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.”
Ambiguities in a solicitation or contract have long been one of the greatest traps for unwary contractors. At the solicitation phase, a failure to identify a “patent” (i.e., obvious) ambiguity often results in the contractor losing the competition with no viable bid protest challenge. This is because such ambiguities are construed in the agency’s favor. A contractor seeking to recover added costs based upon an ambiguous contract term will be unable to recover such costs if the ambiguity is “patent” and the Government disagrees with the contractor’s interpretation.
Traditional Test for Patent vs. Latent Ambiguities
So how does one distinguish between “patent” and “latent” ambiguities? Numerous Federal Circuit authorities tell us that a patent ambiguity arises where there is “an obvious omission, inconsistency or discrepancy of significance” that “could have been discovered by reasonable and customary care.” E.g., Per Aarsleff A/S v. United States, 829 F.3d 1303, 1312-13 (Fed. Cir. 2016) (internal quotations omitted). By contrast, a latent ambiguity is a “hidden or concealed defect which is not apparent on the face of the document, could not be discovered by reasonable and customary care, and is not so patent and glaring as to impose an affirmative duty on plaintiff to seek clarification.” Id. (internal quotations omitted).
Our Part 1 post addressed contract administration related to changes to or a termination of a contract arising from the government’s withdrawal from Afghanistan. This post focuses on the cost management, documentation, and government audit aspects that contractors should be focused on to prepare for and mitigate downstream and currently unknown risks.
Responding to a change or termination will likely involve submitting a request for payment or compensation. The label placed on a contractor’s request for payment depends on whether its contract has been terminated or has experienced a “change.” The type of request for payment also can vary depending on the type of contract involved (i.e., cost reimbursement, fixed price, or labor hour).
It is hard to describe the manner in which the United States is withdrawing from Afghanistan. At this point, the safety and security of Americans and those who provided critical assistance to U.S. operations in Afghanistan are at the forefront of everyone’s thoughts. However, contractors in Afghanistan must confront the repercussions of shutting down operations in Afghanistan or dealing with significant changes in contract performance requirements. Translated—this means ensuring fair compensation for terminated or changed contracts.
This blog post focuses on the contract administration aspects that contractors should be thinking of now to prepare for and mitigate downstream and currently unknown risks. Below is a list of issues for contractors supporting operations in Afghanistan to consider.
Does the mere existence of a deadly epidemic entitle a contractor to monetary relief when it experiences cost increases stemming from that epidemic? Not without Government direction, ruled the Federal Circuit in affirming a decision of the Civilian Board of Contract Appeals (“CBCA”) in Pernix Serka JV.
The facts of Pernix Serka are striking: a contractor repeatedly requests guidance for dealing with a major health crisis, the Government refuses to provide guidance, and the contractor is unable to recoup the additional costs it incurs in order to proceed with performance because the Government provided no guidance.
This timely ruling sheds light on strategies contractors should consider for recouping costs stemming from the COVID-19 pandemic. We provide a roadmap below for navigating these issues in light of Pernix Serka JV.
The 2014 Ebola Crisis
Pernix Serka was in the midst of performing a contract in Sierra Leone when a deadly Ebola outbreak struck the country in 2014. Pernix Serka diligently sought guidance from the Contracting Officer on its State Department (“DOS”) contract, but the Government refused to weigh in on whether it should temporarily shut down its work on the contract. Ultimately, Pernix Serka decided to temporarily withdraw its personnel, which the Government then characterized as Pernix Serka’s “unilateral” decision. When Pernix Serka sought advice on whether and when to resume work, the Government went so far as to say that “DOS will not provide any instructions or directions” regarding whether and when to return to the work site. The contractor ultimately decided to resume performance, but incurred additional costs when it decided to contract for medical facilities and services on the project site.
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.
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.
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”
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”
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.