Federal Construction Contracting Blog

Federal Construction Contracting Blog

Legal Information and Resources for Federal Construction Contractors

New Anti-Trafficking Rule Presents Significant Challenges for Government Contractors

Posted in Contractor Information Sources, Protection of Contractor Rights

Effective today, a new Anti-Trafficking rule will substantially change and increase federal contractors’ compliance and certification requirements.  The Anti-Trafficking rule requires that all federal contractors take certain actions related to combating human trafficking and slavery in their supply and contracting chains.  Human trafficking has been a high-profile issue in government contracting in recent years, drawing attention from Congress, President Obama, and groups such as the American Civil Liberties Union.  It is estimated that forced labor in the private economy generates $150 billion in illegal profits each year.

With today’s far-reaching supply chains, and increasing numbers of businesses obtaining their goods from “high risk” countries, the importance and impact of human trafficking laws will only continue to grow.

The new rule amends the FAR to codify trafficking-related prohibitions involving federal contracts, including new compliance and certification requirements, and puts contractors on the hook for disclosing violations to the government.  The new rule requires contractors to:

  • Develop and maintain a detailed compliance plan for contracts for supplies (other than commercially available off the shelf items) acquired outside the U.S., or services to be performed outside the U.S., with an estimated value exceeding $500,000;
  • Ensure that recruiters adhere to local labor laws;
  • Cooperate with, and provide access to, enforcement agencies investigating compliance with anti-trafficking and forced labor laws;
  • Ensure that workers are not being charged recruitment fees, which are common in many foreign countries;
  • Notify agents and employees of the anti-trafficking policy;
  • Provide return transportation for qualified workers;
  • Disclose (or self-report) that an employee, subcontractor, or subcontractor’s employee is violating the rule; and
  • Annually certify that, (1) it has implemented a compliance plan, and (2) after a due diligence inquiry, there are no violations by the prime contractor, its subcontractors or agents, or, if such a violation exists, it has taken remedial action.

The new rule also prohibits contractors from confiscating passports or other immigration documents, using deceptive recruitment practices, and providing housing that fails to meet local housing and safety standards. Tag or word cloud human trafficking awareness day related

These changes will have an immediate and significant impact on federal contractors.  Most significant is the thorny position contractors are placed in by having to perform due diligence on their subcontractors (at every tier), and then continuing to monitor them for violations.  This is particularly difficult, as trafficking activity is notoriously hard to detect.  Adding to concerns is that ambiguity in the rule makes adherence more of an art than a science.  Particularly, regarding compliance plans, the plan must be “appropriate” for the “size and complexity of the contract and to the nature and scope of the activities performed, including the risk that the contract will involve services or supplies susceptible to trafficking.”  However, the rule provides contractors with little guidance as to what an “appropriate” plan should look like.  Further, what is considered “appropriate” may vary widely across various federal agencies.

Finally, and obviously, all of this will come at an additional cost to contractors, many of whom will now be forced to play catch-up to ensure they are in compliance, or risk severe penalties including debarment, as well as criminal and civil sanctions.  Given the uncertainties and costs of compliance, and severe penalties for non-compliance, it is imperative that government contractors fully appreciate and understand the import of this new rule and its requirements, and take appropriate steps to ensure compliance.

In a related effort to strengthen human trafficking protections, the House Foreign Affairs Committee approved a bill last Friday that would provide for a definition of the prohibited recruitment fees.  Under the Trafficking Prevention in Foreign Affairs Contracting Act, H.R. 400, the secretary of state and the administrator of the U.S. Agency for International Development would be required to submit reports defining what constitutes a recruitment fee in order to promote better compliance with federal anti-trafficking law.

Please let us know if you have any questions or concerns.

Edward T. DeLisle is Co-Chair of the Federal Contracting Practice Group. Ed frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues and dispute resolution.

Robert G. Ruggieri is a Senior Associate in the firm’s Federal Contracting Practice Group.

Guilty By Affiliation

Posted in Contractor Information Sources, Protection of Contractor Rights, Small Business Contracting, Webinar

Vector podcast concept in flat styleRecently, Maria Panichelli was interviewed by Raymond Thibodeaux from AOC Key Solutions for a podcast entitled “Guilty by Affiliation.”  During this podcast, Maria and Ray spoke about a variety of affiliation-related issues. Topics covered included the various types of affiliation, the consequences of being deemed “affiliated” with another business, and, perhaps most importantly, how to avoid a finding of “affiliation.”  James McCarthy was also interviewed. Catch the whole podcast here.

Maria L. Panichelli is an Associate in the firm’s Federal Contracting Practice Group. Her practice includes a wide variety of federal contracting and construction matters, as well as all aspects of small business procurement.

The 4th Circuit Expands Liability Under the False Claims Act

Posted in Contractor Information Sources, Federal Procurement Policy, Protection of Contractor Rights

On January 8, 2015 the U.S. Court of Appeals for the Fourth Circuit issued a decision in United States v. Triple Canopy, which broadened the reach of the False Claims Act (FCA) by embracing the theory of implied certification. While it is too early to speculate about the impact of the decision, it certainly could result in a rise in whistle blower and government initiated actions under the FCA.

Money Exchange

The case stems from a security services contract at Al Asad Airbase in Iraq, which was awarded to Triple Canopy in 2009. As a part of the contract, Triple Canopy was required to provide security personnel who possessed specific firearms training and who were able to pass a U.S. Army qualifications course with a minimum score. Scorecards indicating that personnel passed the qualifications course were to be maintained in each employee’s personnel file.

Triple Canopy hired 332 Ugandan guards to work at the Airbase. The guards’ personnel files indicated that they met the training requirements; however, once they arrived on site and were retested, it was discovered that they were unable to properly perform. To overcome this, Triple Canopy falsified scorecard sheets indicating that its personnel were, in fact, qualified.

For the 12 month contract period Triple Canopy presented monthly invoices to the government and received payments totaling over 4 million dollars. Sometime later, a former employee filed a qui tam action in the Eastern District of Virginia alleging that the FCA had been violated. The government intervened alleging that Triple Canopy knowingly presented false claims to the government. Specifically, the government alleged “that Triple Canopy knew the guards did not satisfy [the contract’s] marksmanship requirement but nonetheless billed the government the full price for each and every one of its unqualified guards and falsified documents in its files to show that the unqualified guards each qualified as a Marksman on the U.S. Army Qualification course.”

Triple Canopy filed a motion to dismiss. The basis for this motion was the government’s failure to sufficiently plead that Triple Canopy submitted a demand for payment that contained a false statement. The motion went on to state that the government failed to prove that a false record was created by Triple Canopy, which the government relied upon in paying Triple Canopy. The Court agreed. In its opinion, the Court asserted that the government did not plead “that Triple Canopy submitted a demand for payment that contained an objectively false statement.” In other words, because the actual claim for payment did not contain a false statement, there was no violation of the FCA. Further, the Court held that the “Government … failed to allege that the [Contracting Officer’s Representative] ever reviewed the scorecards,” demonstrating that the government did not rely upon a false record because it did not examine the scorecards before it made payment. The United States (along with the former employee) appealed to the Fourth Circuit.

On appeal the Fourth Circuit reversed the District Court’s ruling. The Court held that the “Government pleads a false statement when it alleges that the contractor, with the requisite scienter, made a request for payment under a contract and withheld information about its noncompliance with material contractual requirements. The pertinent inquiry is whether, through the act of submitting a claim, a payee knowingly and falsely implied that it was entitled to payment.” The Fourth Circuit further found that, although Triple Canopy had not submitted certifications that were false on their face, the government plead sufficient evidence to sustain a FCA claim under a theory of implied certification.

In making this finding, the Court acknowledged the broad purpose of the FCA by stating that “claims can be false when a party impliedly certifies compliance with a material contractual condition [which] gives effect to Congress’ expressly stated purpose that the FCA should reach all fraudulent attempts to cause the Government to pay out sums of money or to deliver property or service.” Here, the material contractual condition was the guards’ qualifications, which Triple Canopy falsified. As the Court explained “common sense strongly suggests that the government’s decision to pay a contractor for providing base security in an active combat zone would be influenced by knowledge that the guards could not, for lack of a better term, shoot straight….[and further] if Triple Canopy believed that the marksmanship requirement was immaterial to the government’s decision to pay, it was unlikely to orchestrate a scheme to falsify records on multiple occasions.” Essentially, the Fourth Circuit found that the claim itself did not have to be false as long as the underlying information that formed the basis of the claim was material and false.

Prior to this ruling, it was difficult to bring a claim under the FCA under circumstances such as these because it was generally only permissible where there was fraud found in an actual certification for payment. Based upon this decision, a FCA claim can be sustained as long as the material upon which payment is based is false. This is yet another example of the expansive nature of the FCA. If you are a government contractor beware of its implications and if you have any questions, call a legal professional.

Edward T. DeLisle is Co-Chair of the Federal Contracting Practice Group. Ed frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues and dispute resolution.

Amy Kirby is an Associate in the firm’s Federal Contracting Practice Group.

SBA Proposes Sweeping Changes to Small Business Affiliation Rules

Posted in Small Business Contracting

The SBA is on a roll!  It seems that ringing in the new year has invigorated the agency, prompting it to act on the various outstanding directives set forth in the National Defense Authorization Act for Fiscal Year 2013 (“NDAA”).

Game_Changer

Last Thursday, the agency issued its long-awaited proposed rule on the expansion of the Mentor-Protégé Program.  There were also proposed changes impacting the 8(a), HUBZone, and other small business programs. We gave you a sneak preview of that rule here, the day before it was issued.  In addition to those proposed mentor-protégé changes, the SBA also recently rolled out a second proposed rule ,which included various changes to the small business regulations. Over the next several weeks, we will provide you with our take on various aspects of these two proposed rules. For purposes of this article, though, we’re going to focus on the changes to the affiliation regulations set forth in the December 29, 2014 proposed rule.  These proposed changes would fundamentally alter the SBA’s analysis regarding the “ostensible subcontractor” rule, economic dependence, and “identify of interest” affiliation.

The rule proposes that a small business would be exempt from ostensible subcontractor affiliation where it subcontracts with a “similarly situated entity.”  In fact, the rule proposes a complete overhaul of contractor performance requirements set forth in 13 C.F.R § 125.6.  Rather than mandate the percentage of work a prime must perform, the revised 125.6(a) limits how much work a prime can subcontract to other contractors, a subtle but important distinction.  Subcontracts issued to “similarly situated entities” are not counted toward the subcontracting limit. For example, under the proposed rule, an 8(a) contractor performing a general construction contract cannot subcontract more than 85% of the contract work to non-8(a) entities.  Similarly, a SDVOSB prime contractor cannot subcontract more than 75% of a specialty construction contract to non-SDVOSB concerns. In these examples, the required 15% or 25% of the work would have to be performed by either the prime itself, or by the prime in combination with a “similarly situated entity” – i.e. a concern that is eligible for the same small business program as the prime.  Strangely enough, the language of the revised regulation does not require any of the work to be self-performed by the prime, so long as the requisite percentage is performed by a combination of the prime and entities that are “similarly situated.”  Consistent with this concept, the proposed revision to §125.6(b) creates an exception to ostensible subcontractor affiliation for prime contractors who subcontract in this manner.  The revised rule would ensure that a prime that subcontracts a majority of its work will not be “affiliated” with its subcontractors, so long as its subcontractors are “similarly situated.”

The second major change to affiliation is the adoption of a bright line test based on economic dependence. Pursuant to the proposed rule (to be inserted at 13 CFR 121.103(f)(2)), if a concern derives 70% or more of its revenue from another company over a fiscal year, the SBA will presume that the concern is economically dependent on that company, and, therefore, that the two businesses are affiliated.  It is not entirely clear from the language of the rule itself whether this will be considered a rebuttable presumption.  But an SBA representative who spoke about the proposed rule last week at the National 8(a) Association’s Winter Conference indicated that it would be rebuttable.

The third major affiliation change set forth in the proposed rule relates to “identity of interest” affiliation under 13 CFR 121.103(f).  In its current form, the regulation provides that:

Affiliation may arise among two or more persons with an identity of interest. Individuals or firms that have identical or substantially identical business or economic interests (such as family members, individuals or firms with common investments, or firms that are economically dependent through contractual or other relationships) may be treated as one party with such interests aggregated. Where SBA determines that such interests should be aggregated, an individual or firm may rebut that determination with evidence showing that the interests deemed to be one are in fact separate.

However, the current rule does not identify what types of family members are subject to the presumption identified in the rule.  The proposed rule would clarify this.  The revised regulation would state, in relevant part:

Firms owned or controlled by married couples, parties to a civil union, parents and children, and siblings are presumed to be affiliated with each other if they conduct business with each other, such as subcontracts or joint ventures or share or provide loans, resources, equipment, locations or employees with one another. This presumption may be overcome by showing a clear line of fracture between the concerns. Other types of familial relationships are not grounds for affiliation on family relationships.

This will certainly make it easier for contractors to tell if they are venturing into dangerous territory when doing business with a family member.

It is very important to keep in mind that these are just proposed changes.  The final rule may vary, so pay attention.  Comments to the rule are due February 27, 2015.  We will keep you posted on the status of the final rule.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Ed frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues and dispute resolution.

Maria L. Panichelli is an Associate in the firm’s Federal Contracting Practice Group. Her practice includes a wide variety of federal contracting and construction matters, as well as all aspects of small business procurement.

Three Provision Pitfalls in Small Business Corporate Governance Documents

Posted in Small Business Contracting

You probably already know about set-aside programs offered by the Small Business Administration (SBA) and the Department of Veterans Affairs (VA), but did you know that provisions in your corporate governance documents could ruin your eligibility for those programs? Ed DeLisle and Maria Panichelli’s new article for Onvia covers critical corporate governance provisions that could potentially destroy your status under the VA’s new guidelines. “Three Provision Pitfalls in Small Business Corporate Governance Documents” contains critical information and the most problematic governance provisions for Service-Disabled, Veteran-Owned and Veteran-Owned Small Businesses (SDVOSB/ VOSB) including definitional clauses or clauses dealing with authority, supermajority provisions and involuntary transfer provisions as well as limitations on transfer provisions. Learn more in the full article below:

The federal government offers a multitude of programs designed to assist small businesses. The Small Business Administration (SBA) is certainly at the forefront of such programs, but it is not the only agency. The Department of Veterans’ Affairs’ (VA) has created a very popular program of its own for Service-Disabled, Veteran-Owned and Veteran-Owned Small Businesses (SDVOSB/ VOSB). Many contractors generally know about the benefits of participating in these programs. Some may even know about the applicable eligibility requirements. But what many contractors don’t know is that provisions in their corporate governance documents could destroy their eligibility for such programs. This article seeks to educate contractors about the three most common provisions affecting small business program eligibility.

The federal government’s Small Business Programs – the SBA’s 8(a)HUBZone,
VOSB/SDVOSB and WOSB/EDWOSB Programs, as well as the VA’s VOSB/SDVOSB Program – share certain eligibility requirements. Specifically, in addition to the threshold requirement of being a “small” business, each program requires at least 51% “unconditional ownership,” as well as “unconditional control,” of that business by particular individuals. For example, a veteran or service-disabled veteran has to unconditionally own at least 51% of a company and unconditionally control that company in order for that company to be considered a VOSB or SDVOSB, respectively. Similarly, a woman or an economically disadvantaged woman needs to unconditionally own and control a business if that business wishes to be considered an eligible WOSB or EDWOSB.

Figuring out who must have ownership and control of the concern is the easy part: Definition sections of the applicable regulations are found here: 13 C.F.R. §§§ 124.01124.03 and 124.04  for 8(a) businesses; 13 C.F.R. § 126.200 for HUBZone concerns; 13 C.F.R. Part 125  for the SBA VOSB/SDVOSB program; 38 C.F.R. § 74.2 for the VA VOSB/SDVOSB program; and 13 C.F.R. §§ 127.102 and 127.200 for the WOSB/EDWOSB program. The difficult part is figuring out how the definitions are defined: How must these individuals own and control the company? The regulations tell us that ownership and control must be unconditional. But what does unconditional really mean? Said a different way, under what circumstances do these agencies consider ownership or control to be conditional? That is where trouble often lurks. Many times, a finding of conditional ownership or control is based on a provision or requirement found in a company’s operating agreement, shareholder’s agreement or by-laws. Several of the most problematic provisions are discussed below.

1) Definitional Clauses or Clauses Dealing with Authority

Corporate governance documents almost always contain a provision outlining who the members or owners are, or defining who will manage the entity. While these provisions are not problematic per se, they can cause issues when roles are not clearly defined or authority appears to be shared.

Example
The powers of the Company shall be exercised by or under the authority of, and the business and affairs of the Company shall be managed under the direction of, one or more managers. The Manager(s) shall be: Jane Doe, John Doe and Yogi Berra.

The problem with this clause is that it gives the impression that all three of these individuals have equal decision-making authority. What if Mr. Berra is the majority owner, and the service-disabled veteran upon whom the company’s SDVOSB eligibility depends? This provision, as written, would seem to indicate that he does not have ultimate authority over the company but, rather, shares control with the other two managers. Even if the corporate governance document otherwise demonstrates that Yogi is the 66% owner, or specifies that no decision can be made by the company without Yogi’s approval, the SBA and VA could very well question whether unconditional control exists based upon this clause. For that reason, it often makes more sense to name only the majority owner(s), upon whom eligibility depends, as managers or managing members. The remaining individuals can be given other titles.

2) Supermajority Provisions

As the name indicates, supermajority provisions are provisions that require an ownership vote of more than a simple majority to effectuate material change.

Example
Removal of Members: Members may be removed from the LLC by an affirmative vote of more the 66% of the LLC members.

The problem with these types of provisions is that they can divest a majority owner of his or her power to unconditionally control the company. Consider the following example: Bob, a service disabled veteran, owns 51% of Bob’s Electric Company, LLC and has applied for SDVOSB verification through the VA. The operating agreement contains a supermajority provision which requires at least a 2/3 vote to remove a member. Because Bob owns only 51%, he cannot, without the consent of other members, effectuate this change. In other words, Bob does not have unfettered authority to remove another member on his own. Therefore, in the eyes of the VA, Bob does not unconditionally control his company and Bob’s Electric is not a legitimate SDVOSB. For this reason, supermajority provisions should be avoided if a business wishes to participate in the Small Business Programs. The sole exception is if the majority owner owns more than is required under the supermajority provision (using the example above, this would mean Bob owned 67% or more) and therefore, could effectuate change without the consent of the minority owners.

3) Involuntary Transfer Provisions and Limitations on Transfer Provisions

Involuntary transfer provisions encompass an array of provisions, each of which operates to divest an owner of his or her ownership interest without consent. Common examples include a transfer upon insolvency or bankruptcy, a transfer upon criminal conviction or a transfer upon incapacity or death.

Example
Transfer Upon Insolvency:
 Upon the insolvency of any member, that member must transfer his or her shares to the other member at a price determined by [document pricing provisions].

Similarly, limitations on transfer provisions prevent a member or shareholder from freely transferring his or her ownership interest. Some examples include provisions that provide for a right of first refusal (i.e., a requirement that the selling or transferring member/shareholder must offer to sell his or her interests to other members/shareholders before any other individual or entity) or provisions that require consent of other members before a sale of ownership interest can be made.

Example
Restrictions on Transfer:
 No Member shall sell, assign, pledge, give or otherwise transfer or encumber in any manner or by any means whatsoever, any interest in a Membership Interest whether now owned or hereafter acquired without having obtained the prior written consent of all of the members of the Company.

The SBA and VA commonly view provisions like this as placing “conditions” on ownership. In the agencies’ view, if an owner can be divested of its ownership without his or her consent, or if an owner does not have unfettered freedom to sell his or her ownership interest, that owner does unconditionally own the company. That said, in a 2013 case litigated by our firm, the Court of Federal Claims ruled that in certain cases, rights of first refusal are permissible, and do not render an owner’s control as conditional. However, it is important to keep in mind that the COFC’s decision in that case addressed VA regulations that pertain to SDVOSBs under that program only. It is not entirely clear if the SBA’s similarly-worded regulations would be interpreted in the same way. For this reason, and just to be safe, it is probably a better idea to exclude these types of provisions altogether.

Conclusion

The provisions identified here are not the only provisions that can cause eligibility issues — but contractors who learn to avoid these three common pitfalls will be way ahead of the game! Of course, the advice in this article represents general guidelines only and each company must assess for itself how best to draft its corporate governance documents. Drafting an operating agreement, shareholders agreement or by-laws that simultaneously address all of the company’s needs, balance the interests of the various owners, and comply with all relevant SBA and VA regulations can be a daunting task. If contractors have any questions about how to draft the best corporate governance documents for their company, the best course of action is to contact a legal professional to assist.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Ed frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues and dispute resolution.

Maria L. Panichelli is an Associate in the firm’s Federal Contracting Practice Group. Her practice includes a wide variety of federal contracting and construction matters, as well as all aspects of small business procurement.

Get the Inside Scoop on the Government Contract Selection Process!

Posted in Small Business Contracting, Webinar

Vector webinar button

The Construction Industry offers tremendous opportunities and challenges for any business owner. However, when your customer is the federal government, there is an extra layer of requirements that can either make or break your business. Just putting together a bid or proposal is a test of skill and attention to detail, but what comes next? The Government’s selection process for the ultimate awardee of the contract is unlike any other. Join Jennifer Horn and Maria Panichelli for the WIPP/Give Me 5 webinar The Fundamentals of the FAR, Part 2: The Source Selection Process on Wednesday, February 25th at 2:00pm. In this presentation, you will learn about “best value” and “trade off”, the source selection process, and tips that will help you use the selection process to your advantage to win more contracts! To register for the webinar or access previous webinars presented by Jennifer and Maria click here.

WIPP is a national nonpartisan public policy organization advocating on behalf of its coalition of 4.7 million businesswomen including 75 business organizations. WIPP identifies important trends and opportunities and provides a collaborative model for the public and private sectors to increase the economic power of women-owned businesses. Give Me 5%, named after the 5% federal contracting goal for women-owned businesses, was created to educate women business owners on how to apply for and secure federal procurement opportunities. GiveMe5 is working to improve the WOSB Procurement Program to increase access to contracts for women entrepreneurs.

Jennifer M. Horn is a Partner at Cohen Seglias and a member of the Construction Group. She concentrates her practice in the areas of construction litigation and real estate.

Maria L. Panichelli is an Associate in the firm’s Federal Contracting Practice Group. Her practice includes a wide variety of federal contracting and construction matters, as well as all aspects of small business procurement.

HOT OFF THE PRESSES: SBA TO RELEASE PROPOSED RULE ON NEW MENTOR-PROTEGE PROGRAM ON THURSDAY

Posted in Small Business Contracting

My firm is a big supporter of the National 8(a) Association and a proud sponsor of its Winter Conference, which is taking place right now in Orlando, Florida. I just left a presentation given by the SBA and several other SBA experts and found out that the SBA will finally issue its new proposed regulations governing the Mentor-Protege Program.

breaking news

The proposed regulations follow the Jobs Act of 2010 and the National Defense Authorization Act of 2013, where Congress asked the SBA to expand the Program to firms other than 8(a) companies. There has been much speculation over the last several years regarding what this overhaul would look like. Well, we’re about to find out. Here are some highlights that I learned today:

First, the SBA is going to create two distinct and different Mentor-Protege Programs, one for 8(a) companies and one for other small businesses. The one designed for other small businesses will be geared to servicing SDVOSBs, HUBZone companies, WOSBs and small businesses, generally. Mentors will still have to demonstrate good financial health, among other things, to qualify as a mentor, but there were indications during today’s presentation that the new regulations would better define the meaning of “good financial health.” For Protégés, it appears as if the proposed regulations will make it easier to qualify. If you are a participant in any of the small business programs covered by the proposed regulation, you can be a protege.

The most important aspect to the proposed rule may be the following: all companies who become Mentor and Protege through the revamped program will be able to take advantage of the exclusion from affiliation. Many speculated that this exclusion might remain with the 8(a) Mentor-Protege Program and not extend to those newly covered by the revised regulations. That does not appear to be the case. All companies will benefit from the exclusion.

There are many more changes coming as part of the proposed rules. Once they are issued on Thursday, we will share our thoughts with you.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Ed frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues and dispute resolution.

Proposed Rule Would Give Federal Contractors a New Way to Report Agency Mismanagement and Misconduct

Posted in Protection of Contractor Rights, Small Business Contracting

Over the last few years the world of federal contracting has seen an increased focus on the False Claims Act, the prevention of fraud, and the strengthening of fraud-related penalties. 2015 will certainly be no different. However, the new year brings with it a slightly different take on fraud prevention, one aimed not at the contractor, but on the government. Mobile phone with scam message speech bubble

On January 22, 2015, the United States’ Office of Special Counsel (“OSC”) issued a proposed rule that would give federal contractors and subcontractors a new way to report agency wrongdoing. The rule implements a “pilot program” identified in the National Defense Authorization Act (“NDAA”) of 2013, the purpose of which is to “enhance contractor protection from reprisal for a disclosure of information that the contractor reasonably believes is evidence of gross mismanagement of a Federal contract or grant; a gross waste of Federal funds; an abuse of authority relating to a Federal contract or grant; a substantial and specific danger to public health or safety; or a violation of law, rule or regulation related to a Federal contract or grant.” (Public Law 113-1421, 41 U.S.C. 4712). Consistent with the NDAA, the proposed rule would allow employees of federal contractors and subcontractors to disclose wrongdoing of government employees if they work at, or on behalf of, a U.S. government component for which OSC has jurisdiction to accept disclosures. (See OSC’s Website for more detail.)

So what does this mean for federal contractors and subcontractors? Well, it means that federal contractors and subcontractors who observe mismanagement or misconduct by a federal agency can bring their complaints directly to the OSC. Contractors can also go to OSC if they believe they have suffered retaliation for prior disclosures or statements made about agency misconduct. The hope is that this new program can provide contractors a more effective way to report wrongdoing within the government.

Comments to the rule are due March 24, 2015. We will keep you posted on any new developments.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Ed frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues and dispute resolution.

Maria L. Panichelli is an Associate in the firm’s Federal Contracting Practice Group. Her practice includes a wide variety of federal contracting and construction matters, as well as all aspects of small business procurement.

How to Effectively Team on a Federal Project

Posted in Contractor Information Sources, Federal Procurement Policy, Procurement Information, Small Business Contracting

Join partners Michael Payne and Ed DeLisle at the 2015 National 8(a) Association Winter Conference in Orlando, Florida for their presentation, “How to Effectively Team on a Federal Project.” In this discussion, Michael and Ed will explore the importance of well-crafted teaming agreements and how they are viewed by courts of various jurisdictions. They will also explore the practical implications of negotiating terms from both the prime and subcontractor perspectives, as well as cover the nuts and bolts of executing teaming arrangements on federal projects. For more information, or to register, please visit the National 8(a) Association website.

8a logo

Cohen Seglias is a proud sponsor of the 2015 National 8(a) Association Winter Conference, which focuses on the federal, legal and business updates that impact the ever-changing world of federal contracting. This year’s conference will be held in conjunction with the TRIAD Winter Meeting, bringing over 85 additional Small Business Liaison Officers to the National 8(a) conference attendees.

With more than 500 companies and key government stakeholders represented, this is an event you can’t afford to miss!

Michael H. Payne is the Chairman of the firm’s Federal Contracting 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.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Ed frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues and dispute resolution.

Court of Federal Claims Reaffirms VOSB/SDVOSB's Right to Due Process During Protests, Rejects VA's Interpretation of Revised Protest Regulations

Posted in Contract Performance Issues, Protection of Contractor Rights, Small Business Contracting

Several months ago, we told you about Ambuild Company v. LLC v. U.S., a very important case pending before the Court of Federal Claims (“COFC”).  The AmBuild case was of particular interest to our firm because it concerned the interpretation of a Department of Veterans’ Affairs (“VA”) regulation, which the VA revised following an adverse ruling in our case, Miles Construction, LLC v. United States.  AmBuild was of particular interest to SDVOSBs because of its potential impact on their due process rights in the context of status protests. Gavel and book

Well, the COFC issued its opinion.  The decision is a major victory for veteran-owned businesses, wherein the Court rejects the VA’s attempt to circumvent the ruling in Miles, and reaffirms that the VA cannot cancel a concern’s SDVOSB status without first allowing it an opportunity to respond to potential eligibility issues.

As those of you that follow this blog know, Miles involved the cancellation of our client’s SDVOSB status.  The cancellation stemmed from a protest lodged by a competitor.  However, the VA’s basis for cancellation was something that was never raised in that competitor’s protest.   Rather, the cancellation was based upon a new issue that the VA brought up on its own when deciding the protest, which Miles knew nothing about prior to cancellation.  When Miles protested the cancelation of its status, the COFC found that the VA had violated Miles’ due process rights.  The Court reasoned that an agency performing an investigatory function must provide the investigated party with notice, and afford that party an opportunity to meaningfully participate in the investigation.  The Court said: “an interpretation of 48 C.F.R. § 819.307(c) [the regulation pertaining to SDVOSB/VOSB eligibility protests] that does not allow this basic procedural due process is plainly erroneous and cannot be upheld.”

Following the Miles decision, the VA revised its regulations.  The amended version of 48 C.F.R. § 819.307 (which went into effect on September 30, 2013) added language that gave the VA the ability to determine the status of a protested concern based upon “a totality of the circumstances.”  (48 C.F.R. 819.307(e)).  In AmBuild, the VA relied on this language, arguing that it allowed the VA to consider facts or issues not specifically raised by the protesting party when reviewing a concern’s SDVOSB status.  In effect, the VA argued that “totality of the circumstances” meant that it could review any potential issue affecting a concern’s eligibility under the SDVOSB Program, whether or not it was raised as part of a protest.

In the AmBuild decision, the COFC squarely rejected the VA’s argument.  The Court again emphasized the importance of a protested party’s due process rights, and the necessity of giving a protested party a chance to respond to any allegations affecting its status.  It stated that: “The requirements of due process rest at the core of our nation’s Constitution and governmental institutions and are ingrained in our national traditions. . .”  As a result, “[b]efore adverse action is to be taken by an agency, the individual immediately concerned should be apprised not only of the contemplated action with sufficient precision to permit his preparation to resist, but, before final action, he should be apprised of the evidence and contentions brought forward against him so that he may meet them.”  Accordingly, the Court reasoned that the VA’s “strained construction” of 48 C.F.R. § 819.307 “would convert [the VA’s] scope of review into a general license to act on a protest without giving notice of issues not raised by the protesting party or contracting officer but rather generated sua sponte by [the VA]. The requirements of procedural due process cannot be so easily cast aside.”  The Court concluded that the 2013 amendment to 48 C.F.R. § 819.307 may be interpreted to establish a scope of review only – not to abrogate the requirements of procedural due process.  Thus, going forward, the “totality of the circumstances” language in 48  C.F.R. § 819.307(e) must be read to include only those issues to which the protested party was afforded an opportunity to respond.   That is, the VA may consider the totality of the information available relating to a protested concern’s eligibility for the SDVOSB Program, but only within the context of the issues raised in the protest itself.  The Court ruled that AmBuild was entitled to reinstatement to the VetBiz database, that it must be considered for the award of the contract at issue in the protest, and that AmBuild was entitled to its costs of suit.

This is a major victory for VOSB/SDVOSBs.  AmBuild reaffirms that the VA cannot cancel a concern’s VOSB/SDVOSB status without explicitly notifying that concern of any and all potential issues concerning its eligibility status, giving that concern an opportunity to provide a meaningful response, and allowing that concern to participate in the investigatory process.  It will be interesting to see if the VA attempts to amend its regulations again to circumvent the ramifications of this decision.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Ed frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues and dispute resolution.

Maria L. Panichelli is an Associate in the firm’s Federal Contracting Practice Group.