November 2006

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 aaron.broaddus@wolterskluwer.com.

Legal News

Small Business Set-Aside "Price Match" Program Upheld
The Court of Federal Claims upheld a set-aside program that allowed small business fuel suppliers the opportunity to match the bids of large business suppliers because the process did not involve direct bidding between competing bidders or improper pre-award bid disclosures. The dispute concerned the manner in which the government evaluated and awarded fuel supply contracts under a small business set-aside program. Under the practice, offers from both large and small businesses were evaluated as if there were no set-aside quantities. Prior to award, however, set-aside quantities were offered to small businesses at the price offered by the otherwise successful bidder. If no small business offeror accepted the set-aside quantities at the offered prices, those quantities were added back to the basic quantities and both were awarded to the lowest offeror.

The court observed the program contrasted with the procedures in FAR 19.502-3(c) and DFARS 252.219-7001, which anticipated set-aside offerings as occurring after the basic quantities are awarded and provide for the set-aside portion to be resolicited in the event no small business accepts the set-aside quantities at the offered prices. However, the set-aside program did not constitute an auction prohibited by OFPPA because it did not involve the "direct bidding of price between two competing offerors," and no "back-and-forth" occurred between one offeror and another. Further, OFPPA does not strictly prohibit the disclosure of bid prices. The fact large businesses may have lowered their bid prices to discourage small businesses from matching their bids reflects an essential component of the competitive process. (ConocoPhillips, et al. v. U.S., FedCl, 50 CCF ¶78,615; Government Contracts Report Letter No. 1880, October 18, 2006)

Limits of Board's Anti-Kickback Jurisdiction Analyzed
An appeal of the government's offset claim based on alleged kickbacks was dismissed by the General Services Administration Board of Contract Appeals because, although offset claims under the Anti-Kickback Act are subject to Contract Disputes Act procedures, determining whether tying arrangements amounted to kickbacks was outside the scope of the CDA. An internal contractor document in evidence during the trial of numerous contractor claims arising from construction of a federal building and courthouse set forth the contractor's "basic strategy of obtaining low prices from prospective subcontractors with an agreement from the subcontractors that they would bid higher prices to [the contractor's] competitors." In response, the contracting officer issued a decision pursuant to the Anti-Kickback Act's offset authority set forth in FAR 52.203-7(c)(4)(i), stating it was proper to offset the amount of alleged kickbacks against any amounts the government owed the contractor upon disposition of the contractor's claims. The government moved to dismiss the contractor's appeal of the CO's decision on grounds the Court of Federal Claims had sole jurisdiction over an appeal of an offset made under the Anti-Kickback Act. The government relied on a floor statement indicating appeals of a CO's decision should only be filed with the Court of Federal Claims.

However, the statutory language and a statement in the House Report indicated Congress' intent that a government claim under the Anti-Kickback Act would be subject to CDA procedures. The Anti-Kickback Act states a CO's offset "is a claim of the [g]overnment for purposes of the [CDA]" (41 USC 56(c)), and the House Report states "in cases of offsets ... [a] prime contractor may seek review under the [CDA] when it disagrees with a [CO's] decision ...." As the boards of contract appeals possess concurrent jurisdiction with the Court of Federal Claims over CDA appeals, the appeal of the offset was properly before the board. The board nevertheless proceeded to dismiss the appeal on grounds the Anti-Kickback Act is a fraud statute, and determining the existence of fraud is beyond the CO's authority and a board's jurisdiction. The CO's decision addressed the existence as well as the amount of a kickback. Although the appeal of the amount of a kickback is within the board's CDA jurisdiction, the CDA's dispute process does not extend to issues of fraud. Therefore, neither the CO nor the board could consider whether the alleged tying arrangement amounted to a violation of the Anti-Kickback Act. (Turner Construction Co. v. GSA, GSBCA, ¶91,825; Government Contracts Report Letter No. 1879, October 11, 2006)

No FCA Liability for False Claims Submitted to Provisional Authority
A contractor's post-trial motion for judgment as a matter of law was granted by the District Court for the Eastern District of Virginia because the relators failed to prove submission of invoices to the Coalition Provisional Authority in Iraq satisfied the False Claims Act's presentment requirement. Following a jury verdict finding the contractor presented inflated invoices to the CPA to justify payment of a $3 million advance from vested and seized Iraqi funds belonging to the government, the contractor challenged whether the relators' evidence satisfied the FCA's presentment requirement. For FCA liability to attach to a false claim for payment, the claim must be knowingly presented, or caused to be presented, to an employee or officer of the U.S. government acting in an official capacity (31 USC 3729(a)(1)). Presentment is also an element of liability under 31 USC 3729(a)(2) for providing false records or statements for payment of false claims. In its pre-trial ruling denying the contractor's motion for summary judgment (49 CCF ¶78,442), the court found the CPA's typical practice for reimbursing contractors involved directing any invoices submitted to the CPA to the U.S. Army for disbursement.

At trial, however, the relators did not produce any evidence to establish the CPA's general procedure for disbursing funds had been followed. Moreover, the fact the contractor received an advance meant the CPA did not submit to the Army any certifications for disbursement based on the contractor's invoices --the money had already been disbursed. The court therefore found it necessary to determine whether the CPA itself was a U.S. government entity and referred to its analysis in the pre-trial ruling. Although principally controlled and funded by the U.S., the CPA was created and governed by multinational consent and was not an instrumentality of any member state. Therefore, the CPA was a distinct entity, and U.S. employees of the CPA were not working in their official capacity as employees or officers of the U.S. government. Had judgment on the verdict been entered, the $3 million in damages would have been trebled by statute and the contractor would have been liable for a $5,000-$10,000 penalty for each false claim and false record presented. Instead, the verdict on the FCA counts was vacated as a matter of law. (U.S. ex rel. DRC, Inc., et al. v. Custer Battles, LLC, et al., DC ED Va, 50 CCF ¶78,607; Government Contracts Report Letter No. 1879, October 11, 2006)

Legislative and Regulatory Activity

Law Establishes GSA's Federal Acquisition Service
President Bush signed the General Services Administration Modernization Act of 2006 (PL 109-313), on October 6. The law formally establishes the Federal Acquisition Service (FAS), combining the Federal Supply Service (FSS) and Federal Technology Service (FTS). Separating the acquisition of information technology and commercial services no longer made business sense, according to the Senate report accompanying the bill. Forming a single service would help coordinate acquisition management services and technology, the report stated. Although GSA initiated the new FAS in September 2005, the Act formalizes the arrangement and establishes a fund to pay for the new service. (Government Contracts Report Letter No. 1880, October 18, 2006)

FAR Councils Issue FAC 2005-13
The Civilian Agency Acquisition and Defense Acquisition Regulations Councils have published Federal Acquisition Circular 2005-13. The Circular, issued September 28, 2006, contains five final and three interim rules amending the Federal Acquisition Regulation. In order of appearance, the rules address: Implementation of OMB Policy on the Use of Brand Name Specifications; Information Technology Security; Online Representations and Certifications Application; Inflation Adjustment of Acquisition-Related Thresholds; Trade Agreement Thresholds; Reporting of Purchases from Overseas Sources; and Buy American Act Exception for Commercial Information Technology. Each rule has a September 28, 2006, effective date. The interim rules have a comment period open until November 27, 2006. The full text of FAC 2005-13, including the individual rules and a small entity compliance guide, appears at ¶70,002.84. (Government Contracts Report Letter No. 1879, October 11, 2006)

DoD Overseas Contractor Personnel Rules Replace Army Rule
The Department of the Army has issued a final rule removing two interim rules pertaining to the deployment of contractor personnel in support of military operations. Department of Defense amendments to the Defense Federal Acquisition Regulation Supplement added policy addressing situations requiring contractor personnel to provide in-theater support to United States military forces engaged in contingency, humanitarian or peacekeeping, or certain other operations outside the U.S. and incorporated significant terminology from the Army Federal Acquisition Regulation Supplement. As a result, two Army interim final rules addressing foreign deployment of contractor personnel have been rendered obsolete. The final rule therefore removes AFARS 5125.74-9000 and corresponding contract clause AFARS 5152.225-74-9000. The text of the rule, which has an October 12, 2006 effective date, appears at ¶70,026.07. (Government Contracts Report Letter No. 1881, October 25, 2006)

DoD Interim Rule Implements Berry Amendment Requirements
A Department of Defense interim rule revises the Defense Federal Acquisition Regulation Supplement to implement Section 833(a) of the National Defense Authorization Act for Fiscal Year 2006. The rule adds a requirement for FedBizOps to provide a synopsis of contract awards exceeding the simplified acquisition threshold for the acquisition of certain clothing, fiber, yarn, or fabric items, when the Secretary concerned determines adequate domestic items are not available; or chemical warfare protective clothing, when the contracting officer determines an exception to domestic source requirements applies because the acquisition furthers an agreement with a qualifying country. The rule adds a new provision, DFARS 205.301, and amends DFARS 225.7002-1 and DFARS 225.7002-2. Comments on this interim rule, identified by DFARS Case 2006-D006, are due December 4, 2006. For the text of the rule, effective October 4, 2006, see ¶70,016.396. (Government Contracts Report Letter No. 1880, October 18, 2006)

Rule Restricts Commercial Acquisition of Major Weapon Systems
The Department of Defense has issued an interim rule amending the Defense Federal Acquisition Regulation Supplement to implement Section 803 of the National Defense Authorization Act for Fiscal Year 2006, which places limitations on the acquisition of a major weapon system as a commercial item. The rule permits the acquisition of a MWS as a commercial item only if: (1) the Secretary of Defense determines the system is a commercial item within the definition specified in FAR 2.101 and acquisition of the MWS as a commercial item is necessary to meet national security objectives; and (2) the congressional defense committees are notified at least 30 days in advance of such treatment or acquisition. The rule adds a new section at DFARS 212.270, and a new Subpart comprised of DFARS 234.7000, DFARS 234.7001, and DFARS 234.7002. The rule also makes corresponding policy changes in Procedures, Guidance, and Information at PGI 207.105 and PGI 234.7002. Comments on this interim rule, identified by DFARS Case 2006-D012, are due December 4, 2006. For the text of the rule, effective October 4, 2006, see ¶70,016.398. (Government Contracts Report Letter No. 1880, October 18, 2006)

Two FAR Rules Propose Changes to CAS Administration
The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council have issued two rules proposing to amend the Federal Acquisition Regulation to implement recommendations to revise the regulations related to the administration of the Cost Accounting Standards. Each rule has a comment period extending until December 4, 2006. One proposed rule (FAR Case 2005-027) addresses issues raised by a final rule issued with Federal Acquisition Circular 2005-01, which significantly streamlined the process for submitting, negotiating, and resolving cost impacts resulting from a change in cost accounting practice or noncompliance with stated practices. Subsequently, both industry and government representatives submitted a number of recommended changes to FAR Part 30. In response, the Councils issued this proposed rule, which would amend the following provisions: FAR 30.001, FAR 30.601, FAR 30.602, FAR 30.604, FAR 30.605 and FAR 52.230-6. The text of this rule appears at ¶70,006.198. The second proposed rule (FAR Case 2006-004) seeks to make changes to retain consistency between CAS and the FAR in matters relating to CAS administration. The rule proposes conforming changes to FAR 30.201-4 and the contract clause at FAR 52.230-4. For the text of this proposed rule, see ¶70,006.199. (Government Contracts Report Letter No. 1880, October 18, 2006)

Major Contract Awards

Boeing - $1.067 Billion. Boeing, Chicago, IL, and the U.S. Air Force MILSATCOM Systems Wing have signed a $1.067 billion contract for up to three additional Wideband Gapfiller Satellites (WGS), if all options are exercised. The Block II satellites will be similar to the three Block I satellites already in production. Under Block II, Boeing will add a radio frequency bypass capability designed to support airborne intelligence, surveillance and reconnaissance platforms requiring ultra-high bandwidth and data rates demanded by unmanned aerial vehicles. In February, the Air Force authorized Boeing to begin non-recurring engineering and advanced procurement of parts for the fourth WGS satellite. Boeing anticipates Air Force authorization to proceed with full production of WGS F4 and to begin long-lead work for F5 by the end of 2006. These revolutionary, 13-kilowatt WGS satellites are based on Boeing's 702 models and are designed to provide improved communications support for America's warfighters. Boeing is preparing the first WGS satellite for launch in 2007. The Block II contract calls for the launch of F4 by the first quarter of 2011 and subsequent launches every year thereafter. (Government Contracts Report Letter No. 1881, October 25, 2006)

Northrop Grumman - $750 Million. Northrop Grumman, Los Angeles, CA, has been awarded a $357 million indefinite delivery, indefinite quantity contract by U.S. Citizenship and Immigration Services (USCIS), an agency within the Department of Homeland Security (DHS), to continue providing biometric capture services in support of U.S. citizenship applications and green card renewals. The contract is for one base year with four one-year options and has a potential value of $750 million over a five-year period. Biometric capture services involve electronic scanning and recording of fingerprints, and photograph and signature collection, for identification purposes. The contract work will be performed in all 50 U.S. states at 136 Application Support Centers (ASC), with possible future expansion overseas. (Government Contracts Report Letter No. 1879, October 11, 2006)

Bechtel - $591 Million. Bechtel Bettis Inc., Bettis Atomic Power Laboratory, West Mifflin, PA, is being awarded a $461,100,000 cost-plus-fixed fee modification to previously awarded contract (N00024-98-C-4064) for Naval nuclear propulsion work at the Bettis Atomic Power Laboratory. This action represents funding of the contract's seventh year of effort. No completion date or other additional information is provided on Naval Nuclear Propulsion Program contracts. The Naval Sea Systems Command, Washington, D.C., is the contracting activity. Bechtel Plant Machinery Inc., Schenectady, NY, is being awarded a $129,941,575 cost-plus-fixed fee contract for Naval nuclear propulsion components. The Naval Sea Systems Command, Washington, D.C., is the contracting activity. (Government Contracts Report Letter No. 1880, October 18, 2006)

MITRE Corp.- $312 Million. MITRE Corp., Bedford, MA, is being awarded a $311,985,973 cost-plus-fixed fee contract. This action is for systems engineering and integration support for Air Force ceiling programs and Air Force non-ceiling programs for FY 2007. Support level is estimated at 926 direct staff years for the Air Force ceiling programs and 131 direct staff years for the Air Force non-ceiling program. MITRE is a federally Funded Research and Development Center (FFRDC). This effort supports foreign military sales with Saudi Arabia, France, United Kingdom, and Japan. This work will be complete October 2007. Headquarters Electronic Systems Center, Hanscom Air Force Base, MA, is the contracting activity. (Government Contracts Report Letter No. 1879, October 11, 2006)

Raytheon - $285 Million. Raytheon Company, Waltham, MA, has been awarded a $285.4 million contract to produce and deliver Improved Target Acquisition Systems (ITAS) to the U.S. Army and the U.S. Marine Corps. The five-year contract from the U.S. Army Aviation and Missile Command in Huntsville, AL, continues Army procurement of the systems and marks the start of the U.S. Marine Corps system acquisition. ITAS is the advanced Electro-Optic Target Acquisition Fire Control System. It guides the TOW (Tube-Launched, Optically Tracked, Wire-Guided) weapon systems to their targets with surgical precision. The targeting system significantly increases TOW's effective range, improves the weapon's ability to hit a target with minimal collateral damage and allows a soldier to engage and destroy targets from safe distances. (Government Contracts Report Letter No. 1879, October 11, 2006)

Bechtel - $268 Million. Bechtel Plant Machinery Inc., Schenectady, NY, is being awarded a $267,536,374 cost-plus-fixed fee contract for naval nuclear propulsion components. No work completion date or additional information is provided on Naval Nuclear Propulsion Program contracts. The Naval Sea Systems Command, Washington Navy Yard, DC, is the contracting activity. (Government Contracts Report Letter No. 1881, October 25, 2006)

Tyonek - $260 Million. Tyonek Agile Engineering and Manufacturing, LLC (TEAMCOR) of Warner Robbins, GA, is being awarded a 5-year, indefinite delivery indefinite quantity contract with a ceiling of $260,000,000.00. The Psychological Operations Program Office (PMP) of the United States Special Operations Command (USSOCOM) Intelligence and Information Systems (IIS) Program Executive Office requires engineering and technical support services to build, field and sustain Psychological Operations systems and other designated IIS-PMP projects and programs in accordance with USSOCOM requirements. The 5-year ordering period will be completed October 2011. (Government Contracts Report Letter No. 1880, October 18, 2006)

Northrop - $225 Million. Northrop Grumman Mission Systems, Clearfield, UT, is being awarded a $225,162,108 cost-plus-fixed fee, cost-plus-incentive fee contract modification. This contract action will exercise the Propulsion Replacement Program Full Rate Production year 6 options. The effort includes remanufacturing Stage 1, 2, and 3 rockets motors; product quality assurance test support; ordnance production. The contractor shall provide 75 complete booster components sets and 2 product quality assurance test motors. Each booster component sets of one each Stage 1, 2 and 3 motors and an ordnance kit. This work will be complete January 2009. Headquarters 526th ICBM Systems Wing, Hill Air Force Base, UT, is the contracting activity. (Government Contracts Report Letter No. 1882, November 1, 2006)

AM General - $182 Million. AM General L.L.C., South Bend, IN, was awarded two modifications for armored vehicles. It received an $83,353,215 modification to a firm-fixed-price contract for M1152A1 and M1165A2 Marine Corps high mobility multipurpose wheeled vehicles. AM also received a $98,721,988 modification to a firm-fixed-price contract for M1151A1 with B2 and M1152A1 High Mobility Multipurpose Wheeled Vehicles. Work on both is expected to be completed by Dec. 31, 2007. The U.S. Army Tank-Automotive and Armaments Command, Warren, MI, is the contracting activity. (Government Contracts Report Letter No. 1879, October 11, 2006)

Raytheon - $163.2 Million. Raytheon Company has received a contract with five one-year options that has an initial value of $163.2 million to provide heavy anti-tank, precision assault missiles for the U.S. military. Under this contract, Raytheon will deliver the new wireless version of TOW missiles that receives commands from the gunner through a wireless data link, eliminating the wire connection that the system has used since it was introduced more than 30 years ago. The system performs exactly as the wire-guided version, enabling soldiers to continue using the proven weapon without changing tactics or incurring additional training. TOW remains the Army and Marine Corps' primary heavy anti-tank and precision assault weapon deployed on more than 4,000 TOW launch platforms including the Army "Stryker," Bradley Fighting Vehicle System and High Mobility Multipurpose Wheeled Vehicle. (Government Contracts Report Letter No. 1880, October 18, 2006)

Tyson - $157 Million. Tyson Fresh Meats, Dakota Dunes, SD, is being awarded an indefinite delivery, requirements type contract to provide fresh and frozen beef products for resale to 93 commissary stores located throughout Maine, Pennsylvania, Virginia, Florida, Georgia, New York, New Jersey, North and South Carolina, Alabama, Louisiana, Mississippi, Tennessee, South Dakota, Wyoming, Colorado, Kansas, North and South Dakota, Kentucky, Illinois, Ohio, Missouri and New Hampshire. The estimated award amount is $157,144,334. The contractor will deliver beef to the store locations as needed. The contract is for a base period beginning Oct. 6, 2006, through Oct. 31, 2007. Two one-year option periods are available. If both option periods are exercised, the contract will be completed October 31, 2009. The contracting activity is the Defense Commissary Agency. (Government Contracts Report Letter No. 1879, October 11, 2006)

General Dynamics - $155 Million. The U.S. Army has awarded delivery orders for a total of 109 Stryker wheeled combat vehicles from General Dynamics Land Systems, a business unit of General Dynamics, Falls Church, VA. These three recent orders are valued at $155 million and increase the Army's fiscal year 2006 Stryker procurement to a total of 518 vehicles. Work is expected to be completed by October 2008. Stryker, a family of eight-wheel-drive combat vehicles that can travel at speeds up to 62 mph on highways with a range of 312 miles, is the Army's highest-priority production combat vehicle program and the centerpiece of the ongoing Army Transformation. To date, General Dynamics has delivered more than 1,780 Strykers of the 2,691 included in the U.S. Army's plans for seven Stryker Brigade Combat Teams. (Government Contracts Report Letter No. 1879, October 11, 2006)

Raytheon - $113 Million. Raytheon Company, Waltham, MA, received its first production award in the amount of $112.9 million for the AIM-120D configuration of the Advanced Medium-Range Air-to-Air Missile (AMRAAM). Production and delivery will support the U.S. Air Force, Navy and Army. AIM-120D is an enhanced capability missile that includes enhanced data link, improved kinematics and GPS Inertial Measurement Unit capability, developed to meet the changing technology and battlespace requirements of the warfighter. (Government Contracts Report Letter No. 1879, October 11, 2006)

Lockheed - $110 Million. Lockheed Martin, Bethesda, MD, has entered into a contract to upgrade and enhance the capabilities of the C-130J Super Hercules transports flown by four international operators. Valued at approximately $110 million, this enhancement will allow the United Kingdom, Australia, Italy and Denmark to benefit from a joint program that represents a significant milestone in international cooperation on a major weapon system. (Government Contracts Report Letter No. 1881, October 25, 2006)

Constellation - $101 Million. Constellation New Energy, Houston, TX, is being awarded a maximum $101,358,389 firm fixed price contract for electricity. Using services are Army, Navy, and Air Force. Other locations of performance are Dyess Air Force Base, Naval Station Ingleside, Fort Hood, Joint Reserve Base Navy Reserves, and Naval Air Station Kingsville, TX. Date of performance completion is Jan. 1, 2009. Contracting activity is the Defense Energy Support Center, Fort Belvoir, VA. (Government Contracts Report Letter No. 1881, October 25, 2006)

Bechtel - $100 Million. Bechtel National Inc., San Francisco, CA, was awarded on Oct. 25, 2006, a delivery order amount of $99,909,216 as part of a $518,621,475 cost-plus-fixed-fee contract for implementation of chemical agent decontamination, dismantlement, decommissioning, and waste disposal technologies for the closure of the Aberdeen Chemical Agent Disposal Facility. Work is expected to be completed by Sept. 30, 2007. This was a sole source contract initiated on Dec. 2, 2004. The U.S. Army Sustainment Command, Rock Island, IL, is the contracting activity. (Government Contracts Report Letter No. 1882, November 1, 2006)