengthens domestic preference requirements. The EO requires (in part) new regulations to be drafted that will increase the numerical threshold for domestic content requirements for end products and construction materials, and increase the price preferences for domestic end products and construction materials. President Biden also called for the creation of a “Made in America Office” to centralise the domestic preference waiver process and provide additional transparency.

The last administration issued EO 13944, which would require the insourcing of the production of certain medical products into the United States and require companies to eliminate vulnerabilities in their medical products supply chain. These goals would be reached by limiting competition to medical products produced in the United States and allowing the offer of medical products from outside the United States to be rejected for national defence reasons. Regulations still need to be written to implement this EO and President Biden has the power to modify or rescind it.

Increase domestic production through the Defense Production Act

Throughout 2020, the US government exercised extraordinary procurement authorities to acquire scarce health and medical resources, such as ventilators and N95 respirators. The Defense Production Act of 1950 (DPA) authorises the US government to source critical products and services for “national defense preparedness”, which includes emergency preparedness and response activities. Under the last administration, EOs were issued delegating authority to use the DPA to the Departments of Health & Human Services and Homeland Security for the procurement of “health resources and medical resources needed to respond to the spread of COVID-19”.

The DPA gives certain executive agencies within the US government the authority to do the following:

  • issue “rated orders”, which puts the US government first in line for the purchase of products and services;
  • take “allocation actions”, which allows the US government to reserve materials or facilities in anticipation of a rated order or even direct the use of a private facility;
  • offer financial assistance for increased production of critical supplies; and
  • facilitate voluntary agreements between competitors.

The DPA regulations contain details about a company’s options for accepting or rejecting a rated order or allocation action and the strict deadlines for doing so. Compliance is important, as there are criminal penalties for wilful violation of the DPA. Companies receive liability protection under the DPA when filling a priority rated order causes the company to breach unrated contracts.

The last administration utilised the DPA to give itself priority for the procurement of certain products, and prohibited the export of, and funded additional production lines for, certain goods needed to combat the COVID-19 pandemic.

It is expected that the Biden administration will continue those policies. Through an EO and other executive actions, the Biden administration is reviewing the scarcity of important products and whether the DPA is needed to increase production of vaccines and testing kits.

Increase labour and employment enforcement

The Biden administration is expected to increase enforcement of labour laws protecting workers employed by contractors. This includes the Service Contract Act (now known as the Service Contract Labor Standards) and the Davis–Bacon Act. These acts (and their attendant regulations) require the provision of certain wages and benefits to contractor workers performing services and construction, respectively.

Foreign Investment Considerations

The Committee on Foreign Investment in the United States (CFIUS) issued a final rule related to the mandatory filing requirement for critical technology investments. Under the new rule, transactions will be subject to mandatory pre-closing filings where a “U.S. regulatory authorization” would be required for the export, re-export, transfer (in-country), or retransfer of the US business’s critical technology at issue to a foreign person that is a party to the covered transaction. Previously, mandatory filings were based on whether the target business fell within certain industry categories under the North American Industry Classification System (NAICS).

The Department of Defense (DOD) also issued a new rule implementing an important change regarding mitigation requirements for US contractors operating under foreign ownership, control, or influence (FOCI). If a non-US investor is effectively acquiring control of a contractor with access to classified or sensitive information, the contractor can mitigate through a special security agreement (SSA). A contractor subject to SSA mitigation also requires the government to issue a National Interest Determination (NID) before having access to classified or other sensitive information. Under the new rule, NIDs are no longer required for SSA-mitigated contractors whose foreign parents are from Australia, Canada, or the United Kingdom (the same countries currently designated as “excepted countries” for CFIUS purposes).

Procurement Methods and Competition

The US government has been rethinking its own acquisition strategy with the goal of expanding the marketplace to more non-traditional government contractors offering innovative commercial products and services, and better leveraging the buying power of the federal enterprise.

Category management and shift to government-wide MAS IDIQ contracts

The US government has been steadily implementing “category management”, which continues to change the contracting landscape and strategic approaches in the federal marketplace. The government has determined that approximately 60% of all contract spending (approximately USD325 billion in FY 2018) is spent on ten categories of common products and services. Category management is the procurement practice of buying common goods and services as an enterprise in order to eliminate redundancies, increase efficiency, and deliver more value and savings.

To implement category management, the Office of Management and Budget (OMB) has requested agencies to establish plans to shift “unaligned spending” in ten categories of products of services to “best-in-class” (BIC) contracts. BIC contracts are government-wide, pre-vetted contract solutions that are structured as multiple award, indefinite-delivery, indefinite-quantity (IDIQ) contracts and increase transactional data available for government-wide analysis of buying behaviour. Agencies are in the process of migrating their spending up to a “spending under management” maturity model, with the goal of using BIC contracts for the ten common spending categories.

Category management creates opportunities and advantages for established US contractors and imposes new barriers to entry for contractors seeking to enter the market. BIC contracts have been established for every common spend category (a list is available at General Services Administration's (GSA's) Acquisition Gateway website. Examples include GSA’s Federal Supply Schedules (FSS), NASA SEWP, GSA OASIS, GSA Alliant and NITAAC CIO SP3. Solicitations under these contracts are issued to contract holders; companies that do not have these vehicles cannot compete as prime contractors and instead must participate as subcontractors. Thus, category management favours established contractors who hold these contracts and requires newcomers to invest time and resources to obtain them through competition or strategic transactions.

GSA schedule consolidation

For decades, the largest government-wide multiple award schedule contracts have been the US GSA's FSS, 24 of which are administered by GSA with another dozen or so health-related schedules administered by the Department of Veterans Affairs (VA). GSA is in the midst of an effort to consolidate its 24 schedule contracts into a single schedule contract featuring 12 categories, 83 subcategories and approximately 300 special item numbers (SINs), a move that is expected to increase efficiency and value for both buyers and sellers. In 2020, GSA completed the transition of updating current contracts to conform to the terms and conditions of the consolidated Multiple Award Schedule (MAS) vehicle. In July 2020, GSA began the process of working with companies holding multiple FSS contracts to determine the best option for consolidation. GSA still has to decide the future of its transactional data reporting (TDR) pilot programme, which was established in 2016 for a handful of schedule contracts as a possible replacement of the burdensome commercial sales practices disclosure and price reductions clause requirements.

E-commerce platform for COTS

The US government is developing e-commerce marketplaces run by private companies designed for the purchase of commercial off-the-shelf (COTS) products under the simplified acquisition threshold (currently USD250,000). In 2020, the project entered a pilot phase and appears to be at least a year away from implementation. If this programme is successful, any federal agency will be able to use these web-based marketplaces to order COTS products.

Several policy issues remain to be worked out.

  • Companies running the marketplace will be able to sell their own products, worrying some that they will have an unfair advantage on the marketplace.
  • The companies selected to run the marketplaces must properly secure the data they collect from users and ensure it is not used for a competitive advantage.
  • The marketplaces must also eliminate marketplace products sold by debarred companies and identify countries of origin for products so government customers can comply with the appropriate country of origin requirements when purchasing products.

The current e-commerce pilot will test how the marketplace works for purchases below the micro-purchase threshold (USD10,000). The test is expected to last at least through 2021.

“Other transactions agreement” for prototypes and research and development

In the past few years, Congress has determined that the DOD needs improved access to the innovative technology of non-traditional government contractors in places such as Silicon Valley that may be reluctant to deal with the regulatory burden and risk that comes with being a government contractor. Congress has expanded the authority and flexibility of the DOD to enter into “other transactions agreements" (OTAs) for new research and development and new prototypes.

OTAs are appealing because they are exempt from the Federal Acquisition Regulation (FAR) and feature a streamlined competitive procedure that has limited bid protest review. The prototype reforms include the authority to enter into sole-source contracts for mass production if the prototype demonstration is successful. The Defense Innovation Unit (DIU) has been very active in connecting DOD activities with R&D dollars with non-traditional government contractors under this authority. Commercial technology companies interested in expanding sales in the government marketplace might explore this as a point of entry.

Compliance Requirements

While compliance priorities can change when administrations change, the Biden administration is expected to continue and expand the below compliance requirements.

Cybersecurity and CMMC

One area of increasing compliance requirements for US contractors is cybersecurity. New regulatory requirements have been imposed within the past few years and the DOD continues to aggressively roll out a new cybersecurity certification requirement known as CMMC. In 2020, the DoD released three Defense Federal Acquisition Regulation Supplement (DFARS) clauses that implement CMMC (DFARS 252.204-7021) and a companion requirement that will allow the DOD to conduct audits of contractor compliance with cybersecurity requirements (DFARS 252.204-7019 and 7020).

Previously, the DOD issued a contract clause at DFARS 252.204-7012 that requires compliance with National Institute of Standards and Technology (NIST) Special Publication (SP) 800-171. This DFARS clause requires contractors that possess contractor defence information to comply with 110 separate security controls in SP 800-171, ranging from password security to physical access. Most significant is the requirement for each organisation to develop and submit a system security plan to the DOD. In addition to compliance with security controls and the provision of a system security plan, the DFARS clause also required that contractors report cybersecurity incidents to the DOD within 72 hours of discovery, co-operate with any DOD investigation regarding such incidents, and flow down the clause to lower-tiered subcontractors.

With the exception of the system security plan, the DOD expects contractors to self-certify compliance with cybersecurity requirements. That is changing with the introduction of CMMC. Under CMMC, contractors will need third-party assessors to certify a contractor to a certain level of compliance. Level 1 contains the most basic security controls, while level 5 is the most stringent and level 3 is similar to current requirements under SP 800-171.

Even though CMMC requirements will continue to develop throughout 2021 and 2022, the DOD has made clear there will be no exceptions for small businesses, business that do not handle covered defence information, or contractors that solely sell commercial products and services. Only contractors that solely provide commercial off-the-shelf products will be exempted from CMMC. While only a few contracts will initially be impacted, the DOD expects CMMC to be required to perform every DOD contract in the next five years. The DOD has also identified initial contracts in which prime contractors and subcontractors will be required to obtain a CMMC certification.

Contractors not doing business with the DOD must comply with much less stringent government-wide requirements embodied in FAR 52.204-21. This clause requires contractors to engage in basic cybersecurity hygiene; much of which they are likely doing. Even so, contractors may be subject to agency-specific clauses that are much more stringent and could mirror, or even exceed, the requirements placed on DOD contractors. Further, non-DOD agencies are reviewing the implementation of CMMC and at least some are expected to also adopt it as a requirement.

US supply chain reforms

New legislation and regulations have tightened supply chain requirements for government contractors. In 2018 (and through regulations issued in late 2019), Congress banned the use of products or services from Kaspersky Labs (or other related entities).

Regulations limiting the use and sale of certain Chinese telecommunications products and services were issued in 2019 and 2020. In 2019, the US government enacted regulations limiting contractors’ ability to sell certain products and services from identified Chinese companies – including Huawei Technologies Company, ZTE Corporation, Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company or Dahua Technology Company – to the US government. The ban covers the types of products and services these companies typically provide. Then, in 2020, the US government banned the use of those products and services no matter whether such use was connected with a US government contract or a physical location where US government contracts are performed. In other words, the ban of the use of the products or services is expected to be enterprise-wide (though only impacting the entity that has contracts with the US government) and unconnected with the location or nature of contract performance.

Contractors are also now required to disclose, on at least an annual basis, whether they use any of the identified products/services in performance of a government contract.

Under the SECURE Technology Act, Congress established a Federal Acquisition Security Council (FASC). The FASC will identify and recommend which supply chain standards, guidelines and best practices should be addressed by NIST; identify executive agencies to provide shared acquisition services to support “supply chain risk management activities”; and develop criteria for sharing information among executive and non-executive federal agencies, and non-federal agencies “with respect to supply chain risk”. The FASC will create standards for excluding companies or products that pose an unreasonable supply chain risk, an action that can be appealed by contractors in federal court.

Buy American and other domestic preference requirements

The previous and current administration have placed an emphasis on supporting the US manufacturing base by promoting the enforcement and expansion of domestic preference and domestic sourcing requirements. The Buy American Act requires federal agencies to provide a price evaluation preference, typically between 6% and 12%, to domestically produced items over items imported from countries not subject to a trade agreement with the United States. On 19 January 2021, the FAR Council revised these rules to, among other things, increase the price preference for domestically produced items from 6% to 20% and from 12% to 30% for small businesses. There is no change to the 50% preference for the DOD. This rule is pending final review by the Biden administration.

Enforcement Risks

The federal government has numerous tools at its disposal to combat procurement fraud, including the False Claims Acts (FCA) (civil and criminal) and the Suspension and Debarment process. The government continued to make considerable use of these tools in the past year. The government also continued to build up a major new enforcement initiative to identify and prosecute collusion and other antitrust violations in public procurement at the federal, state and local levels.

The Civil False Claims Act

The Civil FCA is an anti-fraud statute dating back to the US Civil War era. Its key features include trebled damages for the full amount of each false claim, statutory penalties per false claim (which can include individual contract invoices), and rules that allow individual "qui tam" whistle-blowers to bring and maintain actions in the name of the government and to share in any recovery. Under the FCA, a failure to disclose non-compliance with a material legal or contractual requirement can make a claim false.

The federal government announced recoveries of more than USD2.2 billion under the FCA for the fiscal year (FY) ending 30 September 2020, and USD3 billion more soon after that period ended. The number of new FCA cases filed was a record high, the vast majority of which were filed by whistle-blowers. Many observers expect the Department of Justice's (DOJ's) FCA enforcement activity to increase under the Biden administration.

While the substantial majority of the government's recoveries have come in the healthcare field, the FCA remains a potent threat for federal procurement contractors. Indeed, more new DOD-related FCA cases were filed in FY 2020 than in any year since FY 2013.

Notably, the DOJ continued its recent emphasis on holding senior executives and company owners accountable for companies' false claims by requiring them to pay portions of settlement amounts.

Suspension and debarment

The federal government has a policy of working only with contractors it deems to be “responsible”, meaning not only that they have the financial and technical capacity to perform but that they have the business integrity and ethics needed to be a reliable partner. Companies and individuals who engage in criminal or fraudulent activity or otherwise demonstrate a lack of business integrity and ethics may be suspended or debarred from federal work.

The Interagency Suspension and Debarment Committee (ISDC) recently released its annual report regarding suspension and debarment activity in FY 2019. Based on the report, the total numbers of referrals and suspensions increased in FY 2019 compared to FY 2018, but proposed debarments and debarments continue to decline.

The ISDC also noted that in FY 2019, agencies better utilised pre-notice letters to notify individuals or entities that the Suspension and Debarment Official (SDO) was considering action. Pre-notice letters – including show cause letters, requests for information and similar types of letters – are used to inform an individual or entity that an agency is considering potential SDO action. Use of this tool is important as it allows the recipient an opportunity to respond before formal SDO action.

Procurement Collusion Strike Force

2020 marked the first full year of the DOJ's new Procurement Collusion Strike Force. The Strike Force was established in November 2019 as an interagency partnership to investigate and prosecute antitrust crimes that undermine competition in government procurement and grant and programme funding at the federal, state and local levels. The formation of the Strike Force came on the heels of a major bid-rigging settlement in 2018 involving guilty pleas from five South Korean petroleum and refinery companies that admitted to working together to suppress and eliminate competition in fuel supply contracts with the US government over an 11-year period.

The Strike Force was set up to investigate and prosecute allegations of bid rigging, price fixing and market allocation in public procurement across the United States. The DOJ has identified specific market dynamics that are ripe for collusion, including markets dominated by a small group of major sellers, markets for products that are standardised or offer few substitutes, markets where purchases are repetitive and regularly scheduled, and where procurements are rushed in response to emergencies, as well as markets where employees frequently shift from one competitor to another. The Strike Force touts that it uses data analytics to proactively identify suspicious bid patterns that warrant further investigations. One area that may be the subject of heightened scrutiny at the federal level is the formation of teaming agreements, subcontracting relationships and joint ventures. The consequences of antitrust violations can be severe, including civil liability, criminal penalties, and suspension and debarment from public contracting.

According to the DOJ, the Strike Force opened more than two dozen grand jury investigations in its first year. After adding resources and installing new leadership, the Strike Force can be expected to be a growing presence in the coming years.

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Law and Practice

Authors



Holland & Knight LLP has more than 1,300 lawyers and a reputation for understanding clients’ business issues and staying abreast of the knowledge and trends that shape their industries. Interdisciplinary practice groups and industry-based teams provide clients with access to attorneys throughout the firm, regardless of location. Holland & Knight's government contracts group guides clients through all phases of the procurement process, including forming teaming arrangements, responding to solicitations, and compliance with contractual requirements and the Federal Acquisition Regulation. The firm provides guidance in handling bid protests, prime/subcontractor litigation, claims and disputes, and defence of enforcement matters, including suspension and debarment matters, False Claims Act litigation, FCPA compliance, and government audits and investigations. The group represents government contractors of all sizes and across a wide array of industries, and works closely with the firm’s government contracts M&A practice, which is among the largest in the country.

Trends and Development

Authors



Holland & Knight LLP has more than 1,300 lawyers and a reputation for understanding clients’ business issues and staying abreast of the knowledge and trends that shape their industries. Interdisciplinary practice groups and industry-based teams provide clients with access to attorneys throughout the firm, regardless of location. Holland & Knight's government contracts group guides clients through all phases of the procurement process, including forming teaming arrangements, responding to solicitations and compliance with contractual requirements and the Federal Acquisition Regulation. The firm provides guidance in handling bid protests, prime/subcontractor litigation, claims and disputes, and defence of enforcement matters, including suspension and debarment matters, False Claims Act litigation, FCPA compliance, and government audits and investigations. The group represents government contractors of all sizes and across a wide array of industries, and works closely with the firm’s government contracts M&A practice, which is among the largest in the country.

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