Executive Order Increases the Minimum Wage for Federal Contractors—What Is the Impact?

Scott Arnold

Legal developments aimed at government contractors do not always make headline news in mainstream media, but last week’s Executive Order on Increasing the Minimum Wage for Federal Contractors, April 27, 2021 (“Executive Order”), did get widespread attention, perhaps because it is viewed by some in political circles as the next best thing for an administration that sees substantial congressional hurdles for more broadly applicable minimum wage increase legislation. So you have probably heard about about the Executive Order, but how will it impact government contractors?

What does the Executive Order do?

The Executive Order will increase the hourly minimum wage for workers working on or in connection with federal government contracts to $15.00, effective January 30, 2022. This will be a substantial increase from the current minimum wage of $10.95 applicable to most federal contracts pursuant Executive Order 13658. (EO 13658 originally set a federal contractor minimum wage of $10.10, effective January 1, 2015, when it was issued by President Obama in early 2014. That minimum wage has since increased annually.)

How will the increase be implemented?

The Secretary of Labor is to issue implementing regulations by November 24, 2021, and the Federal Acquisition Regulatory Council is to amend the FAR to provide the new minimum wage provisions in federal procurement solicitations, contracts, and contract-like instruments within 60 days after issuance of the Labor Department’s implementing regulations.

Continue reading “Executive Order Increases the Minimum Wage for Federal Contractors—What Is the Impact?”

Buy American Act – More Big Changes Ahead

Scott Arnold

“Buy American” is one of few policy areas where the Biden and Trump administrations appear to generally agree. The Trump administration expressed support for strengthening regulatory implementation of the Buy American Act (“BAA”), and, in Executive Order 13881 (July 15, 2019), directed the Federal Acquisition Regulatory Council (“FAR Council”) to consider proposed regulations to increase and create new domestic content thresholds required for a product to qualify for domestic preference treatment. We wrote four months ago about the FAR Council’s proposed regulations to do just that, and to increase the price evaluation credit given to domestic products subject to the BAA. (See Proposed Rule Portends Increased Contractor BAA Obligations.) On January 19, 2021, the FAR Council published its final rule, largely adopting the proposed version.

Ironically, these changes were issued on the last full day of the Trump administration and went into effect January 21, 2021—the first full day of the Biden administration. And while there is no indication that the Biden administration believes the new BAA thresholds were bad ideas, President Biden wasted no time signaling his desire for further strengthening of the BAA as well as domestic content requirements in federal procurement and grant programs generally. President Biden’s Executive Order on Ensuring the Future Is Made in All of American by All of America’s Workers (“EO”) issued on January 25, 2021, makes this clear. Continue reading “Buy American Act – More Big Changes Ahead”

Majority of FY 2020 Protests Find Some Success at GAO

Luke W. Meier and Scott Arnold

The Government Accountability Office (“GAO”) has released its Annual Report to Congress summarizing bid protest activity for Fiscal Year 2020 (GAO-21-281SP). The report shows that, in a unique year where COVID-19 altered procurement practices and priorities, protest activity at GAO was remarkably stable. Of note, GAO’s “effectiveness rate” this year topped 50 percent, meaning most protests resulted in some form of relief. The number of task order protests continues to increase, despite a modest dip in overall protests. Unsurprisingly, again there were very few hearings.

The chart below summarizes the GAO protest statistics from FY 2015 to FY 2020.

Here are four key takeaways from the latest report.

Continue reading “Majority of FY 2020 Protests Find Some Success at GAO”

Proposed Rule Portends Increased Contractor BAA Obligations

Scott Arnold and Carolyn Cody-Jones

On September 14, 2020, the FAR Council published a proposed rule, Case 2019-016 “Maximizing Use of American-Made Goods, Products, and Materials,” 85 FR 56558, which proposes certain increased and new thresholds for contractors subject to the Buy American Act (“BAA”). The proposed changes implement Executive Order 13881 (July 15, 2019). There is a November 13, 2020, deadline for interested parties to submit written comments for consideration in the final rule.

The key proposed changes are as follows:

    1. Items subject to a minimum domestic component test would need to meet a new threshold of 55 percent, an increase of five percent from the current 50 percent threshold. Domestic end items and construction materials would need to be manufactured in the United States, and would need to be manufactured from components which, based on cost, are over 55 percent domestic (components mined, produced, or manufactured in the United States).
    2. A new, distinct threshold would be created for end items and construction materials that are made predominantly of iron or steel or a combination of both—meaning that the iron and steel content of the item exceeds half of the total cost of all components in the item. For such items, the domestic component content threshold would be 95 percent. In other words, for items made predominantly of iron or steel to be considered domestic, they would need to be manufactured in the United States and contain less than 5 percent non-domestic components by cost. This is a significant change; currently these items are subject to a much lower domestic content requirement—anything over 50 percent.
    3. The commercially available off-the-shelf (“COTS”) exception to the cost of component requirements would still apply to end items and construction materials that are not made predominantly of iron or steel. In other words, such COTS items would need to be mined, manufactured, or produced in the United States, but there would be no requirement that any portion of the components of such COTS items be domestic.
    4. The COTS exception to the cost of component requirements would not apply to end items and construction materials that are made predominantly of iron or steel. The rule set forth in (2) above would apply—to be considered domestic, such COTS items would need to be manufactured in the United States and contain less than five percent non-domestic components by cost.
    5. However, the rule set forth in (4) above would not apply to fasteners—hardware devices that mechanically join or affix two or more objects together—such as nuts, bolts, pins, rivets, nails, clips, and screws. Fasteners, even if made predominantly of iron or steel, would still fall within the COTS exception in (3) above, such that they only need to be manufactured in the United States. The source of components would not matter.
    6. Price evaluation adjustments made to bids for non-domestic items would increase from six percent to 20 percent (if bidder is not small) and from 12 percent to 30 percent (if bidder is a small business). For Department of Defense procurements, the existing 50 percent price evaluation adjustment applied to offers of non-domestic items would still apply.

Continue reading “Proposed Rule Portends Increased Contractor BAA Obligations”

Government Reliance on Waiver Argument to Keep Price Adjustment Windfall Fails

Scott Arnold

Last week, the U.S. Court of Appeals for the Federal Circuit articulated limits to the government’s ability to rely on the waiver doctrine to enforce Federal Acquisition Regulation (“FAR”) provisions of questionable legality, and, in so doing, cast doubt on the government’s “heads we win, tails you lose” approach to measuring the cost impact of simultaneous changes to a contractor’s cost accounting practices.

In The Boeing Company v. United States, 2019-2148 (Aug. 10, 2020), the Federal Circuit rejected the government’s argument that Boeing’s claim—which was based on an apparent conflict between (1) a statutory provision limiting the costs the government may recover for cost accounting practice changes to the aggregate increased cost to the government, and (2) a FAR provision under which the government’s recovery considers only the changes that increase costs to the government, and disregards changes that decrease costs to the government—was waived because Boeing did not raise the issue prior to contract award. Continue reading “Government Reliance on Waiver Argument to Keep Price Adjustment Windfall Fails”

DOD’s Extraction of Data Rights in Competitive Procurements

Scott Arnold

When the Department of Defense (“DOD”) procures defense items that require substantial investment to design, test, and manufacture, it often seeks to acquire, along with these products, the contractor’s technical data package (“TDP”) used to build the product. Complete TDPs can facilitate effective competition—perhaps by neutralizing an otherwise daunting incumbent’s advantage—when the products are up for rebid a few years later. But in seeking TDPs—and rights in technical data and computer software (collectively “data”) generally—the DOD is prohibited from requiring a contractor, as a condition of obtaining a contract, to relinquish greater rights in data deliverables than the DOD is otherwise entitled to obtain based on who funded the development of the data. See DOD Federal Acquisition Regulation Supplement (“DFARS”) 227.7103-1(c), 227.7203-1(c).

Notwithstanding this prohibition, the DOD frequently obtains greater data rights than it is entitled to based on actual funding of the development—i.e., limited rights (development privately funded), government purpose rights (mixed funding), and unlimited rights (development funded by the government). How does this happen?

Bid protests challenging DOD attempts to extract greater rights in data than it is entitled as a condition for contract award have been rare. In Sikorsky Aircraft Corporation, B-416027 (May 22, 2018), the protester complained that the Air Force sought a minimum of government purpose rights in software regardless of funding source (i.e., even if the software had been funded exclusively at private expense). While the argument made sense on the merits, it was untimely filed, and the U.S. Government Accountability Office refused to consider the argument even though it could have done so based on the “significant issue” exception to its timeliness rules. The protest still had an impact, however. Subsequent to the protest, the Air Force clarified its intent and disclaimed any intent to insist upon government purpose rights as a minimum.

The Air Force’s walk-back of its Request for Proposal language—which did seem to communicate an insistence upon at least government purpose rights—apparently reflected the Air Force’s recognition that such insistence was unlawful. And perhaps, as a practical matter, the Air Force recognized that there are ways to incentivize offerors to provide greater data rights than they are otherwise required to—without making such provisions an express condition for award.

An incentivizing technique used frequently by DOD procurement offices in recent years is making optional the provision of a robust TDP. This may include the government’s right to provide the data to the contractor’s competitors in future procurements even where the source of development funding would not normally grant the government such authority. In such procurements, an offeror can choose whether to offer a TDP with greater data rights than that to which the government would otherwise be entitled. An offeror who chooses not to offer such a package would still be considered eligible for award—if this was not the case, the DOD would be violating the DFARS by making award eligibility conditional upon providing greater rights than that to which the DOD is entitled. But an offeror who does offer greater rights than those to which the DOD would otherwise be entitled would receive additional credit in the evaluation.

Evaluation credit typically takes the form of an adjustment to the offeror’s evaluated price. For example, the solicitation may provide that, to the extent an offeror proposes to provide a “perfect” TDP, giving the DOD maximum flexibility to provide the TDP to the offeror’s competitors, the offeror’s proposed price will be adjusted downward for purposes of evaluation by a significant amount, such as $100,000 or more. TDPs that are less than optimal but that still provide some value to the DOD would be a assigned a more modest credit. Offerors who choose not to offer TDPs receive no price evaluation credit.

If you are scratching your head, wondering whether an offeror who chooses not to offer an optional TDP effectively takes itself out of the running for a realistic chance of award, that is understandable. And if that possibility means that, as practical matter, optional TDPs really are not optional—or are optional only for companies that want to compete in significant DOD procurements with no real chance of winning—an argument can be made that such evaluation scheme is at odds with the DFARS, and defeats the purpose of the underlying regulation. This issue has not been addressed in any published protests.

Deciding whether to voluntarily grant greater TDP rights is a weighty decision that concerns interests beyond the immediate competition. Contractors evaluating whether and how to respond to DOD requests for more extensive data rights, particularly in the competitive procurement context, must consider:

  1. How will providing such rights impact the contractor’s overall business?
  2. To the extent such impacts may be adverse, do the potential upsides of winning the contract make up for this?
  3. If not, can the solicitation be challenged as unlawfully conditioning contract award eligibility on provision of data rights to which the DOD is not entitled?

If the answer to question three is yes, the contractor must be proactive and, to avoid the fate of Sikorsky, raise any protest challenging the solicitation prior to the deadline for receipt of proposals.

Pending Federal Contract Proposals and COVID-19

Albert B. Krachman and Scott Arnold

Contractors that have submitted final proposals and are awaiting award on negotiated procurements may find themselves in an unusual position these days—questioning whether they still want the award in the dramatically changed landscape created by coronavirus COVID-19. In some cases, key personnel may no longer be available or critical supply chains may have become so disrupted that the proposal would require major changes to the technical approach. Assumptions that went into proposal pricing may no longer be valid.

Contractors in this posture may face a Hobson’s choice. Should they hold firm, accept the award, and hope the government is flexible post award? If they believe that they likely cannot perform as proposed, should they withdraw their proposals or risk proposal rejection by submitting late proposal revisions?

In some cases, depending on the stage of the acquisition, there may be opportunities for proposal revisions, but the government typically notifies offerors of a time after which revisions will not be accepted. In a FAR Part 15 acquisition, before the closing date for receipt of proposals, a contractor is generally free to submit proposal revisions. If the government conducts discussions, a contractor is also generally able to revise its proposal, subject to limitations that can be imposed on the permissible scope of revisions. Offerors may withdraw proposals at any time before award. Continue reading “Pending Federal Contract Proposals and COVID-19”

Three Vital Steps to Prepare For COVID-19 Impacts to Contract Performance

Albert B. Krachman, Scott Arnold, and Michael J. Slattery

As the coronavirus (“COVID-19”) pandemic continues its mass global disruption, federal contractors should take or accelerate steps to protect themselves. Three steps stand out in our view:

    1. review contracts;
    2. identify and document cost disruptions; and
    3. communicate, communicate, communicate—in writing—with your Contracting Officers.

How You May Be Impacted

How might your business be impacted? Supply chain disruptions may deprive contractors of materials required to stay on schedule and complete performance. COVID-19 exposure for employees and key personnel may deprive the contractor of needed labor. Spread of the disease among government employees may lead to a delay in approvals, or could lead to a quarantine of government facilities, which could impact the ability of service contractors to timely perform their contractual obligations—not unlike a government shutdown. (See Government Contractor Shutdown Advisory for steps to be taken if government facilities are quarantined or shut down due to the virus). Continue reading “Three Vital Steps to Prepare For COVID-19 Impacts to Contract Performance”

Federal Circuit Maintains That Contractors Must Read between the Lines to Determine Expressly Unallowable Costs

Scott Arnold and Carolyn Cody-Jones

A recent Federal Circuit decision has sustained an expansive judicial reading of what constitutes an expressly unallowable cost under FAR Part 31. This decision, reached in the context of lobbying expenses, provides the potential for expansive precedent for future disputes regarding what expenses constitute expressly unallowable costs. Including expressly unallowable costs in submissions to the government can result in penalties up to two times the amount of the disallowed cost. Taking into account this decision as well as the Defense Contract Audit Agency’s (“DCAA”) expressly unallowable cost guidance released earlier this year, contractors should review their policies and procedures for identifying and excluding unallowable costs from invoices and proposals on government contracts, and consider whether to broaden their policies. Continue reading “Federal Circuit Maintains That Contractors Must Read between the Lines to Determine Expressly Unallowable Costs”

Technical Data Rights Protections Eroded by FY19 NDAA

Scott Arnold and Carolyn Cody-Jones

The Fiscal Year (“FY”) 2019 National Defense Authorization Act (“NDAA”), H.R. 5515, 115th Cong., 2d Sess. (2018), passed both chambers of Congress at breakneck speed this year, the fastest pace in approximately 20 years, and was presented to President Trump on August 3, 2018. The bill enjoyed substantial bipartisan support in both the Senate and the House. It authorizes a $717 billion national defense budget and also reforms certain practices. Continue reading “Technical Data Rights Protections Eroded by FY19 NDAA”