Federal Construction Contracting Blog : Federal Construction Contracting Law Firm : Cohen Seglias Pallas Greenhall & Furman PC : Construction Law, Dredging and Claims

By: Edward T. DeLisle and Maria L. Panichelli

We’ve all heard about the “glass ceiling” experienced by women in the workplace. The term “glass ceiling” first appeared in an article published by the Wall Street Journal in 1986 and was used to describe the invisible barriers that women faced as they tried to climb the corporate ladder. While things seem to be better today than they once were, I think many would agree that barriers (in some cases substantial barriers) still exist. Certainly, the Small Business Administration agrees.

In October of 2010, after many years of delay, the SBA issued a Final Rule allowing for the implementation of its Women-Owned Small Business Program. The program was gradually introduced and, as originally constituted, was stricken with statutory caps that inhibited its intended effect. Ironically enough, for both Women-Owned Small Businesses (WOSBs) and Economically Disadvantaged Women-Owned Small Businesses (EDWOSBs) set-aside contracts were subject to “ceilings.” For manufacturing contracts, the ceiling was $6.5 million; for any other contract the ceiling was $4 million. Thanks to the National Defense Authorization Act of 2013, however, these ceilings are about to disappear.

On Tuesday, May 7, 2013, in accordance with directives set forth in the NDAA, the SBA issued an Interim Final Rule, removing the statutory cap on WOSB and EDWOSB set-aside contracts. As a result of this change, government agencies will now be able to set-aside contracts for WOSBs and EDWOSBs at any dollar level, providing WOSBs and EDWOSBs with access to much larger federal contracts. Hopefully, this change will also allow the federal government to better meet its statutory contracting goals for women-owned small businesses, which have been consistently missed.

Either way, the shattering of the WOSB “ceilings” promises to greatly increase the number of large-dollar WOSB and EDWOSB set-aside contracts. If you are a WOSB or EDWOSB, you will want to make sure that you are properly registered as soon as possible so that you can take advantage of these opportunities. We’ve posted the requirements in previous articles. For additional information on the SBA’s Women-Owned Small Business Program go to www.sba.gov/wosb.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Maria L. Panichelli is an Associate in the firm’s Federal Practice Group.

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By Edward T. DeLisle and Maria Panichelli

Back in February, we provided readers with an overview of a case that we litigated at the end of last year, Miles Construction, LLC v. United States, No. 12-597C (Feb. 14, 2013). The major focal point of the decision was the court’s ruling that “a standard right of first refusal is a ‘normal commercial practice,’” which does not hinder an SDVOSB’s ability to comply with the VA’s “unconditional ownership” requirement. Before Miles, it was the VA’s position that a right of first refusal in an SDVOSB operating agreement prevented a veteran owner from “unconditionally owning” his or her company, rendering the company ineligible for verified status. So if, for example, you were a service-disabled veteran, who owned 51% of your company, but had in your operating agreement a provision that you were required to offer your minority shareholders the right to buy your shares at or above a price offered by a third party, you could not be verified by the VA. Sounds a little silly, right? Well, as set forth in Miles, the court thought it was silly as well.

This was a major victory for SDVOSBs, which ushered in a change in VA policy on transfer restrictions, generally. The VA has removed information from its website indicating that rights of first refusal, and other transfer restrictions, are impermissible barriers to verification. The VA has also publically acknowledged its about face on the issue. (See Testimony of Mr. Tom Leney, Executive Director of Veterans and Small Business Programs, March 19, 2013.) Despite all of the publicity on transfer restrictions, however, there are other aspects of the Miles decision that are just as disserving of discussion. The importance of due process is one of those issues.

In Miles, the Plaintiff, Miles Construction LLC, was a SDVOSB that had been previously verified by the VA. A few months after being verified, Miles submitted a bid on a VA solicitation set-aside for SDVOSB concerns. Miles was awarded the contract and a disappointed bidder filed an agency protest, challenging Miles’ eligibility. Specifically, the protestor alleged that Miles’ service-disabled veteran owner did not “unconditionally control” the company, as required by 38 C.F.R. § 74.4. Miles was notified of the protest and asked to “respond directly to the allegations made in the status protest.” Miles promptly responded and addressed each of the allegations. The VA accepted Miles’ position regarding each of the allegations lodged by the protesting party, yet sustained the protest anyway. Why? Not because of issues relating to “unconditional control,” but, rather, based upon an alleged failure of the service-disabled veteran to exhibit “unconditional ownership” over Miles, something never brought to Miles’ attention. Miles lost both the contract and its verified status based upon this decision.

Miles, of course, protested the decision. On the issue of process, Miles’ position was twofold. First, it argued that the VA violated 48 C.F.R. § 819.307 in rendering its decision. Under that regulation, the VA, through its Office of Small and Disadvantaged Business Utilization (OSDBU) “shall decide protests on service-disabled veteran-owned small business status whether raised by the contracting officer or an offeror.”  It goes on to state that “[a]ll protests must be in writing and must state all specific grounds for the protest.” Miles’ interpretation of this regulation was that either a contracting officer or a disappointed offeror could advance an eligibility protest and that protest would have to be specific and in writing. The point is to provide the VA with something substantive to consider, which can then be read, understood and responded to by the person being protested. While the court deferred to OSDBU on the ability to look beyond information contained in a protest (despite the wording of the regulation), it had a problem with not providing the party being protested with notice and an opportunity to be heard.

Citing to the Administrative Procedures Act, the court stated that where an agency performs an investigatory function, as OSDBU did here, an interested party (like Miles) must be given notice of what’s happening such that he or she is permitted to meaningfully participate in the process. That did not happen. Miles was not given an opportunity to address the “unconditional ownership” issues that led to its immediate dismissal from the SDVOSB program. Simply put, you cannot do that. It’s a procedural due process problem, which Miles argued as part of its protest. You cannot issue what amounts to a death sentence without first allowing the accused a chance to defend herself. To that end, the court stated that “an interpretation of 48 C.F.R. § 819.307(c) that does not allow this basic procedural due process is plainly erroneous and cannot be upheld.”

Going forward, this ruling should mean less surprise and more process from the VA. This is a welcome change and another positive, yet less publicized, aspect of the Miles decision.

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By: Edward T. DeLisle & Maria L. Panichelli

Next week, the Small Business Administration (“SBA”) is giving SDVOSBs a rare opportunity to voice their concerns about government small business programs -- publicly, and directly to the SBA itself.

Yes, you read that correctly. The SBA recently announced that it will host a meeting of the Interagency Task Force on Veterans Small Business Development (“the Task Force”). The Task Force has been charged with various responsibilities in connection with SDVOSB programs. Its most recent focus has been the coordination of administrative and regulatory activities, and the development of proposals, related to several focus areas: (1) access to training, counseling and capital; (2) effective federal contracting verification; and (3) improved federal support. The upcoming meeting is meant to address not only these topics, but also various issues relating to agency efforts to improve business development opportunities for SDVOSBs. Also on the agenda: A discussion about ways in which the government can better meet its small business contracting goals.

The SBA has stated that the meeting will be open to the public, and that time will be set aside for public comment and presentations. This meeting will give service-disabled veteran small business owners a chance to speak out publicly about issues of concern and, based upon our experience, there is plenty to talk about.

The meeting will be held on May 10, 2013, starting at 9 a.m. and running through noon. The meeting will be held at the SBA’s Washington, D.C. District Office, located at 740 15th St., NW, Suite 300. Those planning to attend should provide advance notice by emailing vetstaskforce@sba.gov.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Maria L. Panichelli is an Associate in the firm’s Federal Practice Group.

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By: Edward T. DeLisle & Maria L. Panichelli

It’s not all that surprising when contactors question the Department of Veterans Affairs’ authority, especially those who are denied SDVOSB verification.  It’s a little surprising, however, when members of Congress do it.  Late last month, two congressmen explicitly challenged the VA’s management structure, which could have an impact on how the verification process operates in the future.
 

On March 28, 2013, Reps. Richard Hanna (R-N.Y.) and Mike Coffman (R-Colo.) penned a letter to VA Secretary Eric Shinseki, arguing that the VA had violated the Small Business Act by allowing the director of the department's Office of Small and Disadvantaged Business Utilization (OSDBU), Tom Leney, to also serve as director of the VA’s Center for Veteran’s Affairs (“CVE”).  In theory, the CVE and the OSDBU are meant to carry out very different functions within the VA.  The CVE is charged with the verification of SDVOSB entities – a responsibility delegated to the CVE by the Secretary of the VA under 38 U.S.C. 8127.  In that role it is supposed to serve as an “auditor” for the agency; its job is to police the verification process.  The OSDBU, on the other hand, is meant to serve as an advocate for SDVOSB entities, facilitating their participation in the program.
 

In their letter, the Congressmen explained that Section 15(k) of the Small Business Act, which created the position of OSDBU for every federal agency, specifically requires that the director of the OSDBU “carry out exclusively the duties enumerated in this Act, and shall, while the Director, not hold any other title, position, or responsibility, except as necessary to carry out responsibilities under [Section 15].”  Given this definition, the Congressmen opined that Mr. Leney’s service as both the director of the OSBDU and head of the CVE presented a problem.  As they coined it, the dual role constitutes an “inherent conflict,” given “the advocacy role assigned to the OSDBU and the auditing function now associated with CVE."
 

This is not the first time this issue has been raised.  On March 19, 2013, Mr. Leney was questioned about his dual role during a joint subcommittee meeting.  At that hearing, Mr. Leney testified that he did not feel that he was in a position of conflict.  His explanation: “I personally do not have any issue with a conflict of interest because we are helping vets."  Apparently, members of the legislature were not convinced.  Congressmen Hanna (the chairman of the Small Business Committee's Contracting and Workforce Subcommittee) and Coffman (the chairman of the Veterans' Affairs Committee's Oversight and Investigations Subcommittee) were certainly not swayed.  In their subsequent letter, they specifically directed VA Secretary Shinseki to document how the department intends to achieve compliance with the Small Business Act.  Implicit in such a direction, of course, is the idea that the current structure is not compliant and, therefore, illegal.
 

To date, VA officials have not commented on the letter, but it is generally assumed that the VA will have to formally respond at some point soon.
 

The VA does appear to have a problem here and the problem is not going away.  When two subcommittee chairmen send a letter to follow up on an issue raised during hearing, they are expecting an answer.  Whatever the response, the real issue for SDVOSBs, and prospective SDVOSBs, is what does it all mean for them?  I hope it means that the VA uses this as an opportunity to address some of the administrative issues at CVE that have generated so much frustration amongst veterans.  While most veterans understand and appreciate the need to “police” the verification system, I have heard way too many stories from veterans who feel victimized by that system.  We will keep our eye on this one as it could result in a real shake-up at the VA.      

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Maria L. Panichelli is an Associate in the firm’s Federal Practice Group.

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By: Edward T. DeLisle & Robert Ruggieri

Last week the U.S. Supreme Court announced that it will review an important Circuit Court case, which focuses on the enforceability of forum selection clauses.  These contract clauses identify where parties must litigate claims in the event of a dispute.  Contractors, especially federal contractors who perform work for the Government across the country and throughout the world, should, and most often do, include these clauses in their subcontract agreements. 

Forum selection clauses can give a prime contractor a “home court” advantage if litigation should become necessary.  Contractors, when forced to litigate, generally prefer to litigate where they are primarily situated for a variety of reasons, almost all of which pertain to cost.  By litigating in a court near its home base, a prime contractor can likely save on travel costs for key personnel, have its case tried in a court familiar to its legal counsel and make an adversary come to it, escalating the costs incurred for that company.  It’s a huge advantage.  Further, for companies that conduct business over a broad geographic area, forum selection clauses provide more certainty.  It allows them to anticipate costs better by avoiding litigation in multiple venues.      

As evidenced by a recent decision of the U.S. Court of Appeals for the Fifth Circuit, however, forum selection clauses may not always be as iron-clad as they appear, and in some circumstances, may be ignored entirely.  In In re: Atlantic Marine Construction Company, Inc., despite clear language in a subcontract that identified a specific federal court in Virginia to resolve disputes, the Fifth Circuit ruled that a plaintiff subcontractor could file suit in Texas, where the project and witnesses are located, as the forum selection clause represented but one factor to consider when determining whether the contractually specified forum could be enforced.  This decision follows decisions in several other Circuit Courts, but remains the minority position among the Circuits.  The majority of the U.S. Circuit Courts will enforce forum selection clauses, unless there is fraud or the chosen forum is unreasonable.  The U.S. Supreme Court’s review of the Atlantic Marine decision will likely resolve the current split among the Circuits.

The Fifth Circuit did, however, suggest ways in which a contractor could draft a forum selection clause to improve its likelihood of being enforced, including identifying only specific state courts or arbitration tribunals, as opposed to federal courts, as appropriate forums.  The wisdom of the Fifth Circuit’s decision will be scrutinized by the Supreme Court, which will hopefully provide some clarity to this increasingly cloudy issue.   

As you can imagine, forum selection clauses, and the ability to enforce them, have important legal and business consequences.  Contractors that have a national and/or international platform should include well thought-out and effective forum selection clauses in their subcontracts to give themselves the best chance of securing that home court advantage.  You should certainly consult with a legal professional on how best to achieve this result, especially considering Atlantic Marine.  We will keep you updated on this interesting and important case.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Robert Ruggieri is a Senior Associate in the firm's Federal Practice Group. 

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By: Michael H. Payne

The question of whether to submit a Request for an Equitable Adjustment, commonly referred to as an “REA,” or a claim, is one that clients ask on a frequent basis. It is not always an easy question to answer and our advice depends upon the history of the dispute, and the nature of the relationship with the Contracting Officer and his, or her, representatives. At the outset, however, it is necessary to clear up the confusion between the terms “REA” and “Claim.”

A claim is defined in FAR § 2.101 as “a written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to the contract. However, a written demand or written assertion by the contractor seeking the payment of money exceeding $100,000 is not a claim under the Contract Disputes Act of 1978 until certified as required by the Act.” Although the term “equitable adjustment” appears in the FAR in 111 places, and the term “request for equitable adjustment” appears in 11 places, there is no official definition, in the FAR or anywhere else, of the terms “Request for Equitable Adjustment” or “REA.” Nevertheless, an REA is commonly understood to be a request for compensation (time, money, or both) that falls short of a claim in terms of its procedural requirements.

A “Claim” must be certified pursuant to FAR § 33.207(c) when the claim amount exceeds $100,000, and it must be submitted to the Contracting Officer in a manner that clearly provides the factual, technical, and legal basis for an equitable adjustment to the contract. Whether the claim exceeds $100,000 or not, the best practice is to identify the request as a claim under the Contract Disputes Act of 1978, 41 U.S.C. 601-613, together with a request for a Contracting Officer’s Decision. Those procedural steps will assure that the clock starts running on the 60 day time limit for the issuance of a decision (or longer under some circumstances), and it further assures that interest starts to run from the date the claim was submitted. An REA does not require a certification under the Contract Disputes Act, but REAs submitted to Department of Defense agencies require the certification found in DFARS 252.243-7002.

There are a number of clauses that allow an equitable adjustment to the contract if the government is responsible for additional costs, or time, and the most significant clauses are: Variation in Estimated Quantity, FAR 52.211-18, Differing Site Conditions, FAR 52.236-2, Suspension of Work, FAR 52.242-14, Changes – Fixed-Price, FAR 52.243-1, and Termination for Convenience, FAR 52.249-2. In general terms, an equitable adjustment means that the contractor is entitled to his actual costs, plus reasonable profit (except for suspensions), overhead, and bond. It is also important to note that the additional costs must be allowable, allocable, and reasonable.

With that brief background, there are some practical considerations about whether to file an REA or a claim. If the contractor has a good working relationship with the agency, and particularly with the government personnel assigned to the project at hand, an REA is usually the best way to begin. This is particularly true when the government has indicated flexibility on the issue and a willingness to reach an amicable resolution. On the other hand, if there is animosity, or a clear indication in prior discussions and correspondence, that the government does not believe that the contractor is entitled to an equitable adjustment, it is best to file a claim. Unlike an REA, a claim starts the clock ticking on the time when the Contacting Officer must issue a decision (there is no time limit on an REA), and interest begins to run. It should be noted, however, that in cases where there is doubt, there is no harm in starting out with an REA. If progress is not made within a reasonable time, an REA can easily be converted to a claim under the Contract Disputes Act.

Michael H. Payne is the Chairman of the firm's Federal Practice Group and, together with other experienced members of the group, frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues, and dispute resolution.

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By: Edward T. DeLisle & Maria L. Panichelli

Our last blog article focused on the ability of an SDVOSB to control his company remotely thanks to the advancements of technology. Well, technology can be both a blessing and a curse. It can allow you to work from pretty much anywhere, but, as we all know, there are certain places where you should simply avoid using the technology available to you, such as when you are behind the wheel. The hazards of texting while driving has become a major problem and, as a result, it's been rendered illegal in many states. Based upon recent changes to the FAR, now the federal government is getting into the act.

Pursuant to FAR Subpart 23.11 (incorporated into every government contract through clause 52.223-18) a government contractor should adopt and enforce a policy banning employees from texting whenever an employee is: (1) driving a vehicle owned or rented by the company; (2) driving a vehicle owned by the government; or (3) driving a privately owned vehicle when performing any work on behalf of the government. Moreover, contractors are required to “flow down” this anti-texting clause to all of its subcontractors, if the value of the subcontract exceeds the “micro-purchase threshold” (currently $3,000).

More importantly, 52.223-18 requires federal contractors to “conduct initiatives” to educate employees about the dangers of texting while driving; these initiatives should be “commensurate with the size of the business.” If you are a large government contractor, this likely means that the government will expect some sort of training in addition to a written policy or employee handout covering this topic. If you are conducting periodic ethics training (and you should be), you can likely incorporate any necessary training on anti-texting as part of those sessions. If you do not conduct periodic ethics, and other government contracting, training to refresh yourself regarding what the government requires of its contractors, you should certainly consider doing so. If you have any questions, please feel free to contact us.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Maria L. Panichelli is an Associate in the firm’s Federal Practice Group.

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By: Edward T. DeLisle & Maria L. Panichelli

In today’s world, it is not at all uncommon for employees, or even owners of companies, to “telecommute” or “work remotely” from time to time. It's one of the many great things that technological advancement has provided. In fact, many say that it's too easy to stay connected to the office, making it impossible ever really get away. As I walk down Market Street in Philadelphia every day, I see person after person glued to their phone, checking messages and responding to email incessantly (present company included). In fact, I'm on a flight to Phoenix at this very moment writing this article, which I will email to my assistant and have posted for all of you to read. It's incredibly easy to work from anywhere at any time. Until recently, however, the Veterans Administration did not subscribe to this theory. It interpreted its regulations to mean that a service-disabled veteran could not manage his or her business remotely. A few weeks ago, the Court of Federal Claims issued an opinion that changed all that. KWV, Inc. v. United States, No. 12-882C (2013) should provide much more flexibility to service-disabled veterans in our ever-changing world.

KWV involved a Rhode-Island based service-disabled veteran-owned business (“SDVOSB”) that was owned and managed by a Korean War veteran with more than thirty years of construction experience. KWV was awarded a contract set-aside for SDVOSBs by the VA, and drew an agency protest from a disgruntled competitor, Alares LLC (“Alares”). Alares challenged KWV’s SDVOSB status, arguing that the service-disabled veteran did not actually “control” the company within the meaning of 38 C.F.R. § 74.4 because he lived in Florida for part of the year. Alares claimed that the veteran's sons, both of whom worked for the company in Rhode Island, actually controlled the company.

The VA's Office of Small and Disadvantaged Business Utilization (“OSDBU”) agreed with Alares; it found that, because the service-disabled veteran resided in Florida for a portion of the year, he could not maintain sufficient control over the day-to-day management of KWV. The OSDBU therefore held that KWV was ineligible for the contract, and revoked KWV’s SDVOSB status, rendering it unable to bid on future SDVOSB set-aside contracts issued by the VA. KWV then appealed this decision to the United States Court of Federal Claims, seeking injunctive relief, and got it.

The Court found that the service-disabled veteran's decision to live in Florida for part of the year did not preclude him from “controlling” KWV within the meaning of 38 C.F.R. § 74.4. Judge Lettow (the same judge that presided over the Miles case, a case that we won on behalf of an SDVOSB, and wrote about last month) stressed that the veteran “employs various electronic means to keep track of the day-to-day business of KWV," which was revealed during the proceeding. The court concluded that this was an acceptable means of controlling KWV's operations, per the requirements of 38 C.F.R. § 74.4.

Based upon this finding, the Court issued a preliminary injunction, setting aside the VA's decision to sustain the protest. The Court also ordered the VA to restore KWV’s SDVOSB eligibility.

This case represents a very important development for SDVOSB owners. The VA must now recognize that “control” under 38 C.F.R. § 74.4 is not dependent upon an owner’s physical presence at an office or site. Rather, service-disabled veterans can remotely manage the day-to-day affairs of their SDVOSBs, provided that they fulfill the other prerequisites regarding “control.” This is great news for SDVOSB owners, who, like many of us, must manage our affairs far from afar sometimes...even at 37,000 feet. 

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Maria L. Panichelli is an Associate in the firm’s Federal Practice Group.

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By: Edward T. DeLisle & Maria L. Panichelli

The Federal Acquisition Regulatory Council (“FAR Council”) is expected to finalize as many as nine regulations in the upcoming year. One of the most interesting of the proposed rules would require prime contractors to accelerate payments to small business contractors.

FAR council issued notice of this proposed rule on December 19, 2012. The proposed rule is the latest step toward implementing policies put in motion by the July 2012 “M-12-16” memo, issued by Jeff Zients, the acting director of the Office of Management and Budget (“OMB”). In that memo, OMB asked agency heads to accelerate payments to small business contractors, by, inter alia, encouraging prime contractors to promptly pay their small-business subcontractors. Following issuance of the M-12-16 memo, several agencies issued directives instructing their Contracting Officers to begin inserting a new clause into all contracts – a clause which requires prime contractors, upon receipt of accelerated payments from the government, to pay small business subcontractors on an accelerated timetable to the maximum extent practicable.

The proposed rule would compel ALL agencies to include this new prompt-payment language into any new solicitations and resultant contracts. In its current form, the proposed clause (as set forth in the notice) provides no specific guidance concerning the definition of “accelerated.”

The sad fact of the matter is that the proposed rule does not provide subcontractors any new rights under the Prompt Payment Act, nor does it affect the application of the interest provisions of the Prompt Payment Act. Under current Prompt Payment Act provisions, interest begins to run when an agency does not pay a contractor an amount due “by the required payment date.” This new accelerated payment policy will not change the “required payment date” for purposes of calculating the interest penalty. Nonetheless, if it goes into effect, the proposed rule would at least provide small businesses with the ability to demand accelerated payment if the appropriate circumstances present themselves.

Comments on the proposed rule were required by February 19, 2013. Stay tuned for updates.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Maria L. Panichelli is an Associate in the firm’s Federal Practice Group. 

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