Government Contracts Update November 2007

November 2007

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.

Hot Topic

Senate Panel Clears Small Business Contracting Bill
by Sarah Borchersen-Keto, CCH News Staff

The Senate Committee on Small Business and Entrepreneurship passed bipartisan legislation November 7, making it easier for small businesses to obtain federal contracts. By a 19-0 vote the committee passed S. 2300, the Small Business Contracting Revitalization Act. The bill improves the oversight of unbundling contracts for small firms, increases enforcement of protections for subcontractors, and expands opportunities for minority, women, and service-disabled entrepreneurs.

Committee chairman Sen. John Kerry, D-Mass., said the bill will "help ensure that the Bush administration identifies opportunities for small businesses to compete for contracts, and gives small businesses that subcontract with a large firm more recourse if they are mistreated." Ranking committee member Sen. Olympia Snowe, R-Maine, said the federal government is not aggressive enough in fulfilling its statutory small business contracting requirements and in assisting small businesses to access federal contracting dollars.

She noted that small businesses are currently eligible for $340 billion in federal contracting dollars, yet receive only $77 billion. S. 2300 "will help ensure that small businesses no longer miss out on billions of dollars in contracting opportunities," Snowe said.

Some of the bill's main provisions would: (1) Reduce contract bundling by improving oversight of bundling regulation compliance by the Small Business Administration (SBA); (2) Prevent misrepresentations in subcontracting by prime contractors by increasing oversight and establishing enforcement mechanisms; (3) Help service-disabled veteran-owned small businesses gain government contract and subcontract opportunities by expanding the authority for sole-source awards; (4) Extend the 8(a) contracting program through 2012. Government Contracts Report Letter No. 1934, November 14, 2007.

Senate Passes Bill Requiring More Competition for Federal Contracts
by Sarah Borchersen-Keto, CCH News Staff

The Senate unanimously approved a bill November 8 that would require more federal contracts to be competitively bid. The legislation would also add transparency to the contracting process, while curtailing waste, fraud and abuse.

The Accountability in Government Contracting Act of 2007, sponsored by Sen. Susan Collins, R-Maine, and Sen. Joe Lieberman, I-Conn., mandates competition for all government task or delivery orders over $100,000. The legislation promotes more informed and effective competition for orders over $5 million by requiring more information in a contract's statement of work. To increase the quality of competitive bids and improve transparency of the federal acquisition process, the bill also mandates post-award debriefings for task or delivery orders valued over $5 million.

"The federal government's prodigious purchasing can create abundant opportunities for waste, fraud, and abuse. Whether the problem is purchases of unusable trailers for hurricane victims, shoddy construction of schools and clinics in Iraq, or abuse of purchase cards by government employees, we must do a better job of protecting taxpayer dollars and delivering better acquisition outcomes," Collins said.

According to the bill's sponsors, the dollar amount of federal contracts has nearly doubled since 2000, but the number of contracts that were awarded following a full and open competition has fallen below 50 percent. Government Contracts Report Letter No. 1935, November 21, 2007.

Legal News

Government Failed to Develop Adequate OCI Mitigation Plan
A contracting officer abused his discretion in awarding a contract for health management services because he failed to develop an appropriate mitigation plan to address the awardee's potential organizational conflict of interest, according to the Court of Federal Claims. The post-award protest arose from a request for quotations for management support services for a health care program. The protester argued the awardee would have inappropriate access to program information stemming from its oversight of government expenditures for purchased care services and its responsibility to update government policy directives and operational procedures. According to the protester, the awardee's business practices and the nature of the specified work created a clear OCI, and the awardee's mitigation plan was inadequate because it would not remedy an "impaired objectivity" conflict. The government contended the CO acted "reasonably" with regard to the OCI because the awardee's employees would not have access to extensive data concerning program requirements. The government maintained the CO identified and mitigated possible conflicts pursuant to regulatory requirements.

Subpart 9.5 of the Federal Acquisition Regulation requires a CO to identify and mitigate actual and potential OCI, including those that pertain to "unequal access to information" and "impaired objectivity." The FAR also requires the CO to exercise "common sense, good judgment, and sound discretion" in deciding whether a significant potential conflict exists and, if it does, the development of an appropriate means for resolving it (FAR 9.505). The CO initially failed to identify a potential OCI, but after the protester filed protests with the Government Accountability Office (see 22 CGEN ¶112,426) the CO found an OCI involving unequal access to information. The CO, however, did not identify a potential "impaired objectivity" conflict. Moreover, the CO did not exercise sound judgment in developing an appropriate OCI mitigation plan as required by FAR 9.505. The court found unacceptable the CO's adoption of the awardee's mitigation proposal, which was essentially voluntary in nature. The awardee's plan had no binding effect at law, and some of the mitigation efforts proposed, including nondisclosure agreements, were possibly anticompetitive. Based on the CO's failure to identify the "unequal access to information" OCI and the government's failure to raise the "impaired objectivity" conflict, the court lacked confidence in the CO's conflict identification and wholesale endorsement of a voluntary mitigation plan.

The court thus concluded the CO abused his discretion in violation of FAR Subpart 9.5 by awarding a task order without developing an enforceable mitigation plan that did not afford the awardee any significant competitive advantages and did not otherwise negatively impact future competition. However, in determining whether to issue equitable relief, the court reserved judgment on whether the CO's actions were arbitrary, capricious, or otherwise unlawful. The court stated it required input from the Federal Trade Commission on the competitive issues central to the "public interest" determination the court must make before ordering injunctive relief. Accordingly, the court requested the FTC to file an amicus curiae brief to advise the court on healthcare competition issues. (Axiom Resource Management, Inc. v. U.S., FedCl, 51 CCF ¶78,829)

Dissenting Opinion Substantially Justified Government's Position
The Civilian Board of Contract Appeals held the government's position in an appeal of a default termination was substantially justified, and denied an application for Equal Access to Justice Act fees, because a dissenting member of a Department of Agriculture Board of Contract Appeals panel had supported the termination with a detailed and reasoned factual and legal analysis. In the underlying appeals, the contractor sought to overturn a default termination and recover damages for breach of a lease associated with the default. After denying the parties' motions for summary judgment, the majority of the AGBCA held the termination was improper and awarded damages for the government's breach (05-2 BCA ¶32,982). The dissenting judge, who would have upheld the default termination at the summary judgment stage, also dissented as to entitlement and damages.

Even though the government did not prevail, the CBCA concluded the government's position was substantially justified throughout the claim process. The AGBCA's summary judgment ruling indicated the government had convinced one panel member that its position on the validity of the default termination was correct, and this judge remained convinced of the correctness of the government's position after the hearing, record development, and briefing. The government's position was substantially justified for the reasons expressed in the extensive dissenting opinions, not simply because one judge dissented. However, the CBCA majority decision also provoked a partial dissent. Judge Pollack contended the prior dissent applied the wrong legal standard in determining whether the termination was appropriate and was not a sufficient legal and factual analysis to "bootstrap" the government's position into a substantially justified position. (Omni Development Corp. v. Dept. of Agriculture, CBCA, 07-2 BCA ¶33,699)

Regulatory News

FAC 2005-21 Includes FAR Part 27 Rewrite and Part 50 Revision
The Civilian Agency Acquisition and Defense Acquisition Regulations Councils have published Federal Acquisition Circular 2005-21. The Circular contains three interim and five final rules amending the Federal Acquisition Regulation. In order of appearance, the rules address: Item I, SAFETY Act: Implementation of DHS Regulations (FAR Case 2006-023, Interim); Item II, Biobased Products Preference Program (FAR Case 2004-032); Item III, FAR Part 27 Rewrite in Plain Language (FAR Case 1999-402); Item IV, Federal Computer Network (FACNET) Architecture (FAR Case 2006- 015); Item V, Exemption of Certain Service Contracts from the Service Contract Act (FAR Case 2001-004, Interim); Item VI, Local Community Recovery Act of 2006 (FAR Case 2006-014, Interim); Item VII, Labor Standards for Contracts Containing Construction Requirements-Contract Pricing Method References (FAR Case 2007-001); and Item VIII, Technical Amendments. All final rules, except the one making technical amendments, carry a December 7, 2007, effective date. The technical amendments and the interim rules are effective November 7, 2007. Comments on the interim rules, identified by their respective FAR case numbers, are due by January 7, 2008. For the text of FAC 2005-21, see ¶70,002.94.

DFARS Rule Waives Specialty Metals Restriction for COTS Items
The Department of Defense (DFARS Case 2007-D013) has finalized a proposed rule (¶70,020.241) amending the Defense Federal Acquisition Regulation Supplement to waive application of 10 USC 2533b for acquisitions of commercially available off-the-shelf items. 10 USC 2533b, which was established by Section 842(a) of the National Defense Authorization Act for Fiscal Year 2007 (PL 109-364), places restrictions on the acquisition of specialty metals not melted or produced in the United States. DoD has published this rule to exercise a statutory exception to 10 USC 2533b for COTS acquisitions in accordance with Section 35 of the Office of Federal Procurement Policy Act (41 USC 431). DoD consulted with the OFPP Administrator both before publication of the proposed rule, and again before issuing this final rule. OFPP concluded 10 USC 2533b falls under the purview of Section 35 of the OFPP Act, and has not found it contrary to the government's best interests to exempt COTS contracts from the requirements of 10 USC 2533b. Accordingly, this rule waives the specialty metals restriction for the acquisition of COTS items by amending DFARS 202.101 and DFARS 225.7002-2, and by adding DFARS 212.570. For the text of the rule, effective November 8, 2007, see ¶70,016.454.

FAR Proposed Rule Implements SmartBUY Program
The Civilian Agency Acquisition Council and Defense Acquisition Regulations Council have issued a proposed rule that would amend the Federal Acquisition Regulation to implement the Governmentwide Enterprise Software Licensing Program. Implementation of the program, which is also known as SmartBUY, is necessary to comply with Office of Management and Budget Memorandum M-04-08, Maximizing Use of SmartBuy and Avoiding Duplication of Agency Activities with the President's 24 E-Gov Initiatives (February 25, 2004). The SmartBUY program is intended to achieve the maximum cost savings and favorable terms and conditions for acquiring software and software maintenance. The rule would amend FAR 7.103, FAR 7.105, FAR 12.212, and FAR 39.101, and would add a new FAR Subpart 8.9 --Acquisition of Commercial Software, consisting of FAR 8.900 - FAR 8.905. The rule impacts contracting officers and other acquisition officials responsible for reviewing the terms, conditions, and prices for the acquisition of commercial software and software maintenance. Comments on the rule must be received by December 31, 2007. For the text of the rule, see ¶70,006.214.

Major Contract Awards

Tinker Support Services - $267.4 Million. Tinker Support Services of Anchorage, AK, is being awarded an indefinite/delivery/ indefinite quantity contract for $267,434,836. This action provides for Tinker Air Force Base Civil Engineering Services. At this time no funds have been obligated. 79 CONS/PKAB, Tinker Air Force Base OK, is the contracting activity (FA8101-08-D-0006). Government Contracts Report Letter No. 1934, November 14, 2007.

Raytheon Co. - $225 Million. Raytheon Co., Tucson, AZ, is being awarded a $225,143,877 firm-fixed-price contract for MK 15 Phalanx Close-In Weapon Systems (CIWS) Block 1B Upgrade and Conversion equipment, U.S. Army Block 1B Land-based Phalanx Weapon System (LPWS) Upgrade and Conversion equipment, U.S Army Block 1B LPWS's and associated spares and support equipment. Phalanx Close-In Weapon System (CIWS) is a fast reaction terminal defense against low and high flying, high-speed maneuvering anti-ship missile threats that have penetrated all other ships' defenses. Phalanx CIWS is currently installed on approximately 187 Navy ships and is in use in 20 foreign navies. The Army is deploying a land-based system known as the Land-based Phalanx Weapon System. This effort includes purchases for the Governments of Portugal (1.23 percent) and Australia (1.09 percent) under the Foreign Military Sales Program. Work will be performed in Louisville, KY (55.7 percent), Burlington, VT (12.4 percent), Palm Bay, FL (8 percent), Andover, MA (4.9 percent), Pittsburg, PA (4.8 percent), Carson, CA (4.1 percent), Tucson, AZ (3.4 percent), Brooklyn, NY (3.4 percent), Bloomington, MN (3.3 percent), and is expected to be completed by November 2010. Contract funds in the amount of $7,255,134 will expire at the end of the current fiscal year. The contract was not competitively procured. The Naval Sea Systems Command, Washington Navy Yard, Washington D.C., is the contracting activity N00024-07-C-5444. Government Contracts Report Letter No. 1934, November 14, 2007.

AmeriQual Group, LLC - $170.9 Million. AmeriQual Group, LLC, Evansville, IN, is being awarded a $170,925,000.00 fixed price with economic price adjustment, indefinite quantity contract for MRE and HDR rations. Using services are Army, Navy, Air Force, Marine Corps, and Federal Civilian Agencies. There were 3 proposals originally solicited with 3 responses. This contract is exercising the second option year. Contract funds will not expire at the end of the current fiscal year. Date of performance completion is December 31, 2008. The contracting activity is Defense Supply Center Philadelphia (DSCP), Philadelphia, PA (SPM3S1-06-D-Z103). Government Contracts Report Letter No. 1933, November 7, 2007.

SOPAKO Inc. - $151.2 Million. SOPAKCO Inc., Mullins, SC, is being awarded a $151,245,000.00 fixed price with economic price adjustment, indefinite quantity contract for MRE and HDR rations. Using services are Army, Navy, Air Force, Marine Corps, and Federal Civilian Agencies. There were 3 proposals originally solicited with 3 responses. This contract is exercising the second option year. Contract funds will not expire at the end of the current fiscal year. Date of performance completion is December 31, 2008. The contracting activity is Defense Supply Center Philadelphia (DSCP), Philadelphia, PA (SPM3S1-06-D-Z104). Government Contracts Report Letter No. 1933, November 7, 2007.

Electric Boat Corp. - $148 Million. Electric Boat Corporation, Groton, CT, is being awarded a $148,030,232 cost-plus-fixed-fee modification (with performance incentives) under previously awarded contract (N00024-05-C-2103) to exercise an option for continuation of engineering efforts associated with their role as lead construction yard for Virginia Class Submarines. The contract provides Lead (Construction) Yard engineering support that will maintain, update and support the Virginia Class design and related drawings and data for each Virginia Class Submarine, including technology insertion, throughout its construction and Post Shakedown Availability period. The contractor will also provide all engineering necessary for direct maintenance and support of Virginia Class ship specifications. Work will be performed in Groton, CT (94 percent); Quonset, RI (5 percent) and Newport, RI (1 percent), and is expected to be completed by September 2008. Contract funds will not expire at the end of the current fiscal year. The Naval Sea Systems Command, Washington Navy Yard, D.C., is the contracting activity. Government Contracts Report Letter No. 1933, November 7, 2007.

Bath Iron Works, Inc. - $141.9 Million. Bath Iron Works, Inc., Bath, Maine, is being awarded a $141,999,995 cost-reimbursement modification to previously awarded contract (N00024-06-C-2303) for DDG 1000 Zumwalt Class Destroyer additional long lead material and pre-production planning to support detail design and construction. DDG 1000 will provide advanced land attack capability in support of the ground campaign and contribute Naval, Joint, or Combined battle-space dominance in littoral operations. Work will be performed in Bath, ME (23 percent); Parsippany, NJ (18 percent); Pittsburgh, PA (12 percent); Sanford, ME (3 percent); Newtown Square, PA (3 percent); Brunswick, GA (2 percent); Paterson, NJ (2 percent); York, PA (2 percent); Baltimore, MD (2 percent); Erie, PA (2 percent); Iron Mountain, MI (2 percent) and various other locations of 1 percent or less each to total 29 percent, and is expected to be completed by January 2008. Contract funds will not expire at the end of the current fiscal year. The Naval Sea Systems Command, Washington Navy Yard, Washington D.C., is the contracting activity. Government Contracts Report Letter No. 1934, November 14, 2007.

The Wornick Co. - $139.3 Million. The Wornick Company, Cincinnati, OH, is being awarded a $139,331,250.00 fixed price with economic price adjustment, indefinite quantity contract for MRE and HDR rations. Using services are Army, Navy, Air Force, Marine Corps, and Federal Civilian Agencies. There were 3 proposals originally solicited with 3 responses. This contract is exercising the second option year. Contract funds will not expire at the end of the current fiscal year. Date of performance completion is December 31, 2008. The contracting activity is Defense Supply Center Philadelphia (DSCP), Philadelphia, PA (SPM3S1-06-D-Z105). Government Contracts Report Letter No. 1933, November 7, 2007.

L-3 Communications - $136.5 Million. L-3 Communications Government Services of Chantilly, VA, is being awarded a indefinite/delivery/indefinite quantity contract for $136,528,851. This action provides for Academic, Training and Exercise Contract Support (ATECS). The requirement is for the contractor to furnish qualified personnel to conduct operational level, and in some cases tactical level command and control instruction/academics, training, curriculum development, exercise planning and execution, Operational Command Training Program, and experimentation support to the 505th Command and Control Wing in order to build the predominant air and space command and control capability for joint and combined warfighters through training, testing, exercising, and experimentation under the direction of the United States Air Force Warfare Center, Nellis AFB, NV. At this time $25,498,654 has been obligated. ACC/AMIC OL-B, Hurlburt Field FL, is the contracting activity (FA4890-08-D-0001, Task order 0001). Government Contracts Report Letter No. 1935, November 21, 2007.

Lockheed Martin Corp. - $134 Million. Lockheed Martin Corp., Lockheed Martin Aeronautics Co., Ft. Worth, TX, is being awarded a $134,188,724 modification to a previously awarded cost-plus-award-fee contract (N00019-02-C-3002). This modification is to continue the design, development, verification, and test of Joint Strike Fighter (JSF) Partner Version Air System development under the JSF Delta System Development and Demonstration Effort (Delta SDD). The purpose of the Delta SDD is to develop a version of the JSF Air System that meets U.S. National Disclosure Policy, but remains common to the U.S. Air System, where possible. Work will be performed in Fort Worth, TX (68 percent), Orlando, FL (24 percent), and El Segundo, CA (8 percent), and is expected to be completed in October 2013. Contract funds will not expire at the end of the current fiscal year. The Naval Air Systems Command, Patuxent River, MD, is the contracting activity. Government Contracts Report Letter No. 1935, November 21, 2007.