Photo of Michael Payne, Chair

Michael H. Payne is a Partner and Chair of the Federal Construction Group at Cohen Seglias Pallas Greenhall & Furman PC as well as an experienced trial lawyer who has represented contractors, subcontractors, and suppliers in all aspects of federal contract and construction law. His efforts have included assistance in the preparation of bids and proposals, interpretation of contract provisions, filing of protests, negotiation of contracts, and the litigation and settlement of contract claims and appeals.

Michael co-authored Bidding and Managing Government Contracts, published by R. S. Means Co., Inc, and also co-authored chapters in two books on Federal Government contracting published by Thompson/Reuters. He currently presents several seminars each year on a variety of federal government contracting topics including construction, proposal preparation, and ethics in government contracting, while maintaining an active national construction practice.

In a recent decision by the Armed Services Board of Contract Appeals, Dick Pacific Construction Co., Ltd., ASBCA No. 57675 et. al., decided on December 15, 2015, the Board repeated something that has been said many times before:

We consider daily logs to be the most reliable evidence of what actually happened during construction. Technocratica, ASBCA No. 46567 et al., 99-2 BCA ¶ 30,391 (“Daily inspection reports have been held to be prima facie evidence of the daily conditions as they existed at the time of performance.”)

Continue Reading Timely Documentation is Critical

In a post publisConstruction Sitehed in 2013, we addressed the use of termination for default as a weapon. Unfortunately, construction contractors who fall behind schedule are automatically on the defensive and they rarely find that contracting officers are willing to concede government responsibility. The government, of course, is in a difficult position when it must explain to its customer – the end-user – that the scheduled completion date will not be met. All too often, instead of admitting that the contractor is not responsible, the threat of a termination for default is held over the contractor’s head because it is easier to blame the contractor than to admit that the government made a mistake. Continue Reading Defenses to a Termination for Default

It is not uncommon, in the litigation of a federal construction claim, for the Government to produce gigabytes of electronic data, amounting to thousands and thousands of documents, in response to a motion for the production of documents.  Frequently, these “electronic” documents are simply the scanned versions of paper files in the Government’s offices.  In the scanning process, extensive duplication occurs and documents that are clearly separate in paper file folders are scanned together in a manner that often combines multiple documents.  Once combining occurs, it is very difficult for the recipient of the electronic information to tell where one document ends and the next one begins.  Documents and their attachments become confused, are re-arranged, and difficult to follow.  Continue Reading E-Discovery- Bring Back the Boxes

In a recent decision issued by the United States Court of Federal Claims, Anthem Builders, Inc. v. United States,  April 6, 2015, WL 1546437, the Court considered a protest involving the proposed use of an individual surety to furnish required bonds.  Under FAR 28.203, an individual surety may be accepted on a federal construction project, instead of a corporate surety on the approved list found on Treasury Department Circular 570, provided that certain requirements are met.  FAR 28.203 provides, in relevant part:

Bond

(a) An individual surety is acceptable for all types of bonds except position schedule bonds. The contracting officer shall determine the acceptability of individuals proposed as sureties, and shall ensure that the surety’s pledged assets are sufficient to cover the bond obligation. . .

(b) An individual surety must execute the bond, and the unencumbered value of the assets (exclusive of all outstanding pledges for other bond obligations) pledged by the individual surety, must equal or exceed the penal amount of each bond. . .

(c) If the contracting officer determines that no individual surety in support of a bid guarantee is acceptable, the offeror utilizing the individual surety shall be rejected as nonresponsible. . .

The proposed use of an individual surety has frequently been problematic because of the questionable practices of some individual sureties, and because the required assets have often been difficult to verify.  In addition, when questions arise, FAR 28.203(a) grants the Contracting Officer with the discretion to “determine the acceptability of individuals proposed as sureties” and to reject “the offeror utilizing the individual surety . . . as nonresponsible.”  Although there were a number of arguments that the Court considered, the Court ultimately agreed with the Government’s position that Anthem was nonresponsible because its proposed individual surety offered an Irrevocable Trust Receipt issued by First Mountain Bancorp (FMB”) that was unacceptable because FMB was not a FDIC insured financial institution.  (The Court also cited other reasons for agreeing that the individual surety should be rejected).

In our experience, it is very difficult to convince a Contracting Officer to accept an individual surety.  First of all, the inability of the bidder to obtain bonding from a surety on the approved list raises a red flag and, secondly, there have been a number of cases of fraud in the proposed use of individual sureties.  Contracting Officers, therefore, will rightfully exercise great caution in protecting the government’s interests.

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.

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.

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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.

My partner, Ed DeLisle, and I recently attended two Industry Days sponsored by the Army Corps of Engineers (“USACE”).  The first one was held in New York City on October 20th, and the second one was held in Tel Aviv on November 5, 2014. The purpose of the programs was to introduce American and Israeli construction contractors and A/E firms to the upcoming opportunities in Israel. Information was provided on the general scope of USACE design build and design bid build projects within Israel; typical infrastructure and facilities being procured; potential repair, maintenance and construction opportunities to support Israeli Ministry of Defense (“MoD”) facilities in Israel; as well as information on the solicitation and proposal process. The projects are funded by the Foreign Military Finance program and it is projected that  hundreds of millions of dollars in military construction will be undertaken by the Corps in the near future, with significant expenditures in the next year.Israel Construction Site

The contracts, for the most part, will be solicited as Multiple Award Task Order Contracts (“MATOC”), but there will also be some stand-alone projects that will be solicited through individual Requests for Proposals. An important requirement of the program is that all of the contracts must be awarded to American companies, and those companies will generally be expected to perform at least 25% of the work with their own forces. That 25% does not necessarily involve field labor, and may be made up of activities associated with construction management. The idea is to assure that American companies benefit financially from the program and that they remain responsible for project completion. The Corps is understandably wary of companies that serve only as “brokers,” and expects the American contractors to be fully engaged in the performance of the projects.

Since most American companies will not want to incur the expense of sending their own labor forces to Israel, teaming arrangements with Israeli subcontractors will be vital.  Fortunately, there are a number of very capable Israeli construction contractors interested in the work and many of them attended the Industry Day in Tel Aviv. At this point, however, there are more available Israeli subcontractors than there are American companies participating as primes, so the Corps is interested in generating more participation by American firms.

Given recent events, the first thing that many people will think about is whether it is safe to work in Israel. The answer is “yes,” not only because the extent of the turmoil is often exaggerated by the media, but because all of these projects will be performed on Israeli military bases. Even the recent rocket attacks from Gaza did virtually no damage because of the overwhelming success of the Iron Dome missile defense system. I can tell you that Ed and I were not concerned at all about our safety while in Israel and the daily life of Israeli citizens was entirely normal. That being said, American sureties are inherently risk averse and some contractors are having difficulty obtaining bonding. Although the Corps is currently requiring payment and performance bonds, there is also a possibility that some solicitations may permit Bank Letter Guarantees as the Corps has done in the past.

If you are interested in learning more about this program and the opportunities for American construction contractors, please contact us. We can put you in touch with both American and Israeli companies, as well as the knowledgeable people in the Corps of Engineers.  The program is administered by the Europe District of the Corps located in Wiesbaden, Germany.

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

There is no question that documentation is an important part in the resolution of any construction dispute. Particularly contemporaneous documents – documents that are created at the time that events occur. Quality control reports, daily logs, and timely letters all fall into the “contemporaneous” category. Another type, however, has an instantaneous characteristic that not only makes it contemporaneous, but so current as to be potentially dangerous – e-mail. This form of documentation cannot only be useful to record events virtually as soon as they occur, but it also has become a vehicle for the expression of emotions without the benefit of reflection.

Sending sms

Every contractor, for example, has had the occasion to be angered by something that another contractor, vendor, or owner has done during the performance of a construction project. If the subject of that anger, or disagreement, could lead to a request for additional compensation, there is often a knee-jerk reaction to put something in writing. Many of us have hurriedly drafted a letter and then, feeling better for having written it, crumpled the paper and tossed it into the nearest wastebasket. It has a therapeutic value and no harm is done. In our Information Age, however, with the ability to compose e-mail messages on our computers, iPads, and smartphones, the opportunity for reflection is gone as soon as we hit the “Send” button.

As an attorney, this often creates a serious problem when those messages are sent by a prime contractor to a sub, or by a sub to the prime. What both parties seem to fail to recognize is that these instantaneously transmitted messages not only record past events and express current thoughts, they may also have a dramatic effect on the future outcome of a dispute. What happens when the prime accuses the sub of poor workmanship and later seeks to blame the owner for providing a defective specification that actually caused the problem? That e-mail message, sent hastily to the subcontractor before all the facts were known, may become a useful document to the owner during litigation. The question, on cross-examination, will be “Isn’t is true that you believed that the problem was poor workmanship by your subcontractor, and not any defect in the specifications?” If the problem really is a defective specification, the ill-advised e-mail message has provided a potential defense to the owner and has introduced uncertainty into the dispute where none may have otherwise existed.

The lesson in all of this is that all parties should think about the possible consequences of the emotions and feelings they are expressing. There is no question that the facts, such as the working conditions, equipment, and manpower at the site must be recorded promptly and accurately. If the accurate recording of events affects the outcome of a dispute, it probably means that justice has been done. Expressions of emotions and opinions that are not well thought-out are in a different category, however and, when conveyed in e-mail messages, they are an unwelcome byproduct of the Information Age. E-mail messages, and all forms of Electronically Stored Information (“ESI”), are just as discoverable by the other side as paper documents. My advice is to be careful and think about the possible future impact of writing, and instantaneously transmitting, things that do not need to be said. Not every form of contemporaneous documentation is a good idea.

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

In a bid protest argued by our firm before the United States Court of Federal Claims on September 23, 2014, the Court ruled in favor of our client, RLB Contracting, Inc., (RLB) in a matter involving the designation of the dredging exception to NAICS code 237990, which is for “Other Heavy and Civil Engineering Construction.” 13 C.F.R. § 121.201 (2014). The solicitation for the “South Lake Lery Shoreline Protection and Marsh Creation Project” was set aside for small business concerns by the Natural Resource Conservation Service, but the exception to NAICS code 237990 that applies when a project is considered to be dredging was not invoked. At the time, the exception lowered the small business size standard from $33.5 million to $25.5 million for dredging and required that the successful contractor “must perform at least 40 percent of the volume dredged with its own equipment or equipment owned by another small dredging concern.” 13 C.F.R. § 121.201, Footnote 2. (Currently, the applicable small business size standards are $36.5 million and $27.5 million respectively).

Dredging

The small business regulation found at 13 C.F.R. 121.402(b)(2) states that “[a] procurement is usually classified according to the component which accounts for the greatest percentage of contract value.” In this case, RLB presented evidence that the agency had internally estimated that over 50% of the work involved dredging and that the agency had made its NAICS code designation based on an erroneous calculation that only 10% of the work involved dredging. RLB first appealed the NAICS code designation to SBA’s Office of Hearings and Appeals (“OHA”), arguing that the agency applied the incorrect NAICS code size standard. OHA denied the appeal on the basis that the project included other items of work in addition to dredging. However, OHA did no analysis as to the contract value or relative importance of those “other items.” RLB then brought its protest to the United States Court of Federal Claims, again arguing that the agency violated the regulations by failing to apply the dredging exception. RLB also argued that the agency had failed to provide correct information to OHA, and that OHA had refused to consider supplemental information furnished by counsel for RLB. The Court ruled that OHA’s decision was incorrect as a matter of law because OHA’s “decision does not give primary consideration” to “the relative value and importance of the components of the procurement” and did not concern itself with whether the agency classified the procurement “according to the component [of work] which accounts for the greatest percentage of contract value.” 13 C.F.R. § 121.402(b)(1)-(b)(2) (2014).

The Court was critical of the agency for not including pertinent documents in the Administrative Record which demonstrated that the agency knew that the dredging work accounted for the greatest percentage of contract value, and was further critical of OHA for concluding that other, relatively minor, elements of the work supported the agency’s contention that the project did not predominantly involve dredging. As a result, the Court entered a permanent injunction and remanded the matter to the Contracting Officer with instructions “to make a new determination of whether the dredging exception applies based on all available current information.” The Court further stated that “If item 7, Excavation Marsh Creation Dredging, is the most valuable item of work, the contracting officer must give primary consideration to it.”

This decision is an important victory for the small business dredging industry because it makes it clear that federal agencies are not free to circumvent the protection afforded to small business dredging contractors, under the exception to NAICS code 237990, by characterizing work generally as civil construction even though the dominant item of work is dredging. The exception is designed to prevent brokering by non-dredging small business concerns who, after receiving an award, could subcontract virtually all of the dredging work to a large business dredging concern.

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

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

Federal contractors and subcontractors will soon be subject to new regulations, which increase those contractors’ obligations to hire both veterans and individuals with disabilities (“IWDs”). On March 24, 2014, two final rules promulgated by the U.S. Department of Labor’s Office of Federal Contract Compliance Program (“OFCCP”) will go into effect. The veterans rule updates the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (“VEVRAA”), as amended by the Jobs for Veterans Act of 2002; the IWDs rule implements the nondiscrimination and affirmative action regulations of Section 503 of the Rehabilitation Act of 1973 (“Section 503”), which prohibits discrimination by covered federal contractors and subcontractors against individuals on the basis of disability, and requires affirmative action on behalf of qualified IWDs.

Vethireme.jpg The cornerstone of both rules is an adjustment to federal contractors’ and subcontractors’ affirmative action program requirements. As many contractors know, any contractor that meets the dollar threshold ($100,000 for VEVRAA and $50,000 for Section 503) and has 50 or more employees (“Covered Contractors”) is required to have an affirmative action plan (“AAP”). Pursuant to these new rules, Covered Contractors must now include in their AAPs a “hiring benchmark” for veterans and a “utilization goal” for IWDs. In other words, contractors must now set goals with respect to the number of veterans, and IWDs, they plan to hire for federal projects.

The veterans rule directs federal contractors to set this “hiring benchmark” in one of two ways. First, contractors can chose to set a hiring benchmark equal to the national percentage of veterans in the civilian labor force (currently, 8%). The OFCCP publishes this information, and updates it annually. Alternatively, a contractor may set a hiring benchmark by analyzing a combination of national, state and local data, including:

  • The average percentage of veterans in the civilian labor force in the state(s) where the contractor is located over the preceding three years, as calculated by the Bureau of Labor Statistics and published on the OFCCP website;
  • The number of veterans, over the previous four quarters, who were participants in the employment service delivery system in the state where the contractor is located, as tabulated by the Veterans’ Employment and Training Service and published on the OFCCP website;
  • The applicant ratio and hiring ratio for the previous year, based on the data collected by the contractor for its affirmative action plan data analyses;
  • The contractor’s recent assessments of the effectiveness of its external outreach and recruitment efforts; and
  • Other factors, including, but not limited to, the nature of the contractor’s job openings and/or its location, which would tend to affect the availability of qualified protected veterans.

While the second method is more complex, it could yield a significantly lower “benchmark” if the contractor is located in a low-veteran area. Contractors will have to determine which “benchmark” derivation system is best for them. Regardless of how it is derived, the hiring benchmark will be calculated using the percentage of veterans among the employer’s hires, as opposed to current workforce. The benchmark can be applied to affirmative action job groups, EEO-1 categories, or the overall workforce, at the contractor’s election.

The IWDs rule requires contractors to set goals relating to the hiring of IWDs. Here, however, the OFCCP has not left the determination of that benchmark up to the individual contractor, but, rather, has set a blanket 7% “utilization goal” for the employment of qualified IWDs for each of the job groups established in the contractor’s AAP. Utilization is to be measured by job group, with the same seven-percent goal applying for each job group without regard to any data regarding the availability of individuals with disabilities who are qualified for the relevant jobs in the relevant geographic area. Unlike the “hiring benchmarks” required by the veterans rule, the IWDs rule’s “utilization goal” relates to the contractor’s entire workforce, not just new hires.

Other notable effects of these new rules include: periodic reviews of personnel policies and physical/mental job qualifications; the obligation to offer job applicants the opportunity to self-identify as a veteran or IWD; additional internal and external affirmative action policy dissemination requirements; new responsibilities relating to training employees involved in the hiring and disciplinary process; added requirements concerning specific subcontract language relating to federal contractors’ affirmative action responsibilities; and increased obligations concerning the collection and analysis of data relating to the hiring, and employment of, veterans and IWDs. If you have specific questions relating to the obligations imposed by these new rules, contact a legal professional.

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

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

Thanks to a recent decision by the Court of Appeals for the Federal Circuit, in Metcalf vs. U.S., the protection afforded by the Differing Site Conditions clause has been reaffirmed. Although the Court primarily addressed the requirement that federal agencies must demonstrate good faith and fair dealing in the administration of federal contracts, the Court also made an important ruling on the meaning and purpose of the Differing Site Conditions clause. Reversing a decision by the U.S. Court of Federal Claims that had been vigorously opposed by federal construction contractors and industry groups, the Court of Appeals ruled that:

“Requirements for pre-bid inspection by the contractor have been interpreted cautiously regarding conditions that are hard to identify accurately before work begins, so that the duty to make an inspection of the site does not negate the changed conditions clause by putting the contractor at peril to discover hidden subsurface conditions or those beyond the limits of an inspection appropriate to the time available.”

It is not uncommon for federal agencies to attempt to write the Differing Site Conditions clause out of the contract by discouraging contractors from relying upon representations of subsurface conditions in the solicitation. We have seen solicitations that tell contractors that borings are not to be interpreted as representative of subsurface materials beyond the individual bore holes; that bidders should make their own determinations of subsurface conditions; or, that information in the solicitation is for “informational purposes only.” What these agencies overlook is that the purpose of the clause is to allow all contractors to compete on the same basis, and without the need to put contingencies in their bids.

Fortunately the Court recognized the importance of maintaining the protection afforded by the Differing Site Conditions Clause, stating that “[i]t exists precisely in order to take at least some of the gamble on subsurface conditions out of bidding.” The Court further stated that “instead of requiring high prices that must insure against the risks inherent in unavoidably limited pre-bid knowledge, the provision allows the parties to deal with actual subsurface conditions once, when work begins, more accurate information about them can reasonably be uncovered.” This is great news for federal construction contractors who, prior to this decision, may have been misled into believing that the risk of differing site conditions had shifted entirely to them.

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