Where Are We Going with Section 889 Part B?

Justin A. Chiarodo, Merle M. DeLancey, Jr., and Robyn N. Burrows







About two months have passed since the August 13, 2020, effective date of Part B of Section 889 of the FY 2019 National Defense Authorization Act. Part B, sometimes referred to as the Chinese telecommunications equipment ban, broadly prohibits the federal government from contracting with entities that use certain Chinese telecommunications (including video surveillance) equipment and services.

After the FAR Council published its July 10, 2020, Interim Rule, contractors, large and small, spent countless hours working to be able to certify compliance by August 13. This deadline was critical because the Interim Rule said that absent such a certification, a contractor was ineligible for future contract awards. That is, government agencies were prohibited from renewing or extending existing contracts with contractors unable to certify Part B compliance. Indeed, agencies were prohibited from issuing an order under an existing contract to a contractor that failed to certify compliance.

Yet, despite the Rule’s laudable policy goals, the government’s piecemeal and inconsistent implementation has placed government contractors in an untenable position. Continue reading “Where Are We Going with Section 889 Part B?”

ASBCA Broadens Scope of Acceptable CDA Certification Signatures

Michael J. Slattery

In 1901, in rural County Galway, Ireland, my Irish-speaking great-grandparents made their mark (“+”) on the decennial census taken that year. Whether they did so from a lack of literacy, or simply resented the census taker, I will never know. Whatever their reasons, my great-grandparents’ marks were accepted by the (then) British government because there was sufficient contextual evidence (i.e., an annotation by the census taker) to verify that my great-grandparents authored the marks and intended to be bound by them. This arrangement apparently worked for everyone involved, as it was repeated in 1911. Late last month, over 109 years later, the Armed Services Board of Contract Appeals (“ASBCA”), in Kamaludin Slyman CSC, ASBCA Nos. 62006, et al., Sept. 25, 2020, 2020 ASBCA LEXIS 213 at *1, adopted this approach when considering whether a contract claim was properly certified.

Contract Disputes Act Claim Certifications

The Contracting Disputes Act (“CDA”) requires contractors to certify government contracts claims of more than $100,000. This certification is required to be “executed by an individual authorized to bind the contractor with respect to the claim” and must state that:

    • the claim is made in good faith;
    • the supporting data are accurate and complete to the best of the contractor’s knowledge and belief;
    • the amount requested accurately reflects the contract adjustment for which the contractor believes the federal government is liable; and
    • the certifier is authorized to certify the claim on behalf of the contractor.

Continue reading “ASBCA Broadens Scope of Acceptable CDA Certification Signatures”

KBR Subcontractor’s “Delay” Costs Rejected as Unreasonable by Federal Circuit, No Remand to Cure Defects

Stephanie M. Harden

In a September 1, 2020, ruling, the Federal Circuit addressed the reasonableness of subcontractor costs stemming from a government-caused delay under KBR’s LOGCAP contract in Iraq. This decision is important for contractors across all industries given the expected flood of COVID-19-related claims involving government-caused delays and/or idle time. The decision provides new guidance on what contractors must show to demonstrate the reasonableness of subcontractor costs.

The case involved a KBR subcontract to First Kuwaiti Co. of Kuwait (“First Kuwaiti”) to transport trailers into Iraq. The dissent (Judge Newman) explains the operational significance of expeditiously delivering these trailers: soldiers were sleeping in “abandoned schools, . . . tents, vehicles, the ground, or any other place soldiers could put a sleeping bag.” The Army tasked KBR with delivering more than 18,000 trailers to multiple locations in Iraq by Christmas 2003, a deadline which was important for both morale and tactical reasons. KBR, in turn, subcontracted to First Kuwaiti. Continue reading “KBR Subcontractor’s “Delay” Costs Rejected as Unreasonable by Federal Circuit, No Remand to Cure Defects”

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”

Newly Released Interim Rule Implementing Part B of Section 889

Justin A. Chiarodo, Merle M. DeLancey Jr., and Robyn N. Burrows

On July 10, the government issued the    long-awaited Interim Rule implementing Part B of Section 889 (here is a link to the pre-publication version, with the official version soon to follow). Part B prohibits the federal government from contracting with entities that use certain Chinese telecommunications equipment (previously discussed in our blog posts here and here). The Interim Rule is 86 pages and addresses issues related to compliance with Part B, as well as clarifying aspects of Part A.

These are the key points federal contractors need to know:

  • Effective Date: The effective date remains August 13, 2020. The ban applies to solicitations, options, and modifications on or after August 13. However, as we previously discussed, the Department of Defense may allow its contractors more time to comply, despite the statutory deadline.
  • Required Representation: An offeror must represent that, after conducting a reasonable inquiry, it does/does not use covered telecommunications equipment/services.
    • “Reasonable inquiry” means an inquiry designed to uncover any information in the entity’s possession about the identity of the producer or provider of covered telecommunications equipment or services used by the entity. An internal or third-party audit is not required.
  • Scope of “Use”: Applies to the contractor’s use of covered technology, regardless of whether it is used to perform a federal contract. Thus, a contractor’s commercial operations are included.
  • Affiliates/Subsidiaries: The required representation is not applicable to affiliates or subsidiaries at this time. The FAR Council is considering whether to expand the scope of the representation/prohibition to cover an offeror’s domestic affiliates, parents, and subsidiaries. If expanded, it would be effective August 13, 2021.
  • Subcontractors: The ban and required representation are not applicable to subcontractors at this time. The ban only applies at the prime contractor level and does not include a flow down obligation.
  • Detailed Waiver Process: The Interim Rule includes a detailed and complex process for seeking a waiver (really a two-year delayed application).
  • Suggested Compliance Steps: The Interim Rule suggests contractors adopt a “robust, risk-based compliance approach” to include educating personnel on the ban and implementing corporate enterprise tracking to identify covered equipment/services.

Regulators are still seeking feedback from industry, which suggests the government’s willingness to incorporate changes in a final rule. But prime contractors need to act now. In the next 30 days, prime contractors need to determine through a “reasonable inquiry” whether they use covered equipment, regardless of whether that use relates to performance of a federal contract. To demonstrate a reasonable inquiry, contractors should memorialize all steps taken and decisions made in performing the inquiry.

A more detailed analysis is forthcoming. In the meantime, if you have any questions regarding compliance, please contact one of Blank Rome’s Government Contracts practice group attorneys for guidance.

Recovering COVID-19 Costs Where Section 3610 of the CARES Act Does Not Apply

Stephanie M. Harden

The financial relief offered to contractors under Section 3610 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) is limited to contractors who: 1) cannot perform work at their approved sites due to site closures, and 2) cannot telework. For contractors that do not meet these two conditions, the traditional Request for Equitable Adjustment (“REA”) and claims processes are still available and may permit recovery of some cost increases due to COVID-19.

Below we provide a brief refresher of key considerations for contractors considering COVID-related REAs or claims. Of course, the particular facts and terms of each contract will ultimately determine whether cost increases are recoverable.

What Types of Costs May Be Recovered?

Costs stemming from COVID-19 may be recoverable under several Federal Acquisition Regulation (“FAR”) clauses:

  • The Changes Clause (g., FAR 52.243-1): A wide array of costs may fall under the Changes clause, such as costs stemming from government direction to alter or stagger work hours, provide additional personnel, use more costly procedures, use procedures requiring additional training for personnel, provide personal protective equipment, or perform additional cleanings. A recent Department of Defense Memorandum is instructive as to how such costs are likely to be viewed, advising that contracting officers should consider whether such costs are “reasonable to protect the health and safety of contract employees as part of the performance of the contract.”
  • The Stop Work Order Clause (FAR 52.242-15): Costs stemming from the government’s direction to stop work will generally be recoverable under this clause. As discussed in our previous blog post, this may include the cost of “idle time” where employees are unable to access work sites, potentially providing some relief to contractors who are not covered by Section 3610 of the­ CARES­­ Act. Arguably, this clause should cover situations in which employees cannot work due to government-required quarantine procedures or government-caused delays, even if the work site is technically open—though this remains an open issue.
  • The Government Delay of Work Clause (FAR 52.242-17): Where the government causes a delay, the costs stemming from such a delay, such as increased material costs, may be recoverable under this clause.

Notably, while the Excusable Delays clause (e.g., FAR 52.249-14) excuses a contractor’s failure to perform for reasons including “epidemics” and “quarantine restrictions,” this clause does not provide financial relief, but rather, provides a basis for excusing what might otherwise give rise to a termination for default.

What Is the Difference between an Equitable Adjustment and a Claim?

A claim is a formal written demand subject to the detailed procedures set forth in the Contract Disputes Act (“CDA”). Once a claim is made, the Contracting Officer must issue a final decision within 60 days (or, for claims over $100,000, provide a firm date by which a final decision will be issued), which may be appealed to the Boards of Contract Appeals or the Court of Federal Claims. Claims must include a “sum certain”—i.e., the amount of damages being claimed—and claims of $100,000 or more must be certified by the contractor as current and accurate.

An REA is generally considered less adversarial than a claim and is not subject to a formal disputes process. There is no set timeline for resolution of an REA; however, if an REA is not resolved satisfactorily, it can be converted into a claim.

In the context of COVID-related costs, there are advantages and disadvantages of both options.  The less formal REA process provides agencies more leeway as they work to coordinate internally on how to address costs relating to COVID-19, which may ultimately be to the benefit of contractors. However, the claims process puts the government “on the clock” and, thus, may result in a faster response. Note that contractors are entitled to interest that accrues while a claim is pending, but not while an REA is pending. As for legal costs, they are allowable when incurred to support an REA, but are unallowable when incurred in support of a claim.

Timing Considerations

Whether a contractor ultimately submits a request for equitable adjustment or claim, it must notify its Contracting Officer of the delay, disruption, or right to an adjustment, with different deadlines depending upon which clause applies. For example:

  • FAR 52.242-15 (Stop Work Order Clause) requires contractors to assert their right to an adjustment within 30 days after the end of the period of work stoppage;
  • FAR 52.242-17 (Government Delay of Work) requires contractors to notify the Contracting Officer within 20 days of the act or failure to act giving rise to the delay; the contractor must also assert the amount of the claim in writing as soon as practicable after the termination of the delay or interruption, but not later than the day of final payment under the contract; and,
  • FAR 52.243-1 (Changes) requires the contractor to assert its right to an adjustment within 30 days from the date of receipt of a written change order. There is an exception “if the Contracting Officer decides that the facts justify it,” where the request is made before final payment of the contract.

Claims are also subject to a six-year statute of limitations.

As COVID-19 issues permeate virtually all aspects of commerce nationally and internationally, we stand ready to help. Blank Rome’s Coronavirus (“COVID-19”) Task Force includes interdisciplinary resources across every business sector.

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”

COVID-19 Disruptions and Work Stoppages: A Q&A for Federal Contractors

Justin A. Chiarodo and Stephanie M. Harden

Coronavirus COVID-19 is rapidly disrupting the performance of federal government contracts across all sectors, leaving contractors and subcontractors with more questions than answers on how to structure their operations. In the following Q&A, we address some of the top issues contractors are currently facing.

      1. The Government has closed my work site, precluding my employees from performing their work. If I continue to pay the employees, can I recover those costs?

If your employees cannot perform their work because the work site is closed (and telework is not an option due to the nature of the work), this may be construed as an actual or constructive stop work order. As with a government shutdown, contractors facing this scenario may be entitled to an equitable adjustment to account for idle employee time because they are expected to be ready to perform as soon as the Government reopens facilities.

A March 20 Memorandum from Office of Management and Budget Deputy Director for Management Margaret Weichert (“Weichert Memorandum”) confirms that equitable adjustments may be appropriate if the requested costs are reasonable. Specifically, the Weichert Memorandum advises that such requests “should be considered on a case-by-case basis” and that agencies may consider such factors as “whether it is beneficial to keep skilled professionals or key personnel in a mobile ready state for activities the agency deems critical to national security or other high priorities (e.g., national security professionals, skilled scientists).” Continue reading “COVID-19 Disruptions and Work Stoppages: A Q&A for Federal Contractors”

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”

Evaluations That Prompt Corrective Action Must Be Documented

Michael J. Slattery

We discussed in a previous blog post how the current state of the law at the U.S Government Accountability Office (“GAO”) and within the Federal Circuit limits offerors’ ability to effectively challenge agency corrective action. See Is There No Balm in Gilead? The Federal Circuit’s Decision in Dell Federal Systems L.P. v. United States Reinforces Contractors’ Dwindling Options to Effectively Challenge Agency Corrective Action. Specifically, we demonstrated that GAO has adopted a highly deferential, “hands off” position with regard to agency corrective action, holding that “the details of a corrective action are within the sound discretion and judgment of the contracting agency.” Northrop Grumman Tech. Servs., Inc., B-404636.11, June 15, 2011, 2011 CPD ¶ 121 at 3. Under governing GAO case law, agencies have discretion to decide the scope of corrective action, including whether discussions will be held, the breadth of such discussions, which offerors shall be included in the corrective action, and the scope of permitted revisions to proposals. Deloitte Consulting, LLP, B-412125.6, Nov. 28, 2016, 2016 U.S. Comp. Gen. LEXIS 348 at *1, *11 (citing Computer Assocs. Int’l., B-292077.2, Sept. 4, 2003, 2003 CPD ¶ 157 at 5). Indeed, GAO will not disturb an agency’s proposed corrective action so long as the corrective action is deemed reasonable—that is, so long as the corrective action is “appropriate to remedy the flaw which the agency believes exists in its procurement process.” Onésimus Def., LLC, B-41123.3, B-41123.4, July 24, 2015, 2015 CPD ¶ 224 at 5. Continue reading “Evaluations That Prompt Corrective Action Must Be Documented”