On September 11, 2013, the American Legion filed an amicus curiae brief, asking the Federal Circuit to reverse the Court of Federal Claims’ November decision in Kingdomware Technologies, Inc. v. The United States. In Kingdomware, the COFC effectively overturned an important line of Government Accountability Office (“GAO”) decisions affecting VOSBs and SDVOSBs. Those GAO cases (commonly referred to as the Aldevra cases) addressed a critically important aspect of the Veterans Benefits, Health Care, and Information Technology Act of 2006, 8 U.S.C. §§ 8127-28 (“the Act”).

That Act established “the rule of two.” It required that “a contracting officer of [the VA] shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans if the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.” 38 U.S.C. § 8127(d).

On multiple occasions, contractors Kingdomware Technologies and Aldevra brought protests before the GAO, wherein they cited the language above and argued that the VA failed to follow the requisite “rule of two.” Specifically, the contractors averred that the agency failed to perform market research to determine whether two or more VOSB/SDVOSB concerns could satisfy the requirements of numerous solicitations and/or failed to set contracts aside for such concerns when market studies indicated that two or more such companies existed. Instead, in multiple instances, the VA opted to simply select contractors from the Federal Supply Schedule (FSS). The contractors argued that doing so was a violation of the Act.

The VA looked at it differently. It argued that the Act did not require it to consider setting aside procurements for SDVOSBs or VOSBs when the FSS could be used. The VA felt that it had the discretion to meet its requirements through the FSS, regardless of any obligations imposed by the Act.

In the Aldevra line of cases, the GAO agreed with the contractors’ interpretation of the Act. However, in a surprising move, the VA refused to follow the GAO’s recommendation. In an effort to break the gridlock, Kingdomware opted to press its position in the Court of Federal Claims. Unfortunately, the COFC agreed with the VA’s interpretation and effectively rejected the GAO’s support of “Veterans First.”

The COFC concluded that “the 2006 Act must be construed in light of its goal-setting provisions and thus the statute is at best ambiguous as to whether it mandates a preference for SDVOSBs and VOSBs for all VA procurements.” Although the Act uses the phrase “shall award” in one place, the Court reasoned that this phrase “must be read in connection with the other terms in the 2006 Act.” The Court found that those other terms demonstrated that the Act was “goal-setting in nature.” As such, it did not require the VA to consider setting aside procurements for SDVOSBs or VOSBs. Based on this reading of the Act, the COFC held that the VA had broad discretion with regard to set-aside procurements and, therefore, that the agency was not required to consider setting aside the procurement at issue. Kingdomware appealed to the Federal Circuit, which is where the matter presently sits.

In filing its amicus brief, the American Legion has joined the fight against the VA. In the brief, the American Legion argues that the Act was specifically passed to increase the number of contracts set-aside for VOSBs and SDVOSBs. As such, Congress’ use of the word “shall” was entirely deliberate. The selected language was intended to force the VA to follow the “rule of two.” The American Legion’s brief cites to an earlier Federal Circuit decision, which stated that: “the word ‘shall’ is not ambiguous. . . ‘shall is mandatory language,’ and ‘nothing in the language of the statute states or suggests that the word shall does not mean exactly what it says.’ ” The amicus brief goes on to state that “[b]y awarding contracts to nonveteran businesses…the VA diverts up to nearly $3 billion per year in government contracts away from veteran-owned small businesses.” The American Legion argues that this result is unacceptable and calls on the Federal Circuit to reverse the COFC ruling.

It is difficult to argue with the American Legion’s position. By using the word “shall” in the Act, Congress made its intent clear. The Act was designed to place veterans and service-disabled veterans ahead of all others for contracting purposes. There is nothing ambiguous about that proposition and the statutory language supports such a conclusion. The fact that the VA refuses to make awards to those it is designed to serve, despite the clear intent of the Act, is mind-boggling. Let’s hope the Federal Circuit agrees.

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

This past July, we told you about an important bill known as the Stop Unworthy Spending Act (“SUSPEND Act”). That bill, which was introduced by House of Representatives oversight committee chairman Darrell Issa, aimed to dramatically overhaul the suspension and debarment (“S&D”) procedures applicable to federal contractors. Currently, the suspension and debarment of contractors is handled by each individual contracting agency, by its respective S&D office. But under Issa’s SUSPEND Act, these forty-one individual offices would be consolidated into one, centralized “Board of Civilian Suspension and Debarment.” That board would be overseen by the General Services Administration. In addition to consolidating the forty-one civilian agency S&D offices, the Act aimed to standardize agencies’ S&D policies, and increase transparency.

On October 29, 2013, the House of Representatives’ Oversight Committee passed an amended version of the SUSPEND Act. According to an October 28, 2013 press release, the amended version of the bill “reflects extensive stakeholder and academic community feedback,” and differs from the draft version of the bill circulated in February in several key respects. Among the additions to the new version of the bill is a timeliness rule, which requires the new, consolidated “Board of Civilian Suspension and Debarment” to consider cases within thirty days of referral. The board would also be required to render a final decision on those cases within six months of referral. S&D procedures relating to wartime operations and other time-sensitive matters would be further expedited. The new bill would also require agencies to coordinate their S&D efforts; it encourages the agencies to utilize a range of fraud remedies, including civil and criminal enforcement, with an emphasis on the timely recovery of funds.

Pursuant to the new bill, over forty smaller executive agency S&D offices would be centralized under the control of the Board of Civilian Suspension and Debarment. In contrast, larger agencies and military departments would be permitted to operate their own independent S&D offices, as long as they can demonstrate that they are able to run an effective S&D program. Overall, proponents say, the SUSPEND Act will improve the consistency and transparency of governmental S&D programs by:

  • Combining the separate S&D regulations governing contracts and grants into a single, comprehensive regulation;
  • Mandating a single government-wide case management system to track cases and make publicly available all final resolutions of S&D cases;
  • Enhancing oversight to ensure the accuracy and completeness of a government-wide database of firms that should not receive awards;
  • Speeding up referrals for S&D, including the identification of contractors and grantees that repeatedly fail to perform; and
  • Ensuring accused parties have the opportunity to be heard prior to any adverse action being taken against them by requiring “show cause” letters.

In our view, the new S&D framework proposed in the SUSPEND Act is a considerable improvement over the current S&D system, if only because of the shortened governmental response deadlines. Under the current system, government contractors who were unfairly suspended or proposed for debarment are often forced to wait months before the matter is resolved. Hopefully, this bill could remedy that problem. We will keep you posted on the progress of the bill.

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.

On October 2, 2013, the Small Business Administration (“SBA”) published a final rule implementing changes required by the Small Business Jobs Act of 2010. One of the most interesting changes relates to “bundling,” “affiliation,” and the ability of small businesses to form a new type of teaming arrangement known as a “SBTA.”

“Bundling” refers to “the consolidation of two or more procurement requirements for goods or services previously provided or performed under separate smaller contracts into a solicitation of offers for a single contract.” (13 C.F.R. § 125.2) The problem is, when contracts are “bundled” they often become too big, or too complex, for a small business to handle alone.

The SBA’s new rule seeks to lessen the negative impact of “bundling” on small business contractors. It permits small businesses to form a new type of arrangement known as a “Small Business Teaming Agreement” (“SBTA”), which is excepted from the normal affiliation rules. Under the revised rule, small businesses may form these SBTAs without undergoing any “affiliation” analysis under 13 C.F.R. § 121. In other words, on bundled contracts small businesses are now free to team with other small businesses without worrying that they could be deemed “affiliates” and risk losing their small business size status. There has been much consternation in the small business world about the concept of bundling. By virtue of this rule, the SBA is attempting to level the playing field by providing small businesses with an additional way to compete.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group.

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

On September 30, 2013, the Department of Veterans’ Affairs (VA) issued an interim final rule, announcing that it would maintain authority over VOSB/SDVOSB status protests made in connection with the agency’s “Vets First” contracting program (the “Program”). Back in 2009, when the Program was created, the VA and the Small Business Administration (SBA) were tasked with forming an interagency agreement concerning the scope of each agency’s authority over Vets First protests. Since then, the VA has addressed all protests relating to the ownership and control of VOSBs and SDVOSBs, while the SBA has addressed all protests relating to size. The September 30, 2013 rule did not disturb this division of responsibilities.

However, this rule may soon be superseded by the passage of a new law. On July 31, 2013, Representative Mike Coffman (R-CO), a member of the House Small Business Committee and a frequent critic of the VA, introduced a bill referred to as the Improving Opportunities for Service-Disabled Veteran-Owned Small Business Act of 2013. If it passes, the bill will transfer control and administration of virtually all protests relating to the Vets First Program to the SBA.

As many contractors know, the SBA has its own VOSB/SDVOSB program. That program allows concerns to self-certify as VOSBs or SDVOSBs; once a concern has self-certified, it is eligible to compete for VOSB/SDVOSB set-aside procurements advertised by any agency other than the VA. However, if a concern also wants to compete for VA VOSB/SDVOSB set-aside contracts, it must first be verified by the VA.

Not surprisingly, this dual system has led to much confusion and uncertainty. Identically worded, or nearly identically worded, regulations have been interpreted differently by the agencies and by the Courts, providing contractors with inconsistent direction on how to establish “unconditional ownership” and “unconditional control”. Moreover, because of the different interpretations of these important terms, under the current system, a concern may be eligible for purposes of the SBA program, but denied verification under the VA program, or vice versa. For these reasons, most businesses find the current system frustrating and inefficient.

Coffman’s bill would eliminate the current system and replace it with a single VOSB/SDVOSB verification process. It would also unify the definitions of “unconditional ownership” and “unconditional control,” providing contractors with a clearer idea of what qualifies as a VOSB or SDVOSB concern. While the VA would retain authority for determining whether an individual is a “service-disabled veteran,” the SBA would have the authority to rule on all other eligibility factors including size, ownership, and control. Proponents of the bill believe that it will simplify things for the SBA and VA and, most importantly, the veteran business community.

Combining the systems would also save money. The VA is currently spending approximately $33 million a year on a verification program that, in effect, is duplicating the SBA’s efforts. A merger of the VOSB/SDVOSB verification systems could also, eventually, lead to the creation of a single, consolidated verification process covering all of the SBA’s small business programs. In other words, a concern would be able to submit one package to the SBA and become simultaneously verified for all of the small business programs for which the concern qualifies. This would constitute a major improvement over the current system.

So what does this mean for you? If the bill passes, VOSB/SDVOSB verification might get a lot simpler. It also means that it will be increasingly important to get your applications right, the first time around. We will keep you posted on the progress of the bill.

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

Many of you are already familiar with the Department of Veterans Affairs’ Vets First Program. That program, created in 2006 through the enactment of the Veterans Benefits, Health Care and Information Technology Act of 2006, allows the VA to set-aside certain contracts for SDVOSB and VOSB concerns. The intent of the VA’s Vets First program is “to increase contracting opportunities for small business concerns owned and controlled by veterans with service-connected disabilities.” This goal is accomplished by favoring SDVOSB and VOSB companies over other disadvantaged groups when the VA sets aside a procurement for small business. In its first seven years, the program has resulted in tens of millions of dollars in contracts for SDVOSB and VOSB companies.

Clearly recognizing the many benefits of the VA’s program, Congress is looking to expand it. On June 14, 2013, Rep. Michael Fitzpatrick (R- Penn.) introduced, and the House unanimously passed, an amendment to the National Defense Authorization Act of 2013. If enacted, this amendment would require the Department of Defense to perform a study analyzing the potential benefits of adopting its own “Vets First” Program. The amendment directs DoD to work with the SBA and the VA for purposes of developing a report detailing “the impacts of Department of Defense contracting with [VOSBs and SDVOSBs] on veteran entrepreneurship and veteran unemployment,” among other things. First, however, the bill must gain Senate approval. SDVOSB contracting has received much attention over the last several years, so it will be interesting to see what happens in the Senate. We will keep you posted on the progress of the amendment.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group.

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

On June 28, 2013, the Small Business Administration (“SBA”) issued a Final Rule relating to the penalties involved when a contractor misrepresents its small business size status. While the current regulations provide that a contractor might suffer certain penalties for “knowingly misrepresenting” its small business status, they offer little guidance concerning what those penalties might be. Moreover, the current regulations fail to identify what type of conduct constitutes a “knowing misrepresentation.”  The Final Rule seeks to clarify these points, and both increases the severity of the penalties associated with a contractor’s misrepresentation of its small business status, and broadens the scope of conduct that might expose a contractor to penalties.

For example, under the new regulations, the very submission of a bid or proposal for any set-aside contract or subcontract will be deemed a “certification” of that concern’s small business status. Similarly, a contractor’s self-certification as a small business in any Federal database (i.e. SAM) will be considered a “certification” of that contractor’s small business status. In addition to these implied “certifications,” contractors will be required to provide an explicit statement, certifying the concern’s small business status and eligibility as part of any bid or proposal set-aside for such concerns. Any false certification will be considered a “knowing misrepresentation,” which will expose the contractor to the penalties identified in the Rule. The new regulations also seek to impose on contractors an additional requirement to annually update any self-certifications. Failure to change self-certifications to properly reflect one’s size status will be considered tantamount to making a “knowing misrepresentation,” and may result in the imposition of penalties.

The new regulations not only expand the type of conduct that might result in penalties, but they also broaden the type of penalties that might be imposed. The government may seek to impose civil penalties available under either the False Claims Act, or the Program Fraud Civil Remedies Act, which may result in suspension or debarment. Alternatively, the government might chose to enforce the criminal penalties available under the Small Business Act. Even more disturbing, individual officers of a concern who are, under the new rules, required to certify the company’s small business status as part of a set-aside bid or proposal, will be subject to individual liability if that certification proves inaccurate. Finally, where a contractor is found to have knowingly misrepresented its status, there will be a presumption of loss to the government (read: damages) equal to the total expenditure associated with that procurement, in other words, a knowing misrepresentation could open a contractor up to damages equal to the total contract amount associated with every contract bid while falsely certified. That’s not exactly a slap on the wrist.

The new regulations, which went into effect on August 27, 2013, have greatly increased the importance of understanding your small business status, and eligibility to compete for set-aside projects. Federal contractors and subcontractors should take proactive measures to mitigate risk in this area, by ensuring that they are properly identifying their status. If you have any doubt concerning your company’s small business eligibility, seek the advice of counsel.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group.

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

On August 15, 2013, the SBA put into effect a long-awaited Final Rule (Federal Register Volume 78, Number 136 (Tuesday, July 16, 2013)) designed to help small business subcontractors. The Final Rule, which implements policies set forth in the Small Business Jobs Act of 2010, provides for several very important changes to small business contracting.

First, the rule will impact the ways large business contractor-offerors must utilize small business subcontractors who help during the proposal stage. Small businesses frequently complain that they spend considerable time, effort, and resources assisting large businesses in preparing bids, quotes and proposals, only to be left without any subcontract when the large business actually secures an award of the contract. To combat this problem, the Final Rule requires that large business contractor-offerors (those in line for an award over $650,000, or, in the context of a contract for the construction of a public facility, an award over $1,500,000) “represent to the contracting officer that it will make a good faith effort to acquire articles, equipment, supplies, services, or materials, or obtain the performance of construction work from small business concerns that it used in preparing its bid or proposal, in the same scope, amount, and quality used in preparing and submitting the bid or proposal.” Pursuant to the rule, an offeror “uses” a particular small business in its bid or proposal if:

  • The large business referenced the small business as a subcontractor in its bid or proposal;
  • The large business referenced the small business as a subcontractor in its small business subcontracting plan;
  • The large business has a subcontract or “agreement in principle” to subcontract with the small business to perform a portion of the contract work;
  • The small business drafted any portion of the bid or proposal; or
  • The large business used the small business’s cost/pricing information or technical expertise in preparing the bid or proposal.

If the large business ultimately fails to use the small business as a subcontractor it must provide the Contracting Officer with a written explanation as to why. Under the rule, the CO must consider these issues when rating the large business prime’s overall performance. Moreover, in the most extreme cases, the CO is required to report a large business’ non-compliance to the Federal Awardees Performance and Integrity Information System (FAPISS). In short, large business offerors will no longer be able to rely on the efforts of small business subcontractors during the proposal stage without conferring some of the benefits of award on those subcontractors.

Second, the rule provides that large business prime contractors are responsible for ensuring that small business concerns are given the “maximum practicable opportunity” to participate in the performance of the work. The prime contractors must conduct market research and use “all reasonable means” to identify small business subcontractors and suppliers. Contractors on larger awards also have additional administrative and substantive responsibilities. For example, they must give pre-award written notice to unsuccessful small business subcontractors. Lastly, the primes cannot prohibit subcontractors from discussing any material matter, including payment from the prime, directly with the contracting officer.

Third, the rule requires that prime contractors must notify the Contracting Officer, in writing, when it is more than 90 days behind paying its small business subcontractors. Primes must also notify the CO if they pay the small business contractor a reduced price, lower than that agreed to in the subcontract. A contractor will be deemed to have a history of slow or reduced payments if it self-reports 3 times within a one-year period. The contracting officer is required to evaluate these payment factors when ultimately rating the contractor’s overall performance.

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.

By: Michael H. Payne & Maria L. Panichelli

On August 7, 2013, the DoD, GSA, and NASA proposed a rule (78 FR 48123) that would amend the FAR to significantly alter the past performance evaluation and assessment process. Specifically, the rule would cut in half the time that contractors have to comment on their own performance evaluations. It would also ensure that all agencies have immediate access to all performance evaluations, even before the end of the shortened contractor comment period.

The FAR currently addresses past performance evaluations at FAR subpart 42.15, “Contractor Performance Information.” Under the current system, the Contractor Performance Assessment Reporting System (CPARS) collects past performance assessments. CPARS provides an automatic notification to the contractor when a past performance evaluation has been submitted to the system, and following that notification, the contractor is allowed 30 days to comment on its evaluation. It is only after that comment period has expired that the CPARS system assembles and provides the past performance-related information, including the contractor’s comments, to the Past Performance Information Retrieval System (PPIRS). Agency source selection officials can then use PPIRS to review the reports and utilize the past performance information in making their selection decisions.

The rule, which was drafted pursuant to directives set forth in the National Defense Authorization Act, seeks to alter this system. It would require that a contractor’s past performance ratings be immediately added to both the CPARS and PPIRS databases, without any delay. Though, under the rule, contractors will be allowed to comment on their performance evaluations, they will be able to do so only after the evaluation is already in the PPIRS, meaning that source selection officials will be able to view evaluations before the contractor is given an opportunity to finish its response. Moreover, under the rule, contractors’ “comment period” will be shorted from 30 to 14 days.

The proposed rule explains the rationale behind its proposed changes, stating that: “[i]t is important for past performance information to be shared with source selection officials immediately, so that award decisions can be better informed and made in a more timely manner… Expediting the time allotted to contractors to respond to performance evaluations should improve communication between the contractor and the government, enable current information to be shared quickly throughout the government, and ultimately ensure the government does business with high performing contractors.” While this is certainly an admirable goal, the reality of the proposed system is that it deprives contractors of a full and fair opportunity to respond to negative evaluations, thereby depriving them of ample due process. This is compounded by the lack of administrative or judicial avenues open to contractors seeking to challenge performance evaluations.

We believe that the proposed changes are unfair because they increase the opportunity for contracting officers to use performance evaluations as a weapon. Posting a rating even before a response has been furnished not only is a little like executing the prisoner before trial – it is like executing the prisoner immediately after arrest. In an age where past performance ratings are critical in source selections, there should be more safeguards, not less. In fact, we believe that marginal and unsatisfactory past performance ratings should be subject to a due process review, including a hearing, before they are posted. If contracting officers realize that they must be prepared to defend past performance ratings, they will be less likely to assign poor ratings in defense of claims, or to gain unfair leverage against the contractor.

It is not yet clear whether this rule will go into effect, let alone what the timetable for these proposed changes will be if the rule is implemented. The comment period ends on October 7, 2013. We will keep you updated on the progress of the rule.

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.

Suspension and debarment procedures have been a hot topic in recent years, and it appears that the issue will remain a focus of congressional debate for the rest of this year as well. On June 12, 2013, Congress heard testimony on the state of the federal government’s suspension and debarment (S&D) system. The testimony was meant to serve as a congressional follow up to two troublesome GAO reports, which emphasized the many problems with the current S&D system.

John Neumann, the GAO’s Director of Acquisition and Sourcing Management, offered testimony at this June 12th hearing. He spoke about the GAO’s recent efforts to alleviate the systematic issues identified in the GAO reports. Neumann’s testimony indicated that he believed the suspension and debarment system was, in fact, improving, and that no major changes to the system were necessary. However, his opinion is far from universal. Most people agree that the S&D system is inescapably flawed, and in need of a dramatic overhaul.

For example, Scott Amey, General Counsel for the Project On Government Oversight (a group that works “to achieve a more accountable federal government”), testified that many agencies “still are not utilizing the suspension or debarment tool” effectively. Amey went on to testify that “history proves” that the current system does not force agencies to employ “top-notch contractors that are not involved in illegal or questionable activities.” In other words, most agencies continue to look the other way, giving business to contractors the agencies know are involved in misconduct, rather than initiating suspension and debarment procedures. Amey cited the Nuclear Regulatory Commission and Social Security Administration as agencies that have “zero suspensions, proposed debarments, debarments, and administrative agreements.” He further identified the Departments of Commerce, Health and Human Services, and Labor as having only a handful of suspensions and debarments. In short, Amey indicated that he does not believe that the current system encourages agencies to diligently prosecute and punish “bad” contractors.

Amey did, however, suggest a possible solution to this systematic underuse, or misuse, of suspension and debarment procedures: the Stop Unworthy Spending (or “SUSPEND”) Act. The SUSPEND Act, which was introduced by House of Representatives oversight committee chairman Darrell Issa several months ago could dramatically overhaul the S&D procedures applicable to federal contractors. Currently, suspension and debarment of contractors is handled by each individual contracting agency, by its respective suspension and debarments office. But under Issa’s SUSPEND Act, these forty-one individual offices would be consolidated into the “Board of Civilian Suspension and Debarment,” which would be overseen by the General Services Administration. In addition to consolidating the forty-one civilian agency S&D offices into one centralized board, the Act would standardize agencies’ S&D policies, and increase transparency.

Proponents of the SUSPEND Act point out that it will result in consistent, uniform application of S&D procedures across various agencies, and thereby put a stop to the underutilization of the S&D process by individual agencies. It will also prevent these agencies from making mistakes with respect to reporting requirements. In Issa’s view, the SUSPEND Act is necessary to combat the award of government contracts to those he described as “fraudsters, criminals, or tax cheats.” However, opponents say that the proposed changes could be detrimental to both contractors and agencies.

Critics point out that a centralized Board of Civilian Suspension and Debarment could result in a bureaucratic behemoth, which would ultimately prove slower for contractors, and result in a more formal process that requires participation of legal counsel. Moreover, the restructuring could deprive agencies of their leverage in negotiating concessions from contractors during debarment negotiations. It might also lead to duplication and inefficiency as the agencies try to coordinate their suspension and debarment activities with a new government entity.

Pro or con, the SUSPEND Act has the potential to become very important in upcoming months, and we will keep you updated on the progress of the bill. Whether or not the bill ultimately passes, it is important to also keep in mind what it signifies. This bill, and the congressional attention paid to the S&D program in general, demonstrate the government’s increased vigilance with respect to contractor fraud. The government’s focus remains on increasing the prosecution of dishonest or fraudulent contractors, and on perfecting S&D procedures used to punish those contractors. As this process continues, it is important for contractors to be aware of the dangers, and consult with legal counsel to avoid any inadvertent infractions.

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.

The False Claims Act (“FCA”) is a law that contractors must take very seriously.  What many contractors fail to realize is that the reach of the FCA goes beyond the filing of fraudulent contract claims.  In fact, it seems as though the government is actually searching to find new and interesting theories of application.  This time, however, the Fourth Circuit might have pushed the expansion of the act a little too far, as the contractors damaged in a recent case are now attempting to appeal the Court’s decision to the Supreme Court.

On June 24, 2013, Halliburton and KBR, Inc. petitioned the Supreme Court, asking the Court to review the United States Court of Appeals for the Fourth Circuit’s March 18, 2013 opinion in United States ex rel. Carter v. Halliburton.  The Halliburton case involved an individual who was employed by a government contractor, which was engaged to build water purification units at two Iraqi camps.  This employee ultimately initiated a qui tam action, alleging that his government contractor-employer engaged in various forms of misconduct in violation of the FCA, including improper and fictitious billing of the government.  If true, the contractor could be subject to very substantial penalties.  However, because the employee-plaintiff filed his qui tam action after the six year limitations period imposed by the FCA (31 U.S.C. § 3731(b)) had run, the District Court dismissed the complaint as untimely.

In overturning the District Court ruling, the Fourth Circuit found that the Wartime Suspension of Limitations Act (“WLSA”) tolled the statute of limitations applicable to FCA qui tam actions while the Country is at war, and for an additional five years after.  The Court further held that the WLSA tolled the statute of limitations even when the government declined to intervene in a qui tam case.  Reasoning that the goal of the WLSA was to root out all fraud perpetrated against the United States during times of war, the Court concluded that WLSA served to toll the statute of limitations for “all offenses involving fraud against the United States.”

The take away lesson here is that, unless and until the Supreme Court overturns this decision, the statute of limitations for all FCA actions has been drastically extended.  Because the Halliburton holding states that the WLSA tolls the statute of limitations not only during wartime, but for five years after, contractors are looking at limitations periods that will not expire until long after the conflicts in Iraq and Afghanistan have concluded.  That is true even for those claims that arose in the first years of our overseas involvement.  In other words, contractors could remain vulnerable to potential FCA suits for many years into the future, even with respect to (mis)conduct that occurred at the beginning of the US’ Middle Eastern engagements, over 12 years ago.   Moreover, while the Halliburton case itself dealt with a qui tam claim, made in connection with a military-related contract, the broad language used in the opinion does not limit its holding to such cases.  Halliburton will likely be interpreted as suspending the statute of limitations period for all FCA claims brought during “wartime,” no matter the nature of the underlying contract.

In the wake of this decision, all contractors would be wise to take every possible precaution to avoid misconduct that is (or may become) actionable pursuant to the FCA. It is vital that contractors be aware of the FCA, and all of its expanding applications, and contractors should work with legal professionals to ensure that sufficient controls are in place to avoid any inadvertent FCA violations.

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.