Fifty Ways to Lose Your Federal Contract Award – Part 1: Failing to Secure Your Key Person Supply Chain

Albert B. Krachman

With apologies to Paul Simon, this is Part 1 of a series of articles on the many ways contractors can lose awards on federal contracts. These cautionary tales should inform anyone in a contractor organization with responsibility for authorizing, preparing, or negotiating competitive federal proposals.

Like a prize-winning recipe, the ingredients for losing an award are well known: one part carelessness, a pinch of greed, and some lack of attention to detail. Throw in a dash of procrastination, a late proposal revision, and then garnish it with an 11th-hour e-mailing of your proposal. Voila—you have cooked up a complete waste of proposal resources! 

We kick off this series with a story of an incumbent contractor who lost a billion-dollar follow-on contract by failing to contractually secure the services of a key person designated in the proposal.

Continue reading “Fifty Ways to Lose Your Federal Contract Award – Part 1: Failing to Secure Your Key Person Supply Chain”

GAO Signals More Demanding Approach to Corrective Action Dismissals

Luke W. Meier

About a third of U.S. Government Accountability Office (“GAO”) protests end because an agency decides to take voluntary corrective action. (This is evidenced by the ~30 percent difference between GAO’s “Sustain” rate and “Effectiveness” rate.) While it is considered a “win,” voluntary corrective action can be frustrating for protesters who may have no assurance their concerns will truly be addressed. Agencies often say little about what the corrective action will entail. When they do discuss specific steps to be taken, agencies often list various actions they may or may not take, depending on further assessment as the corrective action unfolds. Historically, GAO has largely brushed aside complaints about these uncertainties. When an agency announces its intent to take corrective action, the perfunctory next step has been a quick dismissal of the protest.

In a recent decision, however, GAO signaled a willingness to demand more from agencies seeking a dismissal based on corrective action. Continue reading “GAO Signals More Demanding Approach to Corrective Action Dismissals”

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”

Adapting JV Proposal Strategies after GAO Downgrade Ruling

Albert B. Krachman

A recent U.S. Government Accountability Office decision involving a Small Business Administration-approved small business joint venture, or JV, suggests that JVs between large and small firms should adjust their proposal strategies to avoid downgrades on past performance when the small business JV member, and the JV itself, lack relevant past performance.

Background

Proposing on a set-aside contract as an SBA-approved JV between a small and large business has been an effective strategy for many years. A basic assumption of this approach—and a primary motivation for using a JV structure—has been that an agency evaluating the JV’s past performance would normally look at the combined past performance of the JV members.

In many respects, this evaluation assumption has been a main motivation for using the JV structure, in contrast to a prime-subcontractor structure.

Typically, the large business JV member will have greater and more relevant past performance than the small business. The thinking had been that the JV structure would allow both members to leverage the large JV partner’s past performance for evaluation purposes by imputing the large business’ past performance to the JV.

However, the recent GAO bid protest decision in ProSecure LLC calls this assumption into doubt, suggesting the need for adjustments to proposal strategies for large and small firms in JVs or that plan to use JVs.

To read the full article, please click here.

“Adapting JV Proposal Strategies after GAO Downgrade Ruling,” by Albert B. Krachman was first published in Law360 on June 17, 2020.

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.

Despite Court’s Ruling, Questions Remain Regarding the Automatic Stay Deadline for Bid Protests Following Enhanced Debriefings

Luke W. Meier and Robyn N. Burrows

Enhanced Department of Defense (“DoD”) debriefings have been heavily utilized in recent years, but there remains uncertainty, and differing interpretations, regarding the point at which an offeror receiving an enhanced debriefing is “on the clock” for purposes of obtaining an automatic stay of performance. In NIKA Techs., Inc. v. United States, No. 20-299C (Fed. Cl. Apr. 16, 2020), the Court of Federal Claims (“COFC”) recently held that, on its facts, the filing period for obtaining an automatic stay did not begin to run until after the two-day window for submitting supplemental questions has passed—even though the offeror submitted no supplemental questions. Potential protesters must understand, however, that NIKA does not provide the safe harbor that some have read in its holding, and it remains essential to understand the agency’s position regarding debriefing closure before planning to protest more than five days after the initial debriefing event.

Timelines Rules for Debriefings

To be timely, protests at the Government Accountability Office (“GAO”) must be filed no later than 10 days after the basis for the protest was known or should have been known—unless the protester requests a required debriefing, in which case the protest must be filed within 10 days after the debriefing date. To obtain an automatic stay of performance under the Competition in Contracting Act (“CICA”), however, a protester cannot wait the full 10 days. The protest must be filed within five days after the “debriefing date.”

The debriefing process is slightly more complex for DoD procurements. Section 818 of the National Defense Authorization Act for FY 2018 established enhanced post-award debriefing rights for protesters, requiring that agencies provide disappointed bidders an opportunity to submit additional questions within two business days after receiving the post-award debriefing.  The agency has five days to respond, and the debriefing period is not considered closed until the agency “delivers to a disappointed offeror the written responses” to any supplemental questions.  31 U.S.C. § 3553(d)(4)(B). Thus, to obtain an automatic stay of performance, the protest must be filed within five days after receiving the agency’s response to the supplemental questions.

Calculating Debriefing Date for Enhanced Debriefings

But what happens if an offeror submits no follow-up questions after the initial debriefing? To date, most agencies have taken the position that the debriefing is closed unless the offeror avails itself of the opportunity to submit follow-up questions, triggering the extra time for one more agency response. Thus, contracting officers often advise offerors, as in NIKA, that the agency “will consider the debriefing closed if additional questions are not received within (2) business days.” NIKA, No. 20-299C, at *1. Until recently, protesters have lacked guidance on how to properly interpret the applicable debriefing date when no additional questions are submitted, and in some cases have had to come up with supplemental questions if only for the sake of ensuring the ability to have additional time to prepare their protest and still obtain an automatic stay.

COFC Addresses Timeliness Rules for Enhanced Debriefings

In NIKA, the Army Corps of Engineers (“Corps”) had provided the offeror a written debriefing on March 4, 2020, and included an option for submitting additional questions within two business days. On March 7, 2020, NIKA informed the Corps that it had no further debriefing questions. NIKA then filed a post-award protest with the GAO on March 10, 2020, seeking an automatic stay of performance. The Corps denied the protester’s request for a stay, claiming the date for a timely filing would have been March 9, 2020 (i.e., five days after the March 4 debriefing date). The protester argued that the “debriefing date” included the two-day window following receipt of the March 4 debriefing letter in which the protester had an opportunity to submit questions, meaning the clock for a CICA stay did not start until March 6.

The court found in favor of the protester’s argument, holding that the debriefing process included the two-day period to submit additional questions. The court explained that, although the language in 31 U.S.C. § 3553 did not expressly define debriefing as including these two extra days, it clearly included the possibility of a debriefing process lasting more than one day. The court further interpreted the agency’s statement that it would “consider the debriefing closed if additional questions are not received within (2) business days” as a commitment to keep the debriefing open through that two-day period—regardless of whether any questions were asked.  That may have been the opposite of what the agency actually intended to communicate. In the court’s view, however, the agency’s communications meant that the debriefing closed at the end of a potentially multi-day debriefing process rather than a singular date. Here, the process ended when the protester chose not to submit further questions at the end of the two-day period.

The holding in NIKA should not be viewed as a guarantee that potential protesters will always get the extra two days even if they submit no questions, however. Though the court interpreted the underlying statutes and regulations as providing the additional two-day window, it also implicitly limited its holding by pointing to the language of the agency’s letter, which suggested an open debriefing through the two-day period for questions. NIKA left open the possibility that the two-day extension might not apply if the agency’s communications stated more clearly that the debriefing was considered closed, as of that time, unless further questions were submitted. It also left unanswered whether the court’s holding would apply to an offeror that immediately notifies the agency that it will not submit additional questions, rather than waiting the full two-day period before providing such notification (as NIKA did).

Conclusion

While NIKA provides some insight, it is still important that potential protesters proceed with caution. In any case where an offeror plans to protest and believes the CICA clock is running from a date later than the debriefing itself, the offeror should confirm that understanding with the agency in writing. Without such assurances, and without submitted follow-up questions, an offeror must assume that the clock has started from the end of the debriefing, not the end of the two-day window.

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”

After Acetris Decision, Trade Agreements Act Compliance Questions Abound: Contractors Need Guidance

Merle M. DeLancey Jr., Jay P. Lessler, and James R. Staiger

The Federal Circuit’s recent decision in Acetris has left many contractors scratching their heads and asking questions. To recap, on February 10, 2020, the Federal Circuit held that, under the Federal Acquisition Regulation (“FAR”), to qualify as a “U.S.-made end product” under the Trade Agreements Act (“TAA”), a drug must be either “manufactured” in the United States or “substantially transformed” in the United States. (See Federal Circuit Holds Generic Drugs Manufactured in the U.S. from API Produced in India Qualify for Sale to U.S. under Trade Agreements Act (Acetris Decision).) This is a stark change from the Government’s long-held position that manufacturing and substantial transformation were one in the same.

As a result of the Acetris decision, federal contractors seeking to comply with or maintain compliance with the TAA are facing many questions. Some of the more prominent questions are below. Continue reading “After Acetris Decision, Trade Agreements Act Compliance Questions Abound: Contractors Need Guidance”

Federal Circuit Holds Generic Drugs Manufactured in the U.S. from API Produced in India Qualify for Sale to U.S. under Trade Agreements Act (Acetris Decision)

Merle M. DeLancey Jr., Jay P. Lessler, and James R. Staiger

Earlier today, the United States Court of Appeals for the Federal Circuit issued a decision that is sure to send shockwaves through the generic drug industry. In Acetris, the Federal Circuit held that a generic drug manufactured in the United States complied with the Trade Agreements Act (“TAA”) and could be sold to the Department of Veterans Affairs. The court made this determination even though the drug’s active pharmaceutical ingredient (“API”) came from a non-designated country, India. In reaching its decision, the court broke away from longstanding Customs and Border Protection (“CBP”) precedent that the country where the API was produced dictated the location of “substantial transformation” and thus the country of origin for any resulting drug. The court held that under the Federal Acquisition Regulation (“FAR”), to qualify as a “U.S.-made end product” under the TAA, a drug must be either “manufactured” in the United States or “substantially transformed” in the United States—but not be both.

For years, generic drug manufacturers that manufacture drugs in the United States from API produced in India and China have been precluded from selling their drugs to the U.S. Government under the TAA. The Federal Circuit’s Acetris decision opens up the U.S. Government market for generic drugs manufactured in the U.S. from API produced in India and China.

 

 

Still Effective: Four Takeaways from the FY 2019 GAO Protest Statistics

Luke W. Meier and Albert B. Krachman

The Government Accountability Office (“GAO”) has released its Annual Report to Congress summarizing bid protest activity for Fiscal Year 2019 (B-158766). The report shows that the number of protests has fallen, the effectiveness rate has remained high and remarkably stable, and hearings have made a bit of a comeback.

The chart below summarizes the GAO protest statistics from FY 2014 to FY 2019.

Here are four key takeaways from the latest report. Continue reading “Still Effective: Four Takeaways from the FY 2019 GAO Protest Statistics”