June 2008

From the editors of CCH's government contracts products, here are summaries of the important recent developments in this practice area for the past month.  Complete coverage of these issues, and many more, appear in the Government Contracts Reporter and related products.

If you have comments or suggestions concerning the information provided or the format used, please feel free to contact me directly at robert.musiala@wolterskluwer.com.

Hot Topic

Administration Opposes Contracting Proposals in Defense Bill
The Bush administration, raising a long list of objections, issued a veto threat against a defense bill recently approved by the House. Several government contracting provisions are among the sections of the bill the White House opposes. The House passed the bill—the Duncan Hunter National Defense Authorization Act for Fiscal 2009 (H.R. 5658)—on May 22 by a veto-proof majority of 384-23.

The bill would suspend for three years competitive sourcing, or public-private competitions, for Defense Department operations. Citing a savings of $7 billion from past competitions, the administration said in a May 22 statement that a suspension would interfere with the department's ability to manage resources in the most cost-effective way.

The administration objects to a number of the bill's provisions it says would create marketplace barriers for defense acquisition programs. One of these could prohibit procurements from foreign companies that receive subsidies from foreign governments.

This and other provisions, according to the administration, "could jeopardize our military readiness; reduce competition; undermine our ability to acquire the best goods, services, and technologies for our warfighters at the best value for our taxpayers; adversely affect U.S. companies teamed with certain foreign entities; and provoke retaliation against U.S. companies within the global market."

Other parts of the bill drawing administration opposition would cut funds to U.S. missile defense programs; require contractors to pay Davis-Bacon Act prevailing wages to workers involved in any military construction authorized to be conducted on Guam; and require the Defense Department to certify that it had exhausted all other measures before issuing furlough notices to its civilian employees on the basis of insufficient funds.

The Bush administration further objects to the so-called Clean Contracting Act contained in the defense bill. The act is designed to enhance competition in contracting, in part by minimizing sole-source contracts and limiting the length of noncompetitive contracts. The act aims to curb abuse-prone contracts by minimizing cost-plus contracts, prohibiting excessive pass-through charges, linking award fees to acquisition outcomes and other measures.

Additionally, the Clean Contracting Act would require agencies to devote more resources to acquisition oversight, planning and administration. It contains several antifraud provisions, including whistleblower protections for contractor employees and mandatory fraud reporting requirements. The act is designed to increase transparency by requiring contractors to disclose CEO salaries and creating a database of companies that have been suspended or disbarred.

The administration says it would "oppose [the] burdensome and costly government-wide statutory requirements" contained in the Clean Contracting Act. "Many of these provisions would unnecessarily complicate ongoing administrative efforts to strengthen federal acquisition and grant activities and policies, especially a requirement to develop an unwieldy database of information on contractors and grantees that would unfairly expose them to possible government-wide exclusion without appropriate safeguards."

Other concerns cited by the administration include cuts to the DDG-1000 destroyer program; the elimination of requested funds for the High Integrity GPS system; and increased funding for several weapons systems the administration says is unnecessary, including funds allocated for the C-17 transport plane, the F-35 joint strike fighter alternative engine program and nuclear powered amphibious ships. Government Contracts Reports, 1961, June 4, 2008.

EAJA Recovery for Paralegal Fees Based on Market Rates
A prevailing party that satisfied the requirements of the Equal Access to Justice Act could recover its paralegal fees at prevailing market rates, because traditional tools of statutory construction and considerations of stare decisis did not support limiting recovery to the cost incurred by the prevailing party's attorney, the United States Supreme Court has held. The Court reversed the Court of Appeals for the Federal Circuit, which had affirmed a board of contract appeals' ruling that the EAJA limits recovery of paralegal fees to the law firm's cost rather than the rate billed the contractor (51 CCF 78,687, aff'g 05-2 BCA 33,021). The government advocated the statutory interpretation on which these decisions were based --that paralegal fees were "other expenses" recoverable at "reasonable cost" under 5 USC 504(b)(1)(A).

The Supreme Court, however, rejected the government's "fractured interpretation of the statute," stating "a straightforward reading of the [EAJA] leads to the conclusion that [the contractor] was entitled to recover fees for the paralegal services it purchased at the market rate for such services." According to the Court, section 504(b)(1) did not clearly distinguish between the rates at which "fees" and "other expenses" were reimbursed. There also was no basis for classifying amounts billed for paralegal services as "expenses" rather than "fees." Moreover, even if the EAJA limits recovery for paralegal fees to reasonable cost, measuring cost from the perspective of the prevailing party's attorney rather than the prevailing party would be anomalous and inconsistent with section 504(a)(1), which provides for an award to a prevailing party of "fees and expenses incurred by that party." The more plausible interpretation was that "fees and other expenses" were recoverable at "reasonable cost," which would be deemed to be "prevailing market rates" when such rates could be determined. To the extent there was any statutory ambiguity, the Court ruled it was resolved by Missouri v. Jenkins (491 US 274), which held litigants could recover paralegal fees under the Civil Rights Attorney's Fees Awards Act (42 USC 1988). In Jenkins, the Court declared it "self-evident" paralegal fees were included in attorney's fees. The Court also dismissed the government's legislative history and public policy arguments. (Richlin Security Service Co. v. Chertoff, Sec'y of Homeland Security, US SCt, 52 CCF 78,943)

Legal News

FCA Retaliation Claim Reinstated by Sixth Circuit
The dismissal of a False Claims Act relator's retaliation claim for failure to state a claim was overturned on appeal to the Sixth Circuit Court of Appeals, because the relator sufficiently alleged she was engaged in a protected activity, her employer knew she was engaged in the protected activity, and she was discharged as a result. The district court dismissed the relator's claim for failure to comply with Federal Rule of Civil Procedure 8(a)(2), which requires a plaintiff's complaint to include "a short and plain statement of the claim showing that the pleader is entitled to relief." Under 31 USC 3730(h), to obtain relief for an FCA retaliation claim, the plaintiff must prove she was engaged in a protected activity, the employer knew she was engaged in the protected activity, and the employer discharged or otherwise discriminated against the employee as a result of the protected activity. A "protected activity" is a lawful act done by the employee on behalf of the employee or others in furtherance of an FCA action, including investigation for, initiation of, testimony for, or assistance in an FCA action filed or to be filed. The district court had found the relator did not allege participation in a "protected activity" because she failed to establish her employer knew she was considering an FCA action.

However, the district court impermissibly narrowed the Sixth's Circuit's interpretation of the term "protected activity," established by the Sixth Circuit in U.S. ex rel. McKenzie v. Bellsouth Telecommunications, Inc. (41 CCF 77,165), as any activity that would have given the defendant reason to believe the relator was contemplating an FCA action. Here, the relator met the McKenzie standard when she informed her employer she believed the use of fraudulent medical reporting was causing it to receive illegal incentive payments under its contract with the government. The relator sufficiently put her employer on notice when she wrote a letter to the president and general manager that gave specific information regarding the alleged illegal activities and asserted she had been placed on administrative leave because she had refused to participate in the illegal activities. Therefore, the relator's complaint contained all the required elements of a retaliation claim under 31 USC 3730(h), and was sufficient under the pleading standards of FRCP 8(a)(2). (U.S. ex rel. Marlar v. BWXT Y-12, L.L.C., CA-6, 52 CCF 78,937)

Exclusion Based on Employee's Work History Was Unreasonable
According to the Court of Federal Claims, the government abused its discretion when it excluded a protester from competition based on an adverse ethics evaluation, because the decision was arbitrary, capricious, and contrary to law. The dispute arose when the protester filed a pre-award challenge to the government's presumed decision to exclude it from a competition for medical research services based on an adverse ethics evaluation of one of the protester's key employees. Although the protester had not yet submitted its proposal, the CFC considered the merits of the protest after finding the negative ethics evaluation operated as a final decision eliminating the protester from competition, which rendered the protest ripe for adjudication. The decisive issue involved the scope of the key employee's past employment with the government. The government had excluded the protester on grounds the employee had been employed by the government agency conducting the research for over 15 years. According to the government's ethics evaluation, the employee's position would require her to violate 18 USC 207(a)(1), which prohibits former government employees from making influential communications with the government regarding "particular matters involving specific parties." The government asserted the protester was a "specific party," and its expression of interest in the request for proposals qualified as a communication on a "particular matter."

However, the facts and circumstances did not invoke the restrictions of 18 USC 207(a)(1). Pursuant to 18 USC 207(a)(1)(B), the imposition of post-employment restrictions requires the employee in question to have participated "personally and substantially" in the matter at issue during his or her federal employment. Although the protester's employee personally participated in the medical research program during her tenure with the government, the limited scope and part-time nature of her work did not rise to the level of substantial participation. There was no evidence of the employee's involvement in any individual study under the program, or in any part of the contracting function. In addition, the employee never had authority to approve or direct government action, and she left her federal employment before the protester expressed interest in the current RFP and a similar RFP issued one year earlier. Under the language of the applicable agency regulation (5 CFR 2637.201(d)(1)), the facts and circumstances did not "form a basis for a reasonable appearance" of significance, and therefore the employee's communications with the government were not restricted by the statute. Although the government's interpretation of 18 USC 207(a)(1) may be appropriate in the context of a traditional contract, in the context of a 20-plus year contract like the one here, the government's interpretation would contravene the intent of the statute by completely barring a host of experts from offering their expertise to the government. (The CNA Corp. v. U.S., FedCl, 52 CCF 78,928)

Government Interference Caused Compensable Delay
A contractor was entitled to an equitable adjustment, according to the Court of Federal Claims, because the government constructively changed island-based construction contracts when it installed a pontoon and required the contractor to use the pontoon for barge landings. The dispute involved runway and roadway improvement contracts performed at a military air station on a small and isolated island off the coast of California. The contractor was required to use a barge to transport material, equipment, and machinery to a beach on the island. During performance, the government installed a barge landing pontoon at the beach and informed the contractor it had to use the pontoon to land its barge. The contractor claimed the requirement to use the pontoon constituted a constructive change to the contracts.

The court explained that since the contractor essentially asserted a claim of governmental interference, it was required to show "the government's fault ... compelled [it] to perform extra work." The contractor prepared its bid and began performance based on the availability of a beach landing. However, when the government installed the pontoon landing system, it directed the contractor to land only on the pontoon, where landings "proved to be difficult and at times impossible." The contractor could not make any landings over a 65-day period, which caused it to abort four deliveries of construction materials and led to corresponding delays in project completion.

The government also constructively changed one of the contracts and caused delays by directing the contractor to reuse fixtures. During performance, the runway improvement contract was modified to add an arresting gear replacement project. The contractor claimed it was entitled to additional costs associated with delays arising from the government's instructions to salvage and reinstall existing rubber rails. Although a drawing included with the solicitation, but not the modification, contained language supporting the government's position that the specifications required reuse of the rubber rails, other language in the solicitation stated the contractor had to install new concrete and rails. Further, the modification referenced a different drawing with specifications inconsistent with a requirement to reuse the rails, and internal government documents referencing a conversation with the contractor showed an intent to provide new rails. A government directive instructing the contractor to clean up contaminated soil constituted a third constructive change because the work included cleanup attributable to other contractors. The contractor's total award was set at $1,171,279, plus interest. (Metric Construction Co., Inc. v. U.S., FedCl, 52 CCF 78,942)

Override Was Justified, Sole-Source Award Was Not
The government's decision to override the automatic stay of an award of a sole-source bridge contract for working dog services was partially deficient, the Court of Federal Claims found, because the government's rationale for a sole-source rather than a multiple-source award lacked support. The government issued the six-month, sole-source contract for working dog services in Afghanistan to the incumbent following the termination of two successive awards to the protester in response to protests. After the protester filed a protest challenging the bridge contract, the government overrode the Competition in Contracting Act's automatic stay of performance, finding "urgent and compelling circumstances, which significantly affect the interests of the United States, will not permit waiting for the [Government Accountability Office's] decision."

In determining whether the override was arbitrary or otherwise not in accordance with law, the court relied on the four factors cited in Superior Helicopter LLC, et al. v. U.S. (51 CCF 78,811). There was no question observing the stay would have had significant adverse consequences. The government emphasized any lapse in services could have resulted in security breaches, citing the number of improvised explosive devices one dog team found in one year. However, the government's consideration of reasonable alternatives was partially deficient because it did not realistically consider multi-award contracts. Although there was merit to the government's objection to different contractors' dog teams working on the same missions, it did not explain why it was necessary for only one contractor to supply teams to all bases, and the protester provided evidence it had handlers with the requisite security clearances. The balance of the override's benefits and potential costs, including the costs if the protester prevailed before the GAO, was not a significant factor because the cost of terminating the bridge contract would be relatively low. As for the override's impact on competition and the procurement system's integrity, the bridge contract simply was a vehicle to maintain the status quo while the government developed a solicitation to meet its increased requirements. Except for the sole-source justification, the government's determinations to override the stay were overall rational and supported by the record. Because the alleged harm to the protester paled in comparison to the likely detriment to Allied forces in Afghanistan if working dog services were not continuously maintained, the court denied the protester's motion for a preliminary injunction nullifying the override. However, the government was preliminarily enjoined from procuring additional services on a sole-source basis absent exigent circumstances. (EOD Technology, Inc. v. U.S., FedCl, 52 CCF 78,940)

Regulatory News

FAC 2005-26 Rule Requires Business Operations Certification
The Civilian Agency Acquisition and Defense Acquisition Regulations Councils have published Federal Acquisition Circular 2005-26, which contains one interim rule amending the Federal Acquisition Regulation. The rule (FAR Case 2008-004) implements Section 6 of the Sudan Accountability and Divestment Act of 2007 (PL 110-174), as well as Executive Orders 13310 and 13448. Section 6 of the SADA requires contractors to certify in each contract with an executive agency that they do not conduct certain business operations in Sudan. Comments on the interim rule are due August 11, 2008. For the text of FAC 2005-26, which carries a June 12, 2008, effective date, see 70,002.100.

The Councils have added the restrictions to FAR Subpart 25.7, Prohibited Sources. Because the current provisions at FAR 25.701 and FAR 25.702 are related, they have been combined into a single section, with the new restrictions added, as new section FAR 25.702. Also, FAR 25.702-1 provides the statutory definitions of the following terms from the SADA: Appropriate congressional committees; Business operations; Marginalized populations of Sudan; Person; and Restricted business. FAR 25.702-2 and FAR 25.702-3 state the certification requirements and the remedies specified in the Act. FAR 25.702-4 permits the President to waive the certification requirement. Consistent with the structure of FAR Part 25, the prescription for the solicitation provision is provided at FAR 25.1103(d). The new solicitation provision at FAR 52.225-20, Prohibition on Conducting Restricted Business Operations in Sudan --Certification, provides all the required definitions and the condition that, by submission of its offer, the offeror certifies that it does not conduct any restricted business operations in Sudan. If the offeror cannot affirmatively make this certification, then it is not allowed to submit an offer. Pursuant to E.O. 13310, Blocking Property of the Government of Burma and Prohibiting Certain Transactions (68 FR 44853) and E.O. 13448, Blocking Property and Prohibiting Certain Transactions Related to Burma (72 FR 60223), this rule also updates the list of countries from which most imports are prohibited, to reflect Burma as well as Sudan. Corresponding changes have been made to FAR 4.203, FAR 4.1201, FAR 4.1202, FAR 15.102, FAR 52.212-1, FAR 52.212-3, FAR 52.212-5, and FAR 52.225-13.

E.O. Requires Electronic Employment Verification System
President Bush has issued Executive Order 13465, which amends Executive Order 12989 to require, as a condition of government contracts, the use of a government electronic employment verification system. The order finds that adherence to a general policy of contracting only with providers that do not knowingly employ unauthorized alien workers and that have agreed to utilize an electronic employment verification system to confirm the employment eligibility of their workforce will promote economy and efficiency in federal procurement. To implement the policy, the order requires executive departments and agencies to require, as a condition of each government contract, the use of an electronic employment eligibility verification system designated by the Secretary of Homeland Security. The system will verify the employment eligibility of persons that are either hired during a contract term by the contractor to perform employment duties within the United States, or assigned by the contractor to perform work within the U.S. on a federal contract. The order also directs the Secretary of Defense, the Administrator of General Services, and the Administrator of the National Aeronautics and Space to amend the Federal Acquisition Regulation to the extent necessary and appropriate to implement the government's employment eligibility verification responsibilities.

Rule Proposes Procedures for Employment Eligibility Verification
The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council are proposing to amend the Federal Acquisition Regulation to require certain contractors and subcontractors to use the United States Citizenship and Immigration Services' E-Verify system as the means of verifying that certain of their employees are eligible to work in the U.S. The proposed rule would require insertion of a clause (FAR 52.222-XX) into prime contracts that include work in the U.S. Contracts that do not exceed the micro-purchase threshold (generally $3,000), or that are for commercially available off-the-shelf items are excepted. Also, the rule would require inclusion of the clause in subcontracts over $3,000 for services or for construction. Further mandates would require a contractor or subcontractor to enroll in the E-Verify program within 30 days of contract award, begin verifying the employment eligibility of all new employees of the contractor or subcontractor that are hired after enrollment in E-Verify, and continue to use the E-Verify program for the life of the contract. Also, contractors and subcontractors would be required to use E-Verify to confirm the employment eligibility of all existing employees who are directly engaged in the performance of work under the covered contract. The rule would make these requirements apply to solicitations issued, and contracts awarded, after the effective date of the final rule in accordance with FAR 1.108(d). Under the final rule, agencies should amend existing indefinite-delivery/indefinite-quantity contracts to include the clause for future orders if the remaining period of performance extends at least six months after the effective date of the final rule and the amount of work or number of orders expected under the remaining performance period is substantial. In exceptional circumstances, the rule would allow a head of the contracting activity to waive the requirement to include the clause. The rule proposes to add a new FAR Subpart 22.18, entitled Employment Eligibility Verification, and a corresponding contract clause, as well as amend FAR 2.101, FAR 12.301, and FAR 22.102-1. Comments on this proposed rule, identified by FAR Case 2008-001, are due by August 11, 2008. For the text of the rule, see 70,006.224.

GAO Revises Bid Protest Regulations
The Government Accountability Office has finalized, without substantive change, a proposed rule (70,520.32) amending its bid protest regulations to implement legislation impacting the protest rights of federal employees. Revised definitions at GAO 21.0 implement Section 326 of the National Defense Authorization Act for Fiscal Year 2008 and address Office of Management and Budget Circular A-76. The Act expanded the bid protest rights of federal employees in A-76 competitions by granting "any one individual" who represents the majority of affected employees the status of an "interested party" to file a GAO protest, or the status of an intervenor to participate in a GAO protest. The Act also removed restrictions limiting protests of A-76 competitions to competitions affecting 65 or more full-time equivalent employees of an agency, and allowed protests of decisions converting functions performed by federal employees to private sector performance without a competition. The final rule also makes administrative changes. GAO 21.3 is revised to provide that, in appropriate circumstances, a party may request another party to produce documents that are not in the government's possession and not currently in the record. Amended GAO 21.4 provides dismissals and prohibitions from participating in a protest as an intervenor are sanctions GAO will consider in response to violations of GAO protective orders. To clarify the requirements of a request for reconsideration and to emphasize that repetitive arguments will be summarily dismissed, GAO 21.14 is revised to state a request for reconsideration must show the prior decision contains errors of fact or law, or must present information not previously considered that warrants reversal or modification of the prior decision. The rule also amends GAO 21.1, GAO 21.5, GAO 21.6, and GAO 21.12. The final rule is effective June 9, 2008, and the text can be found at 70,520.33.

Major Contract Awards

Supreme Foodservice AG - $2.8 Billion. Supreme Foodservice AG, Ziegelbruecke, Switzerland is being awarded a maximum $2,801,334,120 firm fixed price, prime vendor contract for supply and distribution of food and non-food products. Other location of performance is in New Jersey. Using services are Army, Air Force and Marine Corps. The original proposal was Web solicited with five responses. Contract funds will not expire at the end of the current fiscal year. Date of performance completion is Jun. 7, 2009. The contracting activity is Defense Supply Center Philadelphia (DSCP), Philadelphia, Pa., (SP0300-05-D-3130). Government Contracts Reports, No. 1962, June 11, 2008.

BAE Systems - $1.65 Billion. BAE Systems, Tactical Vehicle Systems Limited Partnership, Sealy, Texas, was awarded on May 30, 2008, a $1,656,794,781 firm-fixed price and cost-reimbursement contract for 10,000 medium tactical vehicles, program support and federal retail excise tax. Work will be performed in Sealy, Texas, and is expected to be completed by Dec. 31, 2010. Contract funds will not expire at the end of the current fiscal year. One bid was solicited on Nov. 5, 2007. U.S. Army TACOM, Warren, Mich., is the contracting activity (W56HZV-08-C-0460). Government Contracts Reports, No. 1962, June 11, 2008.

Hesco Bastion Ltd. - $800 Million. Hesco Bastion Ltd., Great Britain, is being awarded a maximum $800,000,000 fixed price with economic price adjustment indefinite delivery, indefinite quantity contract for facilities maintenance. Using services are Army and Marine Corps. The original proposal was Web solicited with 2 responses. Contract funds will not expire at the end of the current fiscal year. Date of performance completion is June 12, 2010. The contracting activity is Defense Supply Center Philadelphia (DSCP), Philadelphia, Pa. (SPM8E6-08-D-0252). Government Contracts Reports, No. 1964, June 25, 2008.

Lockheed Martin Co. - $470 Million. The Air Force is modifying a firm fixed price contract with Lockheed Martin Co., Lockheed Martin Aeronautics Company of Marietta Ga., not to exceed $470,000,000. This contract modification is an undefinitized contract action for the procurement of six fiscal 2009 HC/MC-130J aircraft and associated long lead material and non-recurring aircraft production effort using fiscal 2008 advance procurement funding. At this time $75,000,000 has been obligated. USAF/AFMC, Aeronautical Systems Center (ASC), 657 AESS/PK, Wright-Patterson Air Force Base, Ohio, is the contracting activity (FA8625-06-C-6456 P00037). Government Contracts Reports, No. 1963, June 18, 2008.

Caterpillar, Inc. - $397.1 Million. Caterpillar, Inc., Peoria, Ill., was awarded on Jun. 6, 2008, a $397,100,467 firm-fixed price contract for light T-5 dozers and medium T-9 dozers with type A armor kits and type C armor kits with a five-year requirements contract with one five-year option. Work will be performed in East Peoria, Ill., and is expected to be completed by Jun. 9, 2018. Contract funds will not expire at the end of the current fiscal year. Four bids will be solicited on Nov. 29, 2007, and seven bids were received. U.S. Army TACOM, Warren, Mich., is the contracting activity (W56HZV-08-D-0169). Government Contracts Reports, No. 1963, June 18, 2008.