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.

Nothing Is Certain except Death, Taxes, and Now COVID-19 Contracts and Relief Funding Audits

Merle M. DeLancey Jr.

Despite COVID-19 article overload—and understandable fatigue—there is no doubt that there will be substantial audit activity related to COVID-19 contracts and receipt of relief funding. All of the ingredients for a Perfect Storm are present: unprecedented federal and state spending causing significant government budget deficits, coupled with hyper-partisan politics, and the creation of multiple government audit functions. Add in revenue-stressed government contractors perhaps focusing less on compliance, with a workforce working remotely, and you have everything necessary for a Perfect Storm. Let’s face it, the press and politicians are—or will be—on the lookout for relief funds and sweetheart contracts awarded to companies with cozy relationships with the executive branch, contracts that didn’t provide the intended benefit, and contracts and relief funds that have otherwise already received media attention.

There is nothing you can do to prevent an audit, but you can be prepared.  Below are some very general guidelines you can follow now to make your life easier in the future if you do become the target of an audit or potential audit.

  1. Memorialize Everything. Too many things are happening too fast.  Information that you think you will remember (so you don’t bother to write down or don’t write down with sufficient detail) will be forgotten. Audits can occur two, three, or even five years after the fact. Memories fade. Employees retire or move on.
  2. Ensure You Have Contracting Officer Approvals. Only contracting officers have warrants and only they can authorize changes to contracts that affect dollars, schedule changes, deliverables, and requirements. If you didn’t get contracting officer approval at the time, go back and request approval (in writing) now.
  3. Establish Commonsensical and Clear Labeling. At some point in time, you have moved to a new home and someone has told you to take an extra 30 seconds to add more detailed descriptions on your boxes. For example, while the label “closet” seemed adequate when packing-up, it is not useful when you are looking for bed sheets to sleep on at midnight for the first night in your new home. The same is true with government contracts. Simply labeling a folder or e-mail “HHS contract” is better than nothing, but it is not very helpful when trying to locate a specific conversation or contract modification.
  4. Centralize Contract Files for a Later, Easy Location. It is of no value to maintain documents and records if you cannot find them. Establish standard operating procedures (“SOPs”) so that someone walking in off the street two years from now can read them and easily understand where files are located.
  5. Archive E-mails to Avoid Automatic Deletion Programs. Company information technology systems are overwhelmed. As a result, many companies have implemented programs that automatically delete e-mails after a certain period of time. Design an SOP so that relevant government contracting e-mails are archived in a manner to avoid deletion.
  6. Perform Periodic Internal Spot Reviews. Simply having a compliance policy and procedures are no longer enough. You need to periodically confirm that the policy and procedures are being followed—and are effective. Conduct periodic spot checks and memorialize the results. Remember, the only thing worse than not having a compliance program, is having a program and not following it.
  7. Conduct Exit Interviews and Laptop Ghosting. Know how to find former employees. Don’t simply accept a former employee’s laptop, clean it, and reissue it to another employee. Take the extra time to ghost the laptop and save the contents in a place that you can locate at a later date (again, think two years from now). In addition, take the time to interview departing employees and, among other information, determine the location (hard and soft copy) of relevant government contracting files.

It makes no sense to work hard to win these contracts, help a state or the federal government respond to the COVID-19 national emergency, and record revenue today to only years later have to give back the money you earned because you don’t have documents in your contract files to substantiate information requested by an auditor. To be clear, auditors may be very nice people, but they don’t care that you did a great job and helped an agency achieve its mission. Auditors have a job to do. They have checklists to follow. If the required documents are not provided or available, they cannot and will not check the box. Rather, they will tell you to provide your explanation to the next level of review. Take the time now and follow the above guidelines to protect yourself. You will hate it now and claim that there just isn’t enough time in the day but, if and when you get that audit request, you will be thankful.

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.

12 Steps for Reducing CARES Act Enforcement Risks

William E. Lawler III, Gregory F. Linsin, Justin A. Chiarodo, Dominique L. Casimir, and Sara N. Gerber

The Coronavirus Aid, Relief and Economic Security, or CARES, Act provides more than a trillion dollars in relief to both small and large businesses in the form of loans, grants and tax credits, designed to quickly stabilize the economy during the ongoing crisis.

But this is not free money: The CARES Act also includes a robust oversight and enforcement regime to enable the government to combat fraud, waste and abuse. Experience shows that when this much government money is being spent, there will be investigations and enforcement actions.

The CARES Act is complex with evolving regulatory guidelines, and this increases the potential for missteps by companies trying to take advantage of the program’s benefits while navigating program requirements. How can companies manage this uncertainty and reduce the risk of becoming an enforcement target?

We offer 12 suggested steps.

To read the full article that was published in Law360 on May 11, 2020, please click here.

Implementation Guidance for Section 3610 of the CARES Act

Brian S. Gocial and Dominique L. Casimir

As we summarized on March 31, 2020, CARES Act Section 3610 throws an immediate lifeline to qualifying firms whose workforce has been displaced by coronavirus COVID-19 shutdowns. On April 8, 2020, the U.S. Department of Defense (“DOD”) issued Class Deviation 2020-O0013 authorizing contracting officers to immediately use a new cost principle, DFARS 231.205-79, to implement section 3610; and on April 9, 2020, the Office of the Under Secretary of Defense issued Implementation Guidance for Section 3610 of the Coronavirus Aid, Relief, and Economic Security Act and Frequently Asked Questions. This blog post summarizes the new Federal Acquisition Regulation Supplement (“DFARS”) clause and guidance.

What is the purpose of CARES Act Section 3610 and DFARS 231.205-79?

Deviation 2020-O0013 establishes a new cost principle that will allow recovery of employee leave costs related to the COVID-19 pandemic where appropriate. The Class Deviation recognizes that “contractors are struggling to maintain a mission-ready workforce due to work site closures, personnel quarantines, and state and local restrictions on movement related to the COVID-19 pandemic that cannot be resolved through remote work.” To that end, contracting officers are instructed to use DFARS 231.205-79 “to appropriately balance flexibilities and limitations” and are directed to “consider the immediacy of the specific circumstances of the contractor involved and respond accordingly. The survival of many of the businesses the CARES Act is designed to assist may depend on this efficiency.” Continue reading “Implementation Guidance for Section 3610 of the CARES Act”

Veterans Affairs Granted Unprecedented Procurement Authority under P.L. 85-804

John M. Clerici and Merle M. DeLancey Jr.

On April 10, 2020, the President issued a Memorandum to the Secretary of the Department of Veterans Affairs (“DVA”) authorizing the exercise of authority under Public Law 85-804, 50 U.S.C. §§ 1431-35. (See Memorandum on Authorizing the Exercise of Authority under Public Law 85-804.) This is a significant action that contractors must understand and be prepared to use for their benefit.

P.L. 85-804’s expansive powers are rarely invoked, used only in unique circumstances that require “extraordinary contractual actions.” See FAR Part 50. President Obama relied on P.L. 85-804 in 2014 when he granted the Administrator of the United States Agency for International Development (“USAID”) the authority to indemnify companies from lawsuits related to contracts performed in Africa in support of USAID’s response to the Ebola outbreak. Because there are now other legal authorities the U.S. Government may use to offer liability protection in certain circumstances (e.g., the SAFETY Act of 2002; the PREP Act of 2005), conferring liability protection under P.L. 85-804 is uncommon. The use of the law to broadly expand the U.S. Government’s contracting powers is truly extraordinary. Continue reading “Veterans Affairs Granted Unprecedented Procurement Authority under P.L. 85-804”

A Federal Contractor’s Five-Part Guide to the CARES Act

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law. This massive $2.2 trillion economic package provides a host of opportunities and resources for all varieties of federal contractors—from those who need financial assistance through the coronavirus pandemic to those who can leverage their resources to assist the federal government in its response.

The five timely posts below discuss discrete portions of the CARES Act, how they might affect federal contractors, and what federal contractors can do to take advantages of the many programs and opportunities offered under the Act. Please contact us for assistance with any of these, or other components, of the Act.

1. The CARES Act Provides Much Needed Financial Relief for Small Businesses

Michael Joseph Montalbano
This article discusses the expanded $349 billion loan program set aside for small businesses under the CARES Act.

2. CARES Act § 3610: An Immediate Lifeline for Qualifying Federal Contactors Displaced by COVID-19

Michael J. Slattery
This article discusses § 3610 of the CARES Act, which provides funds that federal agencies can use to alleviate disruptions to federal contractors caused by the coronavirus pandemic.

 3. CARES Act Grant Programs: Searching for Opportunity in the Coronavirus Relief Effort

Tjasse L. Fritz
This article discusses the wealth of grant programs available to federal contractors and other businesses under the CARES Act.

4. CARES Act: Significant Funds for Defense Department and Defense Contractors

Adam Proujansky
This article discusses the billions of dollars in loans, loan guarantees, and other financial assistance available through the Department of Defense to defense industry contractors.

5. New Contracting Authorities and Preferences Established under the CARES Act

Albert B. Krachman
This article discusses new contracting authorities delegated under the CARES Act as well as sole source opportunities available under the Act.

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 from insurance recovery to HR.

The CARES Act Provides Much Needed Financial Relief for Small Businesses

Michael Joseph Montalbano

On March 27, 2020, Congress passed, and the President signed into law, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The CARES Act is a massive $2.2 trillion law designed to stabilize the United States’ economy as the country deals with the novel coronavirus COVID-19.

One major component of the CARES Act is the $349 billion set-aside to provide relief for small businesses in the form of loans and other financial resources. Here we discuss the major components of this program that all small businesses need to know before deciding whether they should apply for one of these loans. Continue reading “The CARES Act Provides Much Needed Financial Relief for Small Businesses”

CARES Act § 3610: An Immediate Lifeline for Qualifying Federal Contactors Displaced by COVID-19

Michael J. Slattery

The recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provides $2.2 trillion to stabilize the American economy as the country deals with the novel coronavirus COVID-19. In addition to directly providing many American families with cash stimulus payments, the CARES Act provides federal funds, grants, loan guarantees, and other resources to a wide variety of entities to help them combat the virus and weather the storm of its effects. These include state, local, and tribal governments; hospitals and healthcare workers; law enforcement and first responders; scientific research institutions; small businesses; local schools and universities; and federal contractors.

While contractors should note that the relief window is not open ended and agencies can only provide relief up to September 6, 2020, for federal contractors, the CARES Act provides potential new business opportunities, and throws an immediate lifeline to qualifying firms whose workforce has been displaced by COVID-19 shutdowns.

Continue reading “CARES Act § 3610: An Immediate Lifeline for Qualifying Federal Contactors Displaced by COVID-19”

CARES Act Grant Programs: Searching for Opportunity in the Coronavirus Relief Effort

Tjasse L. Fritz

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act” or “the Act”) is a $2.2 trillion legislative package designed to stabilize the United States’ economy as the country deals with the novel coronavirus COVID-19. Included in the Act are a wealth of grant programs that may hold opportunities for companies able to position themselves appropriately during this crisis.

Of particular interest are grant programs related to healthcare, technology, and workforce sustainment, which include:

1. Entrepreneurial development grants

Section 1103 of the CARES Act provides a $240 million grant fund for development of programs to provide education, training, and advising to covered small business concerns. Training topics include:

    • How to apply for Small Business Administration (“SBA”) resources, including business resiliency programs;
    • COVID-19 transmission prevention practices; and
    • How to manage and practice teleworking.

An additional $25 million grant is available for development of a centralized information hub where these educational materials may be accessed. Continue reading “CARES Act Grant Programs: Searching for Opportunity in the Coronavirus Relief Effort”