Since December 2021, after a Federal District Court for the Southern District of Georgia issued a nationwide injunction against the federal contractor vaccine mandate, compliance with the federal contractor vaccine mandate has been in limbo. Many hoped that, on appeal, the Eleventh Circuit would bring some clarity to vaccine requirements. Unfortunately, that is not the case. On August 26, 2022, the Eleventh Circuit agreed that a preliminary injunction was warranted, however the Court narrowed the applicability of the injunction. The court held that the injunction should only apply to the specific plaintiff-states and trade associations in the case, and should not “extend nationwide and without distinction to plaintiffs and non-parties alike.” Georgia v. President of the United States, No. 21-14269 (11th Cir. Aug. 26, 2022).
The Eleventh Circuit agreed with the lower court that a preliminary injunction was warranted, stating that while “Congress crafted the Procurement Act to promote economy and efficiency in federal contracting, the purpose statement does not authorize the President to supplement the statute with any administrative move that may advance that purpose.” Therefore, the Court held that “the President likely exceeded his authority under the Procurement Act when directing executive agencies to enforce” the vaccine mandate.
Federal government contractors and subcontractors often struggle with flow-down clauses. Fundamentally, prime and subcontractors squabble over flow-down clauses because they involve assumption of risk. A prime contractor has committed to comply with all of the clauses in its prime contract. To the extent a prime contractor does not flow down a clause to its subcontractor, the prime contractor assumes the risk of any subcontractor non-compliance. This is because, if a contracting officer identifies regulatory non-compliance, the government only looks to the party with which it has privity to enforce compliance: the prime contractor. If the prime contractor has not flowed down the applicable clause to its subcontractor, the prime contractor is responsible for its subcontractor’s non-compliance. If the clause has been flowed down, the prime contractor can enforce compliance upon its subcontractor. From a subcontractor perspective, the more flow-down clauses it accepts from its prime contractor, the more compliance risk it assumes.
As a result, prime contractors seek to flow down as many FAR clauses as possible—well beyond the mandatory flow downs discussed below. Subcontractors, meanwhile, seek to keep flow-down clauses to a minimum. Subcontractors must analyze when it is appropriate and productive to resist non-mandatory flow-down clauses, and sometimes the answers to these questions may not be straightforward. Below we address the mandatory flow-down clauses for commercial subcontracts with commercial and non-commercial prime contractors, how subcontractors can handle irrelevant clauses, and best flow-down practices for prime contractors and subcontractors.
The U.S. Small Business Administration (“SBA”) recently issued a final rule that creates new opportunities for small businesses to submit relevant past performance, and new requirements for large/other than small prime contractors to provide past performance reviews to first-tier small business subcontractors.
The final rule is intended to help small businesses overcome the hurdle of having minimal past performance to use in competitive procurements. The rule creates new mechanisms to permit small businesses to use the past performance of a joint venture in which it was a member, or to use its performance as a first-tier subcontractor. The new rule takes effect on August 22, 2022.
Federal government contractors and subcontractors with 50 or more employees and a federal contract or subcontract with a value of $50,000 or more measured during any 12-month period are required to develop a written Affirmative Action Program (“AAP”) within 120 days from the start of the federal contract.
The Office of Federal Contract Compliance Programs (“OFCCP”) has established a Contractor Portal for federal government contractors to register and certify that they have developed and maintained affirmative action programs at each of their establishments or functional units: OFCCP Contractor Portal. Contractors that do not register and certify are more likely to be selected for an OFCCP AAP audit.
The deadline to register and submit AAP certifications is June 30, 2022.
Michael Grivnovics, Director, Federal Supply System, Contracts Division, Veterans Affairs Office of Inspector General, will join Merle to present the “Special Focus on FSS Post Award Compliance and Audits” session on May 19 at 9:00 a.m. EDT.
The General Services Administration (“GSA”) Office of Governmentwide Policy recently authorized contracting officers to provide relief to GSA contractors experiencing cost increases due to surging inflation. See Acquisition Letter. To assist struggling contractors, GSA issued a temporary moratorium on the enforcement of certain limitations contained in GSA economic price adjustment (“EPA”) clauses.
GSA issued the moratorium in response to an uptick in contractors’ requests for price increases and removal of items from their Federal Supply Schedule (“FSS”) contracts to avoid selling at a loss. In issuing the moratorium, GSA recognized that inflationary pressures and price volatility, caused by supply chain disruptions, strong demand, and labor shortages, are ongoing concerns unlikely to abate in the near term. GSA acknowledged that it must help contractors weather this “unusual time”—especially small businesses and new market entrants—to ensure a resilient and diverse federal industrial base and the government’s continued access to critical “products, services, and solutions.”
On March 23, 2022, the Centers for Medicare and Medicaid Services (“CMS”) issued long-awaited guidance regarding how drug manufacturers are to report multiple best prices (“BPs”) to the Medicaid Drug Rebate Program (“MDRP”) under value-based purchasing (“VBP”) arrangements. See Manufacturer Release 116 (medicaid.gov/prescription-drugs/downloads/mfr-rel-116.pdf). CMS delayed issuing the guidance to allow states, payers, and manufacturers to administratively prepare for multiple BP reporting in connection with VBP arrangements. The regulatory amendments are effective July 1, 2022.
VBP Arrangements and Medicaid’s Best Price Rule
VBP arrangements consist of additional rebates or price concessions that states may be able to earn based on a drug’s clinical outcomes in Medicaid beneficiaries. CMS’ challenge was reconciling Medicaid’s long-standing BP reporting rule used to calculate manufacturer rebate payments to states with anticipated low prices available under VBP arrangements. Since 1991, the MDRP agreed to cover every drug a manufacturer sells regardless of price. In exchange for this unprecedented access, manufacturers agreed to pay rebates ensuring that Medicaid programs paid no more than the “best prices” paid by manufacturers’ commercial customers. Many argued that Medicaid’s BP rule prevented states from accessing innovative manufacturer programs involving cutting-edge therapies.
On January 21, 2022, the General Services Administration (“GSA”) Office of Inspector General (“OIG”) informed the Federal Acquisition Service (“FAS”) that ongoing monitoring by the OIG found that the FAS failed to properly monitor the sale of products for compliance with the Trade Agreements Act (“TAA”) during the COVID-19 response. Previously, in April 2020, GSA relaxed compliance with the TAA for a limited number of Federal Supply Classes (“FSCs”) to aid the government’s response to the COVID-19 pandemic. The applicable FSCs included those covering N95 masks, cleaners and disinfectants, disposable gloves, and hand sanitizers. After several extensions, the TAA exception policy expired on April 30, 2021.
The OIG identified two deficiencies in FAS’ implementation of the TAA exception policy. First, the OIG found that FAS failed to properly track the addition of non-compliant products to contracts. As a result, after expiration of the exception policy, there was no effective way for GSA to remove the non-compliant products from contracts. Second, the OIG found that GSA improperly permitted the addition of non-compliant products to GSA contracts. For example, some products that were added were unrelated to the government’s response to the pandemic; some products were added to GSA contracts prior to the effective date of the TAA exception policy; and, remarkably, in one case, a product was added to a contract that identified North Korea as its country of origin.
Beginning February 1, 2022, contractors and subcontractors required to maintain affirmative action plans (“AAPs”) can register for access to a new secure online contractor portal. The portal was developed and will be monitored by the Office of Federal Contract Compliance Programs (“OFCCP”). OFCCP has been working on an information and verification process for three years. In August 2021, the Office of Management and Budget approved OFCCP’s use of the portal. The portal provides contractors a secure method of (i) annually certifying compliance with AAP requirements and (ii) submitting AAPs to OFCCP during audits or compliance evaluations.
Executive Order 11246 and Section 503 of the Rehabilitation Act of 1973 require contractors and subcontractors that hold a contract valued at $50,000 or more and employ 50 or more employees to comply with equal employment and affirmative action requirements. This includes developing and maintaining written AAPs. Currently, only services and supply contractors, not construction contractors, are required to certify compliance.
Last week, in response to the Omicron variant, President Biden announced the Government intends to purchase 500 million at-home, rapid COVID-19 tests for distribution to Americans. According to the announcement, Americans will be able to order test kits to be delivered to their homes starting in January. While this may have been a good sound bite, as discussed below, it does not appear realistic. More likely, while Americans may be able to place orders in January, those orders may not be filled until several months into 2022.
As widely reported, rapid COVID-19 at-home test kits are already in short supply. Moreover, the Government has yet to enter into additional contracts beyond the limited contracts to a small number of suppliers previously announced by the Defense Logistics Agency (“DLA”) and a handful of “prototype” contracts finalized in 2020 under the Trump administration. The Government has not made any recent additional contract awards for rapid COVID-19 at-home test kits.
On December 22, one day after the president’s announcement, the Department of Defense (“DoD”), on behalf of the Department of Health and Human Services (“HHS”), issued a Request for Information (“RFI”) seeking information to assess market availability and sourcing for rapid COVID-19 at-home tests. The RFI, however, is not an actual procurement nor contract award and merely seeks information for 500,000 test kits for agency “personnel use.” Responses were due by 3:00 p.m. on December 24. (See, Rapid COVID-19 Antigen Test Kits.) Proposals to supply test kits are unlikely until after a Request for Proposal (“RFP”) has been issued. As of today, no RFP has been issued.