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

A seminar on “How to Win Federal Construction Contracts with Teaming Arrangements” is being held on February 23, 2010, at the Hyatt Regency Grand Cypress Hotel in Orlando, Florida. The program is scheduled to take place from 8:00 a.m. to 1:00 p.m. and the seminar fee is $195, with a fee of $95 for additional people from the same company.

As contractors are well aware, the world of federal construction contracting has changed. Sealed bidding has largely given way to contracting by negotiation (“best value’), and the government is using task order contracts for construction more frequently. These large dollar value multi-year procurements are often beyond the economic reach of many small and medium-sized contractors. The negative effect on small businesses has not gone unnoticed.

The way to survive and thrive in this new world of federal construction contracting is to engage in various forms of teaming arrangements. These include joint ventures, committed subcontracting, large and small business teaming agreements, and small business subcontracting. In fact, the government often includes provisions in solicitations that encourage and promote teaming and joint ventures. These provisions permit small and medium-sized businesses to compete for contracts they would otherwise be deemed ineligible.  To further foster small business participation, the government also uses set-aside procurements that limit competition to HUBZone business, Service Disabled Veteran Owned firms, or 8(a) concerns.

This seminar is being presented by the law firm of Cohen Seglias Pallas Greenhall & Furman and the Chairman of the Firm’s Federal Construction Practice Group, Michael H. Payne, will address the following topics:

* What is a teaming arrangement?

* What should be included in a teaming agreement?

* What types of joint ventures are permitted in federal construction contracting

 * What are the requirements for a joint venture agreement?

* How can large business concerns benefit from small business set-asides that seem to exclude them from participation in many federal projects?

* Are there any circumstances where a large business can affiliate with a small business concern?

* What happens if two or more small businesses join to form a team?

* How can Service Disabled Veteran-Owned Small Businesses, HUBZone contractors, and 8 (a) firms leverage their size status and preferential status to maximize participation in larger dollar value procurements?

* How can a prime contractor take advantage of the past performance of a team member to increase its competitive position? hatever your experience level is with teaming arrangements, this seminar will provide you with the tools compete in the new landscape of federal government contracting.

To register, please respond by February 18, 2010 by clicking here.  For questions, please contact Crystal Garcia at (215) 564-1700 or email cgarcia@cohenseglias.com.

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By: Michael H. Payne and Craig A. Schroeder

There has been a great deal of interest in the potential liability that a government contractor has for harm to third parties during or following the performance of a federal construction project.  Although the government frequently enjoys sovereign immunity, the transfer of the government’s immunity to a contractor is certainly not automatic and, when it applies, it is generally the result of what has come to be known as the “Government Contractor Defense.”  The applicability of that defense to a federal construction contractor is an open question that is beyond the scope of this article, however, but two recent cases have been decided in New Orleans that address the subject of contractor immunity from third party suits.  These new cases both arise from the same construction project, the Mississippi River Gulf Outlet (the “MRGO”).

The first case, In Re Katrina Canal Breaches Consolidated Litigation, was heard in The United States District Court for the Eastern District of Louisiana. Six plaintiffs sought compensation from the government based upon alleged negligence of the U.S. Army Corps of Engineers (the “Corps”) with respect to the maintenance and operation of the MRGO for damages incurred in the aftermath of Hurricane Katrina.  Before trial, the District Court had found that the Corps was shielded from liability as to the design and construction of the channel due to the discretionary function exception under the Federal Tort Claims Act (the “FTCA”).  Notably, no government contractors or subcontractors were named in the suit.

Plaintiffs argued that the Corps’ negligent operation and maintenance of the MRGO – whereby, over time, the channel expanded to two to three times its design width – caused the breach of an important levee and produced catastrophic flooding.  The District Court agreed that the Corps had, in fact, been negligent in its maintenance and operation of the MRGO and that, as a result, flooding had occurred to some of the plaintiffs’ property.

The government raised defenses as to its negligence under the Flood Control Act of 1928 (which was summarily dismissed as inapplicable), the FTCA’s “Due Care” exception and the FTCA’s “Discretionary Function” exception.  The District Court found that the Corps could not invoke these statutory defenses.  This was because the Corps had known about the potential expansion of the channel width due to erosion that ultimately caused the flooding.  Hence, the Corps had not used “due care.”  The Corps’ actions were also found to be in direct contravention of a mandate of the National Environmental Policy Act of 1969 to file an Environmental Impact Statement on its MRGO project. Thus, the Corps could not seek protection under the FTCA’s “discretionary function” exception.  In the end, the court assessed damages for the plaintiffs for a total amount of $719,698.25.

The second case concerned an appeal of two class action matters that had been consolidated by the District Court, Ackerson, et al. v. Bean Dredging LLC, et al. and Reed v. United States.  The District Court had found for the defendants and the plaintiffs appealed to the United States Court of Appeals for the Fifth Circuit. As in In Re Katrina, the plaintiffs alleged that dredging activities caused environmental damage to protective wetlands in the MRGO and that the government project caused an amplification of the storm surge in New Orleans during Hurricane Katrina, ultimately causing flooding.  Unlike in In Re Katrina, however, the plaintiffs here sought recovery mainly against the government’s contractors (“Contractor Defendants”) who had performed the work.

The Contractor Defendants filed a motion to dismiss and the District Court concluded that they were shielded by government-contractor immunity under the holdings of Yearsley v. W.A. Ross Construction Co., 309 U.S. 18 (1940) and Boyle v. United Technologies Corp, 487 U.S. 500 (1988). The Appeals Court affirmed this decision, also citing Yearsley and Boyle extensively. Specifically, the Appeals Court affirmed that the only ways for an agent or officer of the government to be liable to a third-party for injury is if the agent exceeded his authority or that the authority used had not been validly conferred to that agent.  In doing so, the Appeals Court further held that no specific agency relationship needed to be alleged by government contractors to receive government-contractor immunity.

These are encouraging decisions for contractors performing hurricane protection projects in New Orleans.  The applicability of the government’s immunity to a contractor, through operation of the Government Contractor Defense or any other legal theory, however, is dependent on the facts of the case and may vary depending upon the jurisdiction.  Specific legal advice should be sought in assessing the risk associated with the performance of a federal project that involves third party liability issues.  These decisions by the courts in Louisiana, unfortunately, may not be regarded as the final word on the applicability of the Government Contractor Defense to current projects in New Orleans, or to federal construction generally.

Michael H. Payne is the Chairman of the firm's Federal Practice Group and may be contacted to discuss third party liability issues or federal construction matters generally. Craig A. Schroeder is an Associate in the firm’s Federal Practice Group.

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The recent decline in non-federal construction opportunities has resulted in a rapidly growing interest in the federal contracting market. The much-publicized American Recovery and Reinvestment Act of 2009 (“ARRA”), often referred to as the “Economic Stimulus Program,” has made billions of dollars available to federal agencies to fund construction projects. Add to that the billions of dollars being spent on the Hurricane & Storm Damage Risk Reduction System in New Orleans (‘HSDRRS”), the Base Realignment & Closure program (“BRAC”), and countless other military and civil works construction programs nationally, and it is easy to see why the federal market is generating so much interest. These federal opportunities are not necessarily easy for contractors to take advantage of, however, because increased opportunities have been accompanied by increased competition.

If your company is interested in getting into federal contracting for the first time, you can be certain of one thing – you are not alone. We have received dozens of requests from existing and new clients asking us to advise them about the best ways to get involved in the federal market. The answer is not always easy, because contractors who have never performed federal work may be at a disadvantage when participating in negotiated, “best value,” procurements. Unlike sealed bidding, where the competition is based on price alone and an award is made to the lowest responsive and responsible bidder, awards under negotiated contracting procedures not only consider price, but also consider evaluation factors like technical merit, past performance, experience, quality of personnel, and small business subcontracting. In a negotiated procurement it is not uncommon for an award to be made to a higher priced offeror who is evaluated as technically superior to the lowest-priced offeror. Past performance, when the offeror has not previously been awarded a federal contract, can be a serious obstacle.

The obstacle is not insurmountable, however. If a contractor has equivalent experience in the non-federal sector, and effectively demonstrates the value and relevance of that experience in its proposal, there are many federal agencies that will recognize the capabilities of the “new” contractor. It is important to present an effective proposal and to communicate your company’s capabilities in a clear and concise way. The good news is that awards are being made to construction contractors who have not performed federal work before, and federal agencies are always looking for enhanced competition. Your task, as an interested federal contractor, is to prepare an effective proposal that responds to each and every requirement of the solicitation and that addresses each and every evaluation factor. Our affiliate, FedCon Consulting, provides former government contracting officers and construction management personnel to assist contractors in the preparation of proposals.

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By:  Michael H. Payne and Craig A. Schroeder
 
Effective September 8, 2009, federal contractors awarded new contracts of $100,000 or more with a performance period of longer than 120 days will be required to use E-Verify, an internet-based system that allows employers to electronically verify the employment eligibility of their newly hired employees.  In addition, affected contractors will also be required to confirm the employment eligibility of their current employees who perform contract services for the federal government within the United States. The contractor and any covered subcontractors on the project are required to enroll in the E-Verify program within 30 calendar days of the contract or subcontract award date.  The rule only covers subcontractors if a prime contract includes the E-Verify clause (73 FR 67704, available at http://www.acquisition.gov/far/current/html/52_222.html#wp1156645).  For subcontracts that flow from those prime contracts, the rule extends the E-Verify requirement to subcontracts for services or for construction with a value over $3,000.  Usage of E-Verify also applies to indefinite-delivery/indefinite-quantity contracts modified after the September 8, 2009 rule effective date. 
 
The rule, however, exempts the following contracts:

Contracts that include only commercially available off-the-shelf (COTS) items (or minor   modifications to a COTS item) and related services;

      Contracts of less than the simplified acquisition threshold ($100,000);
      
      Contracts with a performance period of less than 120 days; and
      
      Contracts where all work is performed outside the United States.
        
Employees who normally perform support work, e.g., indirect or overhead functions, and do not perform any substantial duties under the contract, are also excluded from the E-Verify requirement.
 
Proponents of the E-Verify rule say that it confirms the government’s commitment to maintain a legal workforce, creating more reliable employees and reducing illegal hiring practices.  They also say that E-Verify reduces discrimination against immigrant workers since employers feel confident that the new hires are authorized to work and are not using false documents.  This alleviates employer concerns about discrimination lawsuits since the employer is relying on the government for authorization.
 
While the system is accurate, it’s not fail-proof – if the program inaccurately rules out a potential employee, that employee may not get a job.  It also creates yet another hoop through which contractors that want to work with the government must now jump through.   

This program, of course, simply adds to the recent ARRA reporting requirements, and the ethics compliance requirements, that make contracting with the federal government more and more difficult.  Contractors need to be ever vigilant in their compliance with solicitation requirements to avoid inadvertent violations that could lead to suspension and debarment.

More information about the rule can be found at www.uscis.gov/e-verify and http://www.dhs.gov/files/programs/gc_1185221678150.shtm

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In an earlier blog we discussed what the ARRA meant for Federal Construction Contractors, and noted that the reporting would be over the internet, once the government had its website up and running.

On Monday, August 17, 2009, recipients of economic stimulus funds were notified that they now can access the website www.federalreporting.gov and register. Registration is necessary before the site will permit recipients to file reports, which begins on October 1, 2009. In addition to completing the registration process on the website, recipients also must obtain a Federal Reporting Personal Identification Number (FRPIN). Instructions on how to obtain a FRPIN can be found at http://www.recovery.gov/?q=content/recipient-reporting. The Government has published a 32 page guide to assist recipients in the registration process.

The government has indicated that anyone interested in reviewing the reports filed by recipients of Stimulus funding will be able to do so beginning on October 11, 2009 at the website www.recovery.gov.

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By: Lane F. Kelman and Christopher Soper

As part of the American Recovery and Reinvestment Act of 2009 (the "Stimulus Act") the General Services Administration's ("GSA") Public Building Service was authorized to invest 4.5 billion dollars to transform federal facilities into exemplary, high-performance green buildings. The allocated money is scheduled to be awarded in its entirety within the next two (2) years. A list of proposed projects in all fifty states has already been submitted to Congress. These designated projects are intended to improve energy efficiency, conserve resources over the long-term, provide models of high-performance green design and reduce the government's reliance on costly operating leases.

While the government's attempt to transition to high-performance green buildings is a noble goal, it presents federal contractors with a unique set of challenges. Federal contractors interested in these green construction projects should be prepared to deal with factors that were not previously considered when putting together your proposal and project team. These factors are unique to green building and include potentially unfamiliar project specifications, rating systems, new materials and installation techniques. A resource that is readily available to federal contractors interested in performing green building is the Federal Green Construction Guide for Specifiers.

The Federal Green Construction Guide for Specifiers (the "Guide") was created to assist federal building project managers to meet the various legal requirements of green construction. The Guide provides sample specification language for federal green construction projects. It is an excellent tool for federal contractors to familiarize themselves with the specifications and performance requirements associated with green building. The Guide can be found at http://www.wbdg.org/design/greenspec.php.

Also keep in mind the new legal concerns that are associated with green building. The ability to recognize and address the risks inherent in a green building construction contract will minimize the potential for disputes and exposure. A checklist of some of the factors that you should review are as follows:

* Identify which party is responsible for documenting and achieving LEED certification.
* Identify the damages associated with failing to obtain the required LEED certification.
* Confirm that the insurance coverage on the project takes into account the green nature of the project.
* Check the warranty and guaranty language to ensure that new green construction procedures or installation materials do not void the warranty or guaranty for a product.
* Investigate the availability of green construction materials and the replacement price for such materials.
* Make sure the construction schedule accounts for time associated with LEED certification.
* This list is in no way exhaustive of the issues that should be addressed or may arise on a green construction project, but does provide an idea of the types of things to consider.

The Stimulus Act will add significant momentum to green building. As green building evolves, it is expected that what is perceived as a trend or niche will become standardized. Those contractors that position themselves now will have a competitive edge in the future.
 

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The U.S. Army Corps of Engineers has posted the Civil Works projects that it intends to fund from the appropriations Congress provided in the American Recovery and Reinvestment Act of 2009 (Pub. L. 111-5) on its website. In order to spend its $5 billion slice of the $787 billion stimulus pie, the Corps selected approximately 178 Construction projects and 892 Operation and Maintenance projects, nine Formerly Utilized Sites Remedial Action Program (FUSRAP) projects. These projects or useful increments of these projects will be completed with stimulus funding.
 
The only state that is not slated to receive any stimulus projects is Wyoming, because no eligible work on any ongoing Civil Works activity was presently available. The Corps applied the selection criteria which largely revolved around contracts that could be awarded and completed quickly. The wide geographic distribution of selected projects spreads the employment and other economic benefits across the United States and across Civil Works programs to provide the nation with project benefits related to inland and coastal navigation, the environment, flood and storm damage reduction, hydropower, and recreation.
 
The Corps has indicated that the majority of the contracts will be competitively bid. Some contracts will be awarded by issuing task orders on existing contracts generally referred to as Indefinite Delivery Indefinite Quantity (IDIQ) contracts or Multiple Award Task Order Contracts (MATOC). At this time the Corps is unable to specify what projects will be procured in what fashion. The Corps has indicated that it intends to make maximum use of small businesses, either as prime contractors or subcontractors, in its stimulus program.
 
In a recent article in Engineering News Record, Bruce Buckley reported that “Driven by a need to speed projects to market, federal agencies are drawing heavily on accelerated delivery methods to move stimulus-funded work into the express lane. More than ever, traditional stand-alone procurement will take a back seat on federal jobs, as many new opportunities end up with firms holding existing “task order” contracts.” The risk that overuse of task order contracts will be anti-competitive was stressed in the article. Mr. Buckley noted that “Agencies are already leaning heavily on IDIQ contracts. Data from the Federal Procurement Data System show that orders through contracts grew from 14% of total dollars in fiscal 1990 to about 52% in fiscal 2005, says OMB.” In a May 2007 memo to federal acquisition officers, then-OMB Administrator Paul Denett warned of “a lack of meaningful competition for orders” in light of the increased use of IDIQ vehicles.
 
Mr. Buckley quoted Michael Payne, chairman of the federal construction practice group in Cohen Seglias Pallas Greenhall & Furman: “As more tasks go to IDIQ holders, some small to medium-size firms who don’t have IDIQ contracts are locked out . . . With IDIQ contract limits now reaching into the hundreds of millions of dollars and the scope sometimes spanning multiple states, many firms can’t get adequate bonding to compete.” Mr. Payne also stressed that the method could hurt many of those the stimulus is designed to help, “The purpose is to lead to job creation. What better way than to go with open competition and make it available to the maximum number of companies?”

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Since President Barack Obama was inaugurated last month, he has initiated many changes which will impact federal contracting: first, he issued an executive order requiring a successor vendor on a services contract to offer a preceding contractor’s employees jobs under the new contract; second, in another executive order, he encouraged the use of project labor agreements to ensure that federal work would not be disturbed by “labor unrest” (see earlier blog article); and, in a third order, he prohibited contractors from passing along the costs of supporting or fighting their employees’ exercise of the right to unionize or bargain collectively.  Today President Obama signed the American Recovery and Reinvestment Act into law, a statute more commonly referred to as the “Stimulus Bill.”  The total amount of the stimulus is approximately $787 billion and it promises great potential for more federal construction contracting work.  
 
The purpose behind this legislation is to relieve the nation from the current state of economic distress and to create jobs.  Another priority of the stimulus package is to improve the infrastructure of the country.  This means more money for government contracts, and in turn, more opportunities for construction contractors.  The allocation of funds within the Stimulus clearly demonstrates the growth potential for federal construction contractors: nearly 40%, or $311 billion, of the total amount is allocated to federal appropriations, with an estimated $131 billion going toward federal construction projects.  Below is the breakdown:

Transportation-$49.3 billion

Defense/Veterans-$7.78 billion

Housing/HUD-$9.6 billion

Education and Schools-no specific amount is designated but $39.5 billion of the allotted $53.6 billion State Fiscal Stabilization Fund goes to local school districts who have the option of the modernizing their facilities with this money.  

Energy-$30.62 billion

Buildings-$13.37 billion

Water and Environment-$20.1 billion

A major portion of this funding remains available until September 30, 2010. 

The Stimulus also promises to help small businesses.  The terms of the Stimulus authorize the Small Business Administration (“SBA”) to temporarily eliminate or reduce fees for participation in its loan-guarantee programs.  It also increases to 90% the percentage of qualifying loans that the SBA can guarantee.  Also offered is a “small business stabilization financing” which offers small businesses in distress money to pay off existing loans.  These loans must be repaid within five years, can be for up to $35,000 and can be used to make up to six months of payments on prior loans.  The interest on these loans will be fully subsidized with no payments due for the first year.  Also offered are hiring incentives, a break on capital gains for those who invest in small businesses, increased loss accounting, and an expansion of allowable equipment expense deductions for small businesses.   

White House projections anticipate that this public works spending will lead to millions of jobs for American workers.  While there are legitimate questions about whether the employment generated by the Stimulus will be sustainable once the projects are completed, and whether the long-term effects of greater debt will lead to even greater economic problems in the future, there is little doubt that there will be an immediate benefit to federal, state, and local construction contractors.

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The U.S. Army Corps of Engineers, through its Office of Safety and Occupational Health, has released a new edition of the Corps’ Safety and Health Requirements Manual, EM 385-1-1, that streamlines information for easier access and quicker use.  According to the Corps, “The safety manual is a major key to the success of the USACE safety program.”  The 1,050 page book is used during construction, operations, maintenance, research The manual was last revised in 2003, and the 2008 version parallels Occupational Safety and Health Administration (OSHA) regulations and other national standards.  It deviates from these standards only when research and/or accident experience deem it necessary.

The new manual went into effect Jan. 12 and can be downloaded by clicking on this link.   It is also available in bid packages and from the Government Printing Office for about $27 a copy. Improvements in formatting and layout allow users of the manual to move through it with relative ease.  For example, crane requirements are clearer, up to date, and most importantly, centrally located in one section, including information that was located in appendices in past editions.  In the same way, all fall-protection requirements are now contained in Section 21 instead of scattered throughout the manual.

As stated on the Corps’ website, “With an organization as far-reaching as USACE, revising the safety manual was no small task.  This was one of the largest revisions since the manual’s original production, and has taken nearly two-and-a-half-years.”
 

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The Department of Homeland Security has postponed the start date of the E-verify requirement (please see our earlier article).  The new rule will go into effect no earlier than Friday February 20, 2008.  Proponents of the new rule insist that the rule remains intact with as much legal force as before and that it is only being postponed.  Opponents of the new rule hope that the delay will allow the Obama administration ample time to evaluate the impact it could have on the world of government contracting. 

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In an interesting decision issued by the United States Court of Federal Claims on November 25, 2008, in a case entitled BLR Group of America, Inc. vs. United States, the Court ruled that it had jurisdiction to consider a contractor’s claim that a Contractor Performance Assessment Report (“CPAR”) was “false and highly prejudicial.” The case arose because the Air Force had assigned a final performance rating of “Marginal” to the contractor in several categories, and had refused to amend the rating pursuant to a rebuttal presented by the contractor. Instead, the Air Force disseminated the rating by posting it on the Past Performance Informational Retrieval System (“PPIRS”), a database of performance ratings accessed by contracting officers while making contractor responsibility determinations and while conducting past performance evaluations during the source selection process on negotiated procurements. At a time when contractors are experiencing the rapidly growing use of “best value” negotiated procurements, the accuracy and fairness of contractor performance evaluations can be critical to a contractor’s ability to successfully compete for government contracts.

The Court did not address the merits of the contractor’s contention that the performance rating was “false and highly prejudicial,” but simply ruled that the Court had jurisdiction to consider the case. The government had filed a motion to dismiss and cited a number of Armed Services Board of Contract Appeals decisions where the Board had declined to consider appeals based on challenges to performance evaluations. The Court refused to follow the Board’s decisions (the Court of Federal Claims is not bound by the decisions of the various boards of contract appeals) and concluded that a contractor could file a claim under the Contract Disputes Act of 1978. In doing so, the Court focused on the Federal Acquisition Regulation (“FAR”), which provides that a claim is “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 this contract.” See FAR 52.233-1. The Court also noted that the contractor was not appealing the performance evaluation itself, and concluded that a contractor’s claim requesting a change to a performance evaluation is a proper mechanism, and provides the proper jurisdictional predicate, to challenge an adverse performance evaluation in the Court of Federal Claims. 

In addition, even though the contracting officer had not issued a final decision, the Court ruled that the contractor had made its claim to the contracting officer for a fair and accurate CPAR on January 12, 2007, and that the contracting officer, more than twenty-two months later, had failed to issue a final decision in conformance with 41 U.S.C. 605(a).  The Judge then stated that “Because twenty-two months exceeds the length of time that the court considers “reasonable” for the contracting officer to issue a decision in this case, the court deems the claim denied by operation of 41 U.S.C. § 605(c)(5), which allows plaintiff to pursue the instant appeal.” In other words, the failure of the contracting officer to issue a decision within a reasonable time was treated as a “deemed denial” entitling the contractor to file an appeal.

The Court not only held that it had the jurisdiction to consider the case, but it also stated that a contractor is legally entitled to a fair and accurate performance evaluation. In view of what has frequently been the use of performance evaluations as a tool to unfairly punish contractors, and to intimidate them into not filing claims for fear that they will receive lower performance ratings, this decision comes as a welcome leveling of the playing field. We have always felt that the statutory right that contractors have to file claims and appeals should not be diminished by fear of reprisal. All claims should be evaluated on their merits. 

Please see the Federal Construction Project Manager’s Bulletin, November 2008, a publication of Construction Contract Specialists, Inc., for an excellent article entitled "The Contractor Performance Evaluation System (Revisited)," authored by Paul Perkins, that addresses the BLR decision and revisits an earlier article. Mr. Perkins presents interesting background information on the contractor performance evaluation system and provides the author’s perspective as a former contracting officer, project manager, and construction consultant.

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This has been a banner year for ethics in government contracting. This intense focus on integrity and honesty in business is evident in the evolution of the rules of the game-the Federal Acquisition Regulation. Just last December, changes to the FAR mandated contractors to “conduct themselves with the highest degree of integrity and honesty” and to document how they planned to achieve this standard in a Code of Business Ethics and Conduct (see our January 2008 blog article). In addition, the requirements for contractors were stepped up to include prominently displayed hotline posters to facilitate the reporting of violations. 

Before the initial changes were passed, public comments were sought regarding the proposed legislation. Review of these comments revealed two paramount concerns: the exemption of foreign contracts, and the exemption of contracts for the acquisition of commercial goods. The first of these was addressed in April when the House voted to close a loophole in the original ethics provisions (see our April 2008 blog article). Initially, contracts performed outside of the United States were exempt from the requirements-an odd exception considering that the new rules were initially drafted in response to the flagrant abuses of the federal procurement system abroad. The second concern regarding commercial contracts was addressed shortly thereafter. 

Early this summer, the Department of Justice demonstrated its continued commitment to cracking down on ethics in contracting when they went a step further and proposed additional modifications to the FAR. These proposals gave teeth to the earlier provisions by including the foreign and commercial contracts mentioned above under the business ethics umbrella. Additionally, they imposed new requirements on contractors such as reporting violations of the civil False Claims Act, while adding knowing failure to timely report such violations as an additional cause for debarment or suspension under FAR subpart 9.4.  As in the original ethics rules, small business were still not required to have a formal awareness/training program and internal control system, but the requirement to report violations of the civil False Claims Act did apply to them, along with the inclusion of foreign contracts and contracts for the acquisition of commercial goods to the ethics rules. 

These new ethics rules were enacted on June 30, 2008, when President Bush signed the supplemental appropriations bill,  H.R. 2642 . While this bill required contractors to report violations of federal law and overpayments received, many questions remained, such as to whom contractors would report. These ambiguities and were left to the FAR Council to iron out. 

 Just two days ago, on November 12, 2008, the FAR Council revealed its final rule regarding the “Contractor Business Ethics Compliance Program,” clarifying the murky details of the newly-enacted fraud-busting proposals. These more stringent requirements become effective on December 12, 2008, and will require federal government contractors to establish and maintain specific internal controls to detect and prevent improper conduct in connection the award or performance of any government contract; and timely disclose to the agency Office of the Inspector General, with a copy to the contracting officer, whenever, in connection with the award, performance or closeout of a government contract performed by the contractor or a subcontract awarded thereunder, the contractor has credible evidence of a violation of Federal criminal law involving fraud, conflict of interest, bribery or gratuity violations found in Title 18 of the United States Code; or a violation of the civil False Claims Act (31 U.S.C. §§ 3729-3733). 

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The Federal Acquisition Regulation, at FAR 36.201, requires government personnel to be fair and accurate in the evaluation of a construction contractor’s performance, but there is the inherent potential for an unfair and overreaching evaluation. Government personnel are required to use DD Form 2626 for performance evaluations. This form lists five major factors to be evaluated: quality control, effectiveness of management, timely performance, compliance with labor standards and compliance with safety standards.  If, for example, a contractor’s employee has an accident and sustains an injury, a government evaluator could rate the contractor as unsatisfactory for violation of the safety standards, marginal in effectiveness of management (jobsite supervision, compliance with regulations (safety), and marginal in the implementation of its quality control plan. All of this would stem from a single incident. 

     In prosecutorial circles, this is known as “stacking the charges,” meaning that every possible charge is listed so that the prosecutor may plea bargain a deal on a lesser included charge.  However, in the case of a performance evaluation, there is little, if any, “bargaining” with the evaluator. The potential exists for the government evaluator to magnify a single incident into three deficiencies on the contractor’s part, as shown by the real life example above. 

     The consequences of this approach are serious for a government contractor. The regulations permit a contracting officer to review a contractor’s past performance evaluations in making a responsibility determination in a pending contract award. Therefore, it is important for contractors to insure that their performance evaluations are fair and accurate, particularly since the government is required to retain these evaluations for six years. One of the ways that a contractor may address its performance evaluation is by the submission of written comments to the evaluator. The evaluator must review these written comments, include them with the evaluation, and revise the evaluation, if the evaluator believes such a revision is necessary. However, this process is only available to those contractors who receive an overall “Unsatisfactory” performance rating. According to the regulations, the government is not under any obligation to advise a contractor of a “marginal” performance rating.

Because of the retention and use of the performance evaluations, we recommend that every contractor obtain a copy of its performance evaluation when it completes a project over $550,000.00. If the overall evaluation is either marginal or unsatisfactory, the contractor should submit a written rebuttal within thirty days of receipt and request that the evaluating official review and include these written comments with the performance evaluation. The goal, obviously, is to present a fair and accurate representation of the contractor’s performance and to lessen, if not eliminate, the impact of “stacking the charges” in the evaluation.

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A decision has been issued in the United States District Court for the Eastern District of Louisiana, by Judge Stanwood R. Duval, Jr., dismissing the consolidated class action lawsuit against the United States Army Corps of Engineers for the failure of the Orleans Parish outfall canals and, in particular, the 17th Street Canal that allegedly accounted for approximately 80% of the flooding of downtown New Orleans in the wake of Hurricane Katrina (“In Re: Katrina Canal Breaches Consolidated Litigation, No. 05-4182 E.D. La.).  The only remaining defendants are the Orleans Parish Levee Board and the New Orleans Sewerage and Water Board.

Judge Duval ruled that the 17th Street, London and Orleans Avenue outfall canals were federal flood control projects and therefore statutorily immune from suit under the Flood Control Act of 1928.  In an opinion that was very critical of the Corps of Engineers, Judge Duval stated the following:

“While the United States government is immune for legal liability for the defalcations alleged herein, it is not free, nor should it be, from posterity’s judgment concerning its failure to accomplish what was its task. The citizens of each and every city in this great nation have come to depend on their government and its agencies to perform certain tasks which have been assigned to federal agencies by laws passed by Congress and overseen by the Executive Branch.

It should not be unreasonable for those citizens to rely on their agents, whom they pay through their taxes, to perform the tasks assigned in a timely and competent way. However, because of § 702c, there is neither incentive, nor punishment to insure that our own government performs these tasks correctly. There is no provision in the law which allows this Court to avoid the immunity provided by § 702c; gross incompetence receives the same treatment as simple mistake.

This story–fifty years in the making–is heart-wrenching. Millions of dollars were squandered in building a levee system with respect to these outfall canals which was known to be inadequate by the Corps’ own calculations. The byzantine funding and appropriation methods for this undertaking were in large part a cause of this failure. In addition, the failure of Congress to oversee the building of the LPV and the failure to recognize that it was flawed from practically the outset–using the wrong calculations for storm surge, failing to take into account subsidence, failing to take into account issues of the strength of canal walls at the 17th Street Canal while allowing the scouring out of the canal–rest with those who are charged with oversight.

The cruel irony here is that the Corps cast a blind eye, either as a result of executive directives or bureaucratic parsimony, to flooding caused by drainage needs and until otherwise directed by Congress, solely focused on flooding caused by storm surge. Nonetheless, damage caused by either type of flooding is ultimately borne by the same public fisc. Such egregious myopia is a caricature of bureaucratic inefficiency.

It is not within this Court’s power to address the wrongs committed. It is hopefully within the citizens of the United States’ power to address the failures of our laws and agencies. If not, it is certain that another tragedy such as this will occur again.”

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The Armed Services Board of Contract Appeals (“ASBCA”) recently decided a case involving the issue of whether a contractor could recover the fees charged by a consulting firm as a contract administration cost.  Fru-Con Construction Corporation. Although the cost principles in the FAR, at 31.205-47(f), provide that "costs are unallowable if incurred in connection with the prosecution of claims or appeals against the Federal Government," FAR 31.205-33 provides that "professional and consultant services" are allowable in certain circumstances. One of those circumstances occurs when a consultant's preparation of a request for equitable adjustment was for the purposes of seeking a negotiated settlement of pending issues with the government.  In such a case, a consultant’s costs may be allowable if otherwise found to be reasonable.

The ASBCA addressed the issue of whether the consultant's fee of $612,000 was reasonable. Troubled by the lack of specificity in the consultant's contract, the summary nature of the consultant's bills, and the apparent lack of oversight by the contractor, the Board decided that it was almost as if the contractor had given the consultant a blank check. The Board concluded that a prudent business person in the conduct of a competitive business would not have reasonably incurred the expenses in an effort to negotiate with the government. The Board concluded that the contractor was entitled to recover a reasonable amount for its consulting fees and, in a jury verdict, decided that $65,000, not $612,000, was allowable as a reasonable contract administration cost.

When contracting for professional services on a Federal government contract, it is important to clearly define what the professional will do, to obtain itemized bills that include sufficient detail regarding the nature of the services provided, and to oversee the consultant's activity. In addition, obtaining the consultant's work product, including trip reports, minutes of meetings, memoranda and reports will go a long way in helping a contractor avoid a later determination that the consultant’s costs were unreasonable and, therefore, not recoverable. 

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The Equal Access to Justice Act (“EAJA”) allows the recovery of attorney’s and expert witness fees provided that the applicant submits a timely application “which shows that the party is a prevailing party and is eligible to receive an award under this section. . . .”  The applicant “shall also allege that the position of the agency was not substantially justified.”  5 U.S.C. 504(a)(2).

In a recently decided case by the Armed Services Board of Contract Appeals, Environmental Safety Consultants, Inc., ASBCA Nos. 47498 and 53485, the United States Naval Facilities Engineering Command (NAVFAC) awarded Environmental Safety Consultants a contract in the not to exceed amount of $299,125 for sludge removal, disposal and cleaning services in lagoon #1 and lagoon #2 at the Naval Air Development Center, Warminster, Pennsylvania.  Environmental Safety Consultants applied for EAJA fees and other expenses in the amount of $119,067. The Board had earlier held that the appellant was entitled to an equitable adjustment for certain additional costs, in the amount of $93,989, incurred in performance of the contract.  In other words, the Appellant was a “prevailing party.”  However, as this decision demonstrates, just because a government contractor is a prevailing party does not necessarily mean that the company is entitled to recover EAJA fees.

In considering the EAJA application, the Board turned to the question of whether the position of the government was substantially justified.  EAJA provides in relevant part:

An agency that conducts an adversary adjudication shall award . . . fees and other expenses . . . unless the adjudicative officer of the agency finds that the position of the agency was substantially justified . . . . Whether or not the position of the agency was substantially justified shall be determined on the basis of the administrative records, as a whole, which is made in the adversary adjudication for which fees and other expenses are sought. 5 U.S.C. 504(a)(1).

The Supreme Court has ruled that “a position can be justified even though it is not correct, and we believe it can be substantially (i.e., for the most part) justified if a reasonable person could think it correct, that is, if it has a reasonable basis in law and fact.”   The Board found that the final decision represented a good faith effort to analyze the issues as they were known to the government at the time, not an unjustifiable agency action forcing litigation. Accordingly, the EAJA application was denied.

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As recently reported by Elise Castelli in the Federal Times, "The long slog to rebuild the Gulf Coast devastated by Hurricane Katrina might be gaining some speed."  A new order signed by GSA Administrator Lurita Doan will make it simpler and faster for the U.S. General Services Administration to award millions of dollars in recovery contracts to local small business in the Gulf Region supporting Hurricane Katrina recovery efforts.  Contracts for debris clearance, supply distribution, reconstruction and other disaster relief will be set aside for local businesses under the order.  "The order gives blanket justification for the set-aside awards, which will limit competition to local firms."

 "Local small businesses are the backbone of every community," said Administrator Doan. "Revitalizing the small businesses is one of the most significant ways we can aid in the recovery of the Gulf Coast region."

    Over the past year, Administrator Doan has met with GSA contracting officers, small business owners, and local officials in the region. Each group has asked for help in streamlining the process to get recovery work awarded to local firms. The new GSA Order, ADM 2851.5, does just that, promoting maximum participation of local small business in the impacted area for acquisitions supporting Hurricane Katrina recovery efforts.

    Additionally, GSA has taken a number of other steps to help small businesses along the Gulf Coast, including the following:

    -- Conducted over 9 small business partnering events to connect  local businesses with subcontracting opportunities.

    -- Awarded over $29 million to local businesses for renovation  of the U.S. Customs House in New Orleans.

    -- Planned a series of monthly meetings throughout the region to enroll local small businesses in the HubZone and GSA Schedules program.

After Hurricane Katrina, the President declared the Gulf Coast a Major Disaster area under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. This allows GSA's contracting officers to give a preference to local firms in the affected area. Instead of writing separate justifications, GSA Order ADM 2851.5 provides a blanket justification for all local preference awards under the authority of the Stafford Act.  The Order will remain in effect until the Presidential declaration of a Major Disaster is lifted.

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Engineering New Record reports that House and Senate conferees have reached a deal on a long–delayed bill that would authorize about $21 billion for hundreds of Army Corps of Engineers water projects and require more review by outside experts of work the Corps plans to do.  Funding would provide for projects to restore the Louisiana coast and Florida's Everglades, upgrade navigation on the upper Mississippi River and improve flood control efforts nationally.  Key lawmakers announced July 27 they had reached an agreement on major elements of a new Water Resources Development Act.

The package represents a melding of a $14.9–billion WRDA bill that the House approved in April and a $13.9–billion measure that the Senate passed in May. House Transportation and Infrastructure Committee Chairman James Oberstar (D–Minn.), who also chairs the House–Senate WRDA conference committee, told reporters that the reason the final version's price tag exceeds the House–passed total is that it also includes projects from the Senate bill.  Final votes by both chambers to approve the compromise agreement are expected next week, before the August recess.

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On May 17, 2007, we presented a seminar in Richmond where we discussed the “New World of Federal Construction Contracting” with a number of contractors interested in obtaining and performing Indefinite Delivery Indefinite Quantity (IDIQ) and Multiple Award Task Order (MATOC) contracts. Federal agencies are turning to IDIQ and MATOC contracts more and more often for construction projects, particularly in conjunction with the military construction involved in the Base Relocation and Closure Program (BRAC).

A recent article in the May 24, 2007 on-line publication Mid-Atlantic Construction stresses the substantial market opportunities for contractors in the Richmond area, as well as in all of Virginia.  Many of these opportunities involve military construction for the U.S. Army and the U.S. Navy.  Quoting Harold B. Kelly, president of the Virginia Chapter of the Associated Builders and Contractors, "2007 looks terrific for many, many of our members." He predicts that the consolidation of Army logistics units at Fort Lee in Prince George County alone will have a major impact on the market. The Army plans to spend at least $1 Billion to build 6 million square feet of new space. Chris Jarling, general manager of Turner Construction Company in Virginia, noted that he anticipated that the U.S. Army Corps of Engineers will use the design-build delivery method to construct many of the BRAC projects in Virginia.

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The Society of American Military Engineers (SAME) reports, in its latest issue of the SAME Government & Industry e-News, that since the Department of Defense (DOD) Mentor-Protégé program began 16 years ago with one agreement, industry participants have formed nearly 1,000 more agreements. The scope of the program also has grown to include women-owned, service-disabled veteran-owned and historically underutilized business zone concerns.  In a recent Web-based survey of 48 former protégés conducted by the Government Accountability Office, most protégés reported that the program was a valuable experience that enhanced their business development and helped increase their contracts and revenues. Verifying the value of the Mentor-Protégé Program, 98 percent of the protégés reported that they would recommend the program to other eligible small businesses. Presently, more than 230 firms participate in the program, representing the manufacturing, service, construction, and research and development industries.

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We recently presented a number of seminars on the topic “How to Succeed in the New World of Federal Construction Contracting” that dealt with the shift from sealed bidding to negotiated procurement in federal construction contracting, as well as the increased use of Indefinite Delivery Indefinite Quantity (IDIQ) and Multiple Award Task Order Contracts (MATOC).  (See our upcoming seminar schedule and agenda).  One of the byproducts of this shift in procurement policy has been a reduction in the number of competitive opportunities resulting from the combination of many smaller projects into very large negotiated contracts.  As the examples below demonstrate, the era of $320 million construction contracts and $9 million to $24 million task orders has arrived.

Shaw-Dick Pacific, LLC, Honolulu, Hawaii, was awarded a $175,983,523 (first increment) firm-fixed-price contract for construction of the Hawaii Regional Security Operations Center at Naval Computer and Telecommunications Area Master Station Pacific. An additional $144,016,477 will be funded upon the passage of FY2008 Military Construction Appropriation Bill making the total amount $320,000,000. The contract contains one option which may be exercised within three months, bringing the total cumulative value of the contract to $320,040,000.  Work will be performed at Wahiawa, Hawaii, and is expected to be completed by June 2010.  This contract was competitively procured with 38 proposals solicited and two offers received. The Naval Facilities Engineering Command, Pacific, Pearl Harbor, Hawaii, is the contracting activity (N62742-07-C-1329). 

Rogers-Quinn Construction, Inc., Bonsall, Calif., was awarded $9,820,000 for firm-fixed-price Task Order 0009 under a previously awarded indefinite-delivery/indefinite-quantity multiple award construction contract (N68711-02-D-8062) for construction of the Reserve Training Center at Marine Corps Air Ground Combat Center, Twentynine Palms.  The work to be performed provides for the construction of a single-story, steel framed structure with spread footing foundation, concrete floor, reinforced masonry walls, standing seam metal roofing system, fire protection system, heating, ventilation and air conditioning systems, specially constructed weapons storage area (armory), lithium battery storage area, staging areas, classrooms, storage and supply areas, drill hall, administrative spaces, locker and shower rooms, workshops, electrical utilities and mechanical utilities. Work will be performed in Twentynine Palms, Calif., and is expected to be completed by June 2008.  The Naval Facilities Engineering Command, Southwest, San Diego, Calif., is the contracting activity.

Harper Construction Co., Inc., San Diego, Calif., was awarded $24,855,000 for firm-fixed price Task Order 0005 under a previously awarded multiple award construction contract (N68711-02-D-8019) for family housing replacement in the Desert View and Club Street Area at Marine Corps Logistics Base, Barstow.  The work to be performed provides for design and construction services for 74 family housing units and a community center, consisting of all necessary site clearing, grading, demolition, improvements, structures, and off-site work as required. Work will be performed in Barstow, Calif., and is expected to be completed by June 2008.  The Naval Facilities Engineering Command, Southwest, San Diego, Calif., is the contracting activity.

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One of the most important factors considered by agencies in negotiated procurements is the past performance of an offeror. In addition to the information that an offeror might provide in response to a solicitation, source selection officials can access the performance evaluations from an offeror's prior federal contracts.  It is important, therefore, for Federal construction contractors to know what information on their past performance is available to procurement officials.

A contractor can review its own performance evaluations on the internet by accessing the Business Partner Network website, [www.bpn.gov]. and clicking on the link Past Performance Information Retrieval System, PPIRS. [www.ppirs.gov].  The PPIRS is maintained for the government by the Department of the Navy.  The Navy requires that, before accessing the system, a senior management representative must register by submitting a Senior Management Access Request Form to the office identified on the form. [http://www.cpars.navy.mil/accessforms/csmarf.htm]

In addition, before accessing the PPIRS a contractor must not only be registered with the Central Contractor Registration (CCR), [www.ccr.gov] but also must have created a Marketing Partner Identification Number (MPIN) in its CCR profile. Instructions on creating an MPIN are available on the CCR website.

As everyone who has dealings with the federal government is learning, access to government information is becoming more difficult, particularly information from the Department of Defense.  Obtaining the past performance information on your federal contracts is no exception.  As of November 1, 2006, contractors must also have a valid DoD PKI (Public Key Infrastructure) certificate.  For most federal construction contractors, this certificate must be obtained from an External Certificate Authority (ECA). The approved ECA vendors for the Department of Defense are VeriSign, Inc. and Operations Research Consultants, Inc.

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The American Society of Civil Engineers calls attention, on its website, to the rapid deterioration of our nation's highways, bridges, airports, dams, waterways, water systems, wastewater systems and other infrastructure facilities that are vital to our nation's economy and our quality of life.  Estimating that over $1.6 trillion needs to be invested during the next five years to restore the infrastructure to only a good condition, the ASCE offers a plan of action for Congress to address this national emergency.

Implementation of this action plan, or even just portions of the plan, would represent a significant opportunity for Federal construction contractors.

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Earlier this month, the President submitted the Administration's FY2008 Budget to Congress. Federal construction contractors should be encouraged by the large number of projects that are proposed for funding.  The budget provides the highest level of funding ever included in any President's budget for U.S. Army Corps of Engineers’ water resources projects and programs.  The proposed budget for the Department of Defense includes over $8 billion for the BRAC (Base Realignment and Closure) program.  The Defense FY2008 budget also includes considerable funding for military construction to support the Integrated Global Presence and Basing Strategy (IGPBS) that is presently being implemented to move U.S. forces from overseas to continental U.S. installations to better position them to support worldwide contingencies.

For more information on where these projects will be built in the coming years, please click here. The FY2008 Budget for military construction totals over $18 billion.  

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MATOC – IDIQ – “Best Value” – BRAC

These are the terms that contractors are hearing more and more and they are part of the rapidly changing world of construction contracting with the federal government.  It is no longer enough to simply be the low bidder; now, in many federal procurements, it is the “best value” that gets the job.  To make matters even more complicated, projects that were once bid individually, on a project-by-project basis, are now being awarded under Indefinite Delivery Indefinite Quantity (IDIQ) or Multiple Award Task Order Contracts (MATOC) and the number of contracting opportunities is shrinking.  Nevertheless, for those who understand the system and know how to put an effective proposal together, there continue to be many opportunities for construction contractors and subcontractors to participate in the federal government’s vast construction program, including the upcoming Base Realignment & Closure (BRAC) program.

If you are interested in learning more about construction contracting with the Army Corps of Engineers, NAVFAC, and other federal agencies, we invite you to attend one of the upcoming seminars sponsored by Payne Hackenbracht & Sullivan on How to Succeed in the New World of Federal Construction Contracting.  The seminars are to be held in Charlotte, Dallas, New Orleans, Orlando, or Philadelphia on one of the dates in February 2007 listed above and on the attached agenda.  The speakers include former Corps of Engineers attorneys and engineers, the former Deputy District Engineer of the New Orleans District, and the former Chief of the Construction Division of the Philadelphia District. The program will be presented from 8:30 a.m. until 1:00 p.m.

The program will focus upon Identifying Contracting Opportunities, Understanding the Latest Contracting Methods, Successfully Competing for Negotiated Procurements (including effective proposal preparation), and How to Deal Effectively with Federal Agencies, and will include information about how to protect your rights in both the bidding and contract performance stages of a project.  While contracting with the government provides many potentially profitable opportunities for a contractor, the federal contracting process is fraught with peril for those who do not understand federal procedures.  We will help you understand both what you should do, and what you should not do, when dealing with the federal government.

Please review the enclosed agenda and registration form, and feel free to contact us if you have any questions.  The attendance fee is $195, and additional attendees from the same company will only be charged $95.  Please register early because space is limited.

Our Seminar Coordinator, Rachel McNally, is available to answer your questions and she may be contacted at 215-542-2777, rem@phslegal.com.

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