September 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

Application of Small Business Nonmanufacturer Rule Clarified
The Court of Federal Claims sustained a pre-award bid protest challenging the government's decision to award small business set-aside contracts without examining the offerors' intent to comply with the small business nonmanufacturer rule. The dispute arose from two requests for proposals for home oxygen equipment that contained requirements for both supplies and services. The government contended the nonmanufacturer rule applies only to contracts exclusively for the supply of manufactured products, not to mixed supply and service contracts like the ones at issue. But the court disagreed, concluding the statutory language clearly applies the nonmanufacturer rule to all supply contracts, whether or not they implicate some level of service. (Rotech Healthcare Inc. v. U.S., FedCl, 50 CCF ¶78,587; Government Contracts Report Letter No. 1872, August 23, 2006)

Fringe Benefit Cost Increases Compensable as Price Adjustment
Reversing the Armed Services Board of Contract Appeals, the United States Court of Appeals for the Federal Circuit held a contractor was entitled to a contract price adjustment because it experienced increased costs in providing health benefits required by a collective bargaining agreement. The fixed price contract for aircraft maintenance services included a Service Contract Act wage/benefit determination, which incorporated a CBA between the government and a predecessor contractor, and a price adjustment clause. The CBA's fringe benefits included defined-benefit health insurance, and the contractor sought a price increase to compensate it for increased health insurance costs for the contract's first option year. The board of contract appeals summarily denied the claim, distinguishing between increases in the cost of providing benefits and increases in the benefits themselves, and concluded the former did not result from a change in a wage determination and therefore did not trigger the price adjustment clause. The court, however, determined the price adjustment clause does not address increases in the contract's requirements but rather the effect of compliance on the contractor --i.e., changes in cost. Therefore, the board erred in granting summary judgment in favor of the government and abused its discretion in denying the contractor's motion for summary judgment. Because the case involved no genuine issues of material fact, the court granted summary judgment in favor of the contractor. (Lear Siegler Services, Inc. v. Rumsfeld, Sec'y of Defense, CA-FC, 50 CCF ¶78,592; Government Contracts Report Letter No. 1874, September 6, 2006)

Board Erred in Declining Jurisdiction Over Purchase Order Claim
The Court of Appeals for the Federal Circuit reversed and remanded a decision by the Armed Services Board of Contract Appeals that concluded the board lacked jurisdiction to decide a claim arising from purchase orders for prototype hydration systems. The board dismissed the claim on grounds the purchase orders did not constitute procurement contracts within the meaning of the Contract Disputes Act. The court of appeals disagreed, explaining that the board has subject matter jurisdiction over "any express or implied contract" for "the procurement of property." Although the bailment agreement and unsolicited proposals underlying the dispute were donative in nature and therefore did not relate to "procurement," the government purchased prototypes for testing, and the related purchase orders involved the exchange of property for money and therefore pertained to "procurement." (Wesleyan Co., Inc. v. Harvey, Sec'y of the Army., CA-FC, 50 CCF ¶78,585; Government Contracts Report Letter No. 1871, August 16, 2006)

Regulatory Activity

FAC 2005-12 Interim Rule Adds to Set-Asides
The Civilian Agency Acquisition and Defense Acquisition Regulations Councils have published Federal Acquisition Circular 2005-12, containing an interim rule that adds FAR Subpart 6.6, Stafford Act Preference for Local Area Contractor. The Local Community Recovery Act of 2006, which amended the Robert T. Stafford Disaster Relief and Emergency Assistance Act, authorized set-asides for major disaster or emergency assistance acquisitions to businesses residing or primarily doing business in the geographic area affected by a disaster or emergency. The interim rule adds a local area set-aside to the FAR for debris clearance, distribution of supplies, reconstruction, and other major disaster or emergency assistance activities. The set-aside area is defined by the contracting officer and no competition justification is required. (Government Contracts Report Letter No. 1871, August 16, 2006)

Three Final Rules Continue DFARS Transformation
The Department of Defense has issued three final rules that further transform the Defense Federal Acquisition Regulation Supplement by moving material to the DFARS companion source, DoD's Procedures, Guidance, and Information. Two of the rules impact contract administration functions and reporting. The first clarifies responsibilities for payment administration and verification of contractor compliance with earned value management system requirements, deletes obsolete text on mobilization production planning surveys, and removes procedures for designation of contract payment offices. The second rule removes DFARS text addressing internal DoD requirements for reporting contracting actions and places these materials in the PGI. A third final rule updates DFARS text on DoD's implementation of small business programs. (Government Contracts Report Letter No. 1872, August 23, 2006)

Rule Proposes Update to Internet Protocol Requirements
The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council are proposing to amend the Federal Acquisition Regulation to require the inclusion of a requirement for Internet Protocol Version 6 capable products in information technology procurements to the maximum extent practicable. The internet protocol is one of the primary mechanisms defining how and where information moves across networks. The IPv6 is designed to increase internet address space, promote flexibility and functionality, and enhance security. (Government Contracts Report Letter No. 1874, September 6, 2006)

FAR Councils Propose New Contract Clause for Overseas Personnel
The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council are proposing amendments to the Federal Acquisition Regulation to address contractor personnel who provide support in the theater of operations or at a diplomatic or consular mission outside the United States, but are not covered by the Department of Defense clause for contractor personnel authorized to accompany the U.S. Armed Forces. The new clause would apply when contractor personnel are employed outside the U.S. in a theater of operations during contingency operations, humanitarian or peacekeeping operations, other military operations, or military exercises designated by the combatant commander; or at a diplomatic or consular mission when specified by the chief of mission. The clause would clarify that contractor personnel are civilians and are not authorized to use deadly force against enemy armed forces other than in self-defense. An exception would apply to private security contractor personnel but only when necessary to execute their security mission to protect assets/persons, and as consistent with their contractual mission statement. The clause also addresses numerous related issues, including responsibility for logistical and security support, compliance with laws and regulations, and flowdown of the clause to subcontracts. (Government Contracts Report Letter No. 1869, August 2, 2006)

Final Rule Reflects Changes to Missile Technology Control Regime
The Bureau of Industry and Security has issued a final rule amending the Export Administration Regulation to reflect amendments to the Missile Technology Control Regime Annex that were agreed to by member countries at the September 2005, Plenary in Madrid, Spain. The MTCR is an export control arrangement between 34 nations and includes the world's most advanced suppliers of ballistic missiles and missile-related materials and equipment. The regime establishes a common export control policy based on a list of controlled items and guidelines for controlling exports of those items. The goal of the MTCR is to stem the flow of missile systems capable of delivering weapons of mass destruction to the global marketplace. This final rule revises the license exceptions for missile technology controlled items, adds the new terms "repeatability" and "production facilities" to the list of definitions, and amends several portions of the Commerce Control List. (Government Contracts Report Letter No. 1871, August 16, 2006)

Final Rule Clarifies Civil Monetary Penalties for Violation of EAR
The Bureau of Industry and Security has issued a final rule amending the Export Administration Regulations to clarify the civil monetary penalties for violations of the EAR during periods when the effect of the EAR is continued under the Export Administration Act, the International Emergency Economic Powers Act, or other statutory authority. The rule also reflects amendments to the International Emergency Economic Powers Act made by the USA PATRIOT ACT Improvement and Reauthorization Act of 2005. The EAA, which provides authority for promulgation of the EAR, has lapsed and been renewed several times since its original enactment in 1979. At each lapse, the President has used his authority under the International Emergency Economic Powers Act to continue the effect of the EAR to the extent permissible by law. The most recent lapse of the EAR occurred on August 17, 2001. Since that date the President has kept the EAR in effect pursuant to the IEEPA, and therefore civil monetary penalties for violations of the EAR have been governed by the penalties set forth in the IEEPA. On March 9, 2006, the USA PATRIOT ACT Improvement and Reauthorization Act of 2005 amended the IEEPA to raise the maximum civil monetary penalty to $50,000 per violation. BIS has amended the EAR to state clearly that the increased IEEPA maximum civil monetary penalty of $50,000 applies to any violation of the EAR or any license, order or authorization that occurs when the EAA is in lapse and IEEPA is the authorizing statute. (Government Contracts Report Letter No. 1871, August 16, 2006)

Major Contract Awards

Lockheed - $4 Billion. The National Aeronautics and Space Administration selected a team led by Lockheed Martin, Bethesda, MD, to design and build the agency's next-generation human space flight crew transportation system known as Orion, with an initial contract value of approximately $4 billion. Orion, an advanced crew capsule design utilizing state-of-the-art technology, is a key element of NASA's Vision for Space Exploration, and will succeed the Space Shuttle in transporting a new generation of human explorers to and from the International Space Station, the Moon, and eventually to Mars and beyond. In partnership with NASA, Lockheed Martin will serve as prime contractor and will lead a world-class industry team that includes Honeywell, Orbital Sciences Corporation, United Space Alliance and Hamilton Sundstrand, supporting NASA in the design, test, build, integration and operational capability of Orion. (Government Contracts Report Letter No. 1874, September 6, 2006)

Magnum Medical, Luke and Associates - $3.8 Billion. Magnum Medical Joint Venture, Angleton, TX, and Luke and Associates, Merritt Island, FL, are each being awarded a $1,926,000,000 indefinite delivery/indefinite quantity fixed price contract with economic price adjustment. This action provides for the contractors to recruit, qualify and retain health care workers at 63 Air Force medical treatment facilities in 58 geographic locations. The Air Force can issues delivery orders totaling up to the maximum amount indicated above, although the actual requirements may be less than the amount above. The work will be complete November 2010. The Air Force District Washington, Bolling Air Force Base, Washington D.C., is the contracting activity. (Government Contracts Report Letter No. 1874, September 6, 2006)

Computer Sciences Corporation - $2 Billion. Computer Sciences Corporation , El Segundo, CA, announced that it has been awarded an Information Technology Enterprise Solutions-2 Services contract by the U.S. Army Contracting Agency on behalf of the Army's Program Executive Office for Enterprise Information Systems. The contract has a three-year base period and three two-year options. The potential value of the award is approximately $2 billion, if all options are exercised. Under the ITES-2S agreement, which has been established to be broad and flexible to satisfy the Army's changing information technology requirements, CSC will lead a team of companies to provide a comprehensive range of IT services to support the Army's enterprise infrastructure and infostructure worldwide. Specific services include: business process reengineering; information systems security; information assurance; enterprise design; systems operation, integration, consolidation and maintenance; education and training; program and project management; and network support. (Government Contracts Report Letter No. 1869, August 2, 2006)

Science Applications International - $800 Million. Science Applications International Corporation, San Diego, CA, was awarded a performance-based, indefinite-delivery/indefinite-quantity contract with an $800 million ceiling to perform management, operational, and professional activities to support North American Aerospace Defense Command and U.S. Northern Command. The contract will be carried out by SAIC's Space and Geospatial Intelligence Business Unit and has a base period of one year with four one-year options. Under this contract the SAIC team will continue its current efforts to assist in the development, execution and implementation of plans, programs, procedures, policy, and doctrine. The team will also provide training, analytical assessments and evaluations of complex issues to improve decision-making, management and administration of NORAD and USNORTHCOM processes in support of their respective missions. (Government Contracts Report Letter No. 1873, August 30, 2006)

Northrup Grumman - $686 Million. Northrop Grumman Space & Mission Systems Corp., Fairfax, VA, is being awarded a $218,759,069 cost-plus-fixed-fee, indefinite-delivery/indefinite-quantity contract for technical services in support of the U.S. Joint Forces Command, Joint Warfighting Center. This contract includes a base period of two years, plus two additional two-year options, which if exercised, bring the total estimated value of the contract to $686,108,614. Work is expected to be completed by August 2008. The Fleet and Industrial Supply Center, Norfolk, Contracting Department Philadelphia Division is the contracting activity. (Government Contracts Report Letter No. 1874, September 6, 2006)

Graybar Electric - $660 Million. Graybar Electric Co., Inc., St. Louis, MO, is being awarded a maximum $660,000,000 fixed-price contract with economic price adjustment for maintenance, repair, and operations supplies for south central region, zone 1. The using services are Army, Navy, Air Force, Maine Corps, and federal civilian agencies. The date of performance completion is July 28, 2007. Contracting activity is Defense Supply Center Philadelphia, Philadelphia, PA. (Government Contracts Report Letter No. 1869, August 2, 2006)

Science Applications International, Graybar Electric - $500 Million. Science Applications International Corp., Fairfield, NJ, and Graybar Electric, St. Louis, MO, each received a maximum $250,000,000 fixed price contract with economic price adjustment for maintenance, repair, and operations supplies. Using services are Army, Navy, Air Force, Marine Corps, and Federal civilian agencies. SAIC will perform its contract for the Northwest Region, while Graybar will work in the Alaska Region. The date of performance completion for each contract is August 17, 2007. Contracting activity is Defense Supply Center Philadelphia, Philadelphia, PA. (Government Contracts Report Letter No. 1872, August 23, 2006)

Science Applications International - $320 Million. Science Applications International Corp., Fairfield, NJ, is being awarded a maximum $320,000,000 fixed-price contract with economic price adjustment for maintenance, repair, and operations supplies for south central region, zone 2. The using services are Army, Navy, Air Force, Maine Corps, and federal civilian agencies. The date of performance completion is July 28, 2007. Contracting activity is Defense Supply Center Philadelphia, Philadelphia, PA. (Government Contracts Report Letter No. 1869, August 2, 2006)

Supplycore - $320 Million. Supplycore, Inc., Rockford, IL, is being awarded a maximum $320,000,000 fixed-price contract with economic price adjustment for maintenance, repair, and operations supplies for north central region. The using services are Army, Navy, Air Force, Maine Corps, and federal civilian agencies. Proposals were Web-solicited and six responded. This is an indefinite-delivery/quantity contract exercising option year one. Contract funds will not expire at the end of the current fiscal year. The date of performance completion is July 28, 2007. Contracting activity is Defense Supply Center Philadelphia, Philadelphia, PA. (Government Contracts Report Letter No. 1869, August 2, 2006)

Raytheon - $266 Million. Raytheon Missile Systems, Tucson, AZ, is being awarded a cost-plus-award/incentive fee contract modification for the continued development and delivery of twenty-nine Standard Missile-3 Block IA Missiles to meet U.S. and foreign military sales requirements with Japan in support of the Aegis Ballistic Missile Defense System. The total estimated value of the contract modification is $265,896,658. The work is expected to be complete by December 2009. The Naval Sea Systems Command, Washington, D.C. is the contracting activity. (Government Contracts Report Letter No. 1872, August 23, 2006)

AT&T - $250 Million. AT & T Government Solutions, Inc., Honolulu, HI is being awarded a firm-fixed price, indefinite delivery/indefinite quantity contract with a base period of six years with up to four one-year options and the maximum ceiling amount of $250,000,000. This contract will provide the primary inter- and intra-base telecommunications services for the Department of Defense in the State of Hawaii, providing end-to-end common user switched and dedicated transmission services. Other authorized users may include federal, state, and local agencies. The requirement was solicited and awarded on a full and open competition basis. The solicitation was announced via the Federal Business Opportunities website and two proposals were received. The contractor is a U.S. large business. The Defense Information Technology Contracting Organization - Pacific is the contracting activity. (Government Contracts Report Letter No. 1873, August 30, 2006)

BAE Systems - $193 Million. BAE Systems Land & Armaments, York, PA, was awarded a delivery order amount of $192,628,556 as part of a firm-fixed-price contract for FY06 remanufacture of Bradley vehicles. Work is expected to be completed by December 31, 2008. The Army Tank-Automotive and Armaments Command, Warren, MI, is the contracting activity. (Government Contracts Report Letter No. 1869, August 2, 2006)

General Dynamics - $188 Million. General Dynamics, St. Petersburg, FL, was awarded a delivery order amount of $187,761,382 as part of a firm-fixed-price contract for production of 5.56mm, 7.62mm, and .50 caliber small arms ammunitions. Work is expected to be completed by August 11, 2007. The Army Field Support Command, Rock Island, IL, is the contracting activity. (Government Contracts Report Letter No. 1872, August 23, 2006)

Northrop Grumman Corp. - $136 Million. Northrop Grumman Corp., San Diego, CA, is being awarded a $135,821,763 modification to a previously awarded cost-plus-incentive-award-fee contract for continued development and test of the RQ-8B Fire Scout vertical takeoff unmanned vehicle. Work is expected to be completed in August 2008. The Naval Air Systems Command, Patuxent River, MD, is the contracting activity. (Government Contracts Report Letter No. 1869, August 2, 2006)

Lockheed - $120 Million. Lockheed Martin Corp., Ft. Worth, TX, is being awarded a $119,920,000 firm-fixed price and cost-plus-fixed fee contract modification. This undefinitized contract action increases the current undefinitized contract action amount in order to extend the period of performance for Performance Based Agile Logistics Support F-22A, Lot 6, Contract Line Item Numbers until September 30, 2006. At this time, $89,940,000 has been obligated. This work will complete December 2006. Headquarters Aeronautical Systems Center, Wright-Patterson Air Force Base, OH, is the contracting activity. (Government Contracts Report Letter No. 1872, August 23, 2006)

General Dynamics - $108 Million. The U.S. Army made a $108,000,000 contract award to General Dynamics Land Systems, Sterling Heights, MI, for the production of 155 M1A1 tanks through the Abrams Integrated Management process. AIM is a joint effort to refurbish M1A1 main battle tanks involving the U.S. Army Project Manager for Heavy Brigade Combat Team, the TACOM Life Cycle Management Command, the Anniston Army Depot, Anniston, AL, and General Dynamics Land Systems. Under the AIM program, M1A1 Abrams tanks are completely disassembled and overhauled to a like-new, zero-mile condition. Refurbished tanks incur lower operational and support costs and report higher operational readiness rates. The tanks will be the first M1A1s configured with additional mission-critical technologies to bolster crew situational awareness. This package increases the M1A1 Abrams tank's fighting capability by providing soldiers an electronic graphic of the battlefield with icons for friendly and enemy forces, and increasing the accuracy of the tank commander's .50 caliber machine gun. The M1A1 tanks are slated for delivery to U.S. Army units beginning in July 2007. (Government Contracts Report Letter No. 1872, August 23, 2006)