By: Joseph A. Hackenbracht

On April 2, 2010, the Government Accountability Office responded to a request from the House Subcommittee on Energy and Water Development to evaluate “whether the President’s recent budget requests for the Corps are presented so that agency priorities are clear and proposed use of funds transparent.” In its analysis, the GAO reviewed the Corps’ internal review guidance for fiscal year 2011 and interviewed Corps’ officials at the Headquarters office and all Division offices. The GAO concluded that the Corps’ budget presentation continues to lack transparency and should provide key information that would be useful for Congress’ review of the budget. GAO believes that the Corps should provide two types of project-level information: first, information on projects previously funded that may still have resource needs; and second, information on the amount of unobligated appropriations remaining on previously funded projects. GAO suggests that this detailed information would help Congress make better informed appropriations and oversight decisions. Both Senate and House members have indicated that this type of information would be useful, and the Corps has agreed to provide this type of project-level information in future budget requests. While some of the information has been provided for the 2011 budget, the Corps has indicated that it can supplement the budget request during Congressional consideration of the appropriations.

The GAO noted that the fiscal year 2011 budget request included 95 construction projects and 65 investigation projects. The budget request that President Obama presented to Congress on February 1, 2010, totaled 3.834 trillion dollars. The budget proposal includes 4.881 billion dollars to support the U.S. Army Corps of Engineers’ Civil Works Program. Highlights of the Corps’ proposed budget are:

• $164 million to construct commercial navigation improvements on America’s inland waterways. 
• $789 million for efforts to reduce the risk of flood and storm damage. 
• $506 million to restore aquatic ecosystems. 
• The budget gives construction priority to dam safety work, projects that reduce significant risks  to human safety, and projects that will complete construction during 2011.
• $58 million for the Corps share of the CALFED Bay-Delta Program designed to improve California’s water supply and the ecological health of the San Francisco Bay/Sacramento-San Joaquin River Delta.
• $180 million to advance Corps studies and key construction projects to restore the South Florida ecosystem, including the Everglades, an extraordinary but threatened ecosystem.
• $36 million for efforts to restore and protect the ecosystem along the Louisiana Coast, still recovering from Hurricanes Katrina and Rita.

The Corps’ 2011 proposed amount, however, represents a substantial decrease from the 2010 budget amount of 5.446 billion dollars. The budget proposal for the Corps also reflects a dramatic drop in fiscal outlays from the American Recovery and Reinvestment Act funding for the Civil Works Program.

The Water Resources Coalition, an organization established to promote the development, implementation and funding of a comprehensive national water resources policy, has expressed its concern that the budget cuts will have wide negative impacts “including reducing necessary flood control protection along coastlines, stifling inland waterway shipments, and the lost opportunity for job creation.” Among its members, the Water Resources Coalition includes the Associated General Contractors of America and the American Society of Civil Engineers.

Brian T. Pallasch, Co-Chairman of the Water Resources Coalition, stated that “the Administration’s budget ignores the public safety and environmental benefits these programs offer our nation. The residual risk to life and property behind such structures cannot be ignored.” The Water Resources Coalition has encouraged Congress to reverse these budget cuts and increase the funding for the Corps’ Civil Works Program. The project-level information that the Corps has indicated it would provide for the 2011 budget process may assist Congress in justifying increases in the funding for the Corps. 
 

By: Joseph A. Hackenbracht

On April 13, 2010, the FAR Council published in the Federal Register a Final Rule that adds a new section to the Federal Acquisition Regulation – Subpart 22.5 – Use of Project Labor Agreements for Federal Construction Projects. The Final Rule implements Executive Order 13502, which President Obama signed on February 6, 2009, encouraging Federal agencies to consider the use of a project labor agreement (“PLA”), on large construction projects. Use of project labor agreements by Federal agencies had been curtailed by an Executive Order issued by President Bush in 2001. (See earlier blog article dated February 10, 2009 for more information).

As of May 13, 2010, Contracting Officers can include in solicitations for construction projects clauses FAR 52.222-33 and FAR 52.222-34 that will require an offeror to negotiate a PLA and that will “bind the offeror and all subcontractors engaged in construction on the project to comply with the PLA.” Use of the FAR provisions concerning PLAs, however, is limited to projects where the total cost to the Federal Government is $25 million or more. The Alternate clauses are to be used if the Contracting Officer determines to only require the “apparent successful offeror” or the awardee of the contract to negotiate the PLA.

In deciding whether or not to require a PLA, agencies must conclude that use of a PLA will “advance the Federal Government’s interest in achieving economy and efficiency in Federal procurement, producing labor-management stability, and ensuring compliance with laws and regulations governing safety and health, equal employment opportunity, labor and employment standards, and other matters.” Agencies can also consider other factors in determining whether a PLA is appropriate, such as: (1) the project involves multiple contractor or subcontractors employing multiple crafts; (2) a shortage of skilled labor exists in the project area; (3) the project has a relatively long performance time; (4) PLAs have been used on comparable projects, public and private, in the project area; and (5) a PLA promotes the agency’s long term program interests.

Jared Bernstein, Chief Economic Advisor to Vice President Biden, reports that “Project Labor Agreements have also been used by the private sector for a variety of construction projects that are similar in nature to those undertaken in the public sector, including for manufacturing plants, power plants, parking structures, and stadiums. The executive order and the final rule now enable Agencies to consider whether their projects might gain some of the benefits found in the private, state and local construction sectors as well.” Mr. Bernstein quoted the Secretary of Labor, Hilda Solis, as saying, “Project labor agreements are a win-win; they benefit businesses, workers and taxpayers.” Simon Brody, with the National Association of Government Contractors, however raises the question whether the Federal government’s PLA initiative is pro-labor and anti-small business. Mr. Brody suggests that the use of PLAs will “put more Federal contracts out of reach for the mid-sized and small contractors who are best able to infuse the crippled job market with immediate opportunities.” He reported that Representative John Kline, member of the House Education and Labor Committee, observed that “PLAs are an antiquated approach to federal contracting designed to favor large, unionized contractors at the expense of smaller employers,” and that “PLAs reduce competition, increase costs for taxpayers, and add layers of bureaucracy and red tape to federal construction projects. Creating a formal federal process for imposing these Depression-era mandates on construction projects may be a win for special interests, but it’s a loss for workers, taxpayers, and small businesses hoping to compete for federal jobs.”

The use of PLAs has always been controversial, and has been the subject of contentious litigation. It can be expected that challenges to their implementation will continue, particularly in light of Mr. Bernstein’s comment that “[m]any agency contracting offices have little knowledge of or experience with PLAs.” However, he did note that an Inter-Agency PLA Working Group had been convened to provide technical assistance to agencies. With the soon-to-go into effect FAR provisions, we will need to wait and see what types of, and how many, solicitations Contracting Officers decide are appropriate for a Project Labor Agreement.

A Final Rule governing Service Disabled Veteran-Owned small Business Concerns (“SDVOSB”) was published in the Federal Register on February 8, 2010. This law requires the Department of Veterans Affairs (“VA”) to verify ownership and control of veteran-owned small businesses, including service-disabled veteran-owned small businesses. The final rule also defines the eligibility requirements for businesses to obtain “verified” status, explains examination procedures, and establishes records retention and review processes.

As reported by Jason Miller, the Executive Director of Federal News Radio in an article published in the SDVOSB Blog, Veteran-Owned and Service Disabled Veteran-Owned Small Businesses must have only one business in the federal contract set-aside program and work in that business full time. The article, entitled “VA Sets Rules for Set-Aside Program,” also emphasizes that “The net effect of this change is that a company that is closely held by veterans would qualify regardless of the size of the employee stock ownership program,” and “Alternatively, a firm that is not closely held by veterans will find it much more difficult to qualify for the Verification Program.”

Veteran-Owned and Service Disabled Veteran-Owned Small Businesses must re-certify annually to the VA that they meet the requirements to obtain set-aside contracts from agencies. The rule comes after the Government Accountability Office told the House Veterans Affairs Committee in December that the service-disabled veteran-owned business program is vulnerable to fraud and abuse. Anyone who seeks to use the services of a disabled veteran, or of an existing SDVOSB, to circumvent the letter and spirit of this program would be well advised to recognize that SDVOSB concerns are under close scrutiny because of the reported abuses.

Michael Payne is a Partner and is the Chairman of the firm’s Federal Practice Group.
 

By: Lane F. Kelman

In making an award on initial proposals, is a tradeoff only between the two (2) highest-rated, highest-priced proposals appropriate?  The GAO, in a recent decision,Coastal Environments, Inc., B-401889, dated December 18, 2009, provides important clarification.  The decision beckons closer scrutiny of awards by unsuccessful offerors.

In Coastal Environments, Inc., the RFP identified six (6) evaluation factors in descending order of importance: (1) personnel and company qualifications, (2) management capability, (3) technical excellence, (4) past performance, (5) small business participation, and (6) price; the RFP also identified several subfactors under the non-price evaluation factors. Award was to be made to the responsible offeror whose proposal was determined to represent the “best value” to the government, all factors considered.

Eight proposals were received and evaluated using the adjectival rating system.  The contracting officer, as the Source Selection Authority (‘SSA”), reviewed the evaluation findings and performed a price/technical tradeoff between the two most highly rated proposals; those of Ecological Communications Corporation (“ECC”) and another Offeror.  Those two proposals were also the highest priced proposals. The Source Selection Authority (“SSA”) ultimately selected ECC for award after concluding that “due to the highly specialized nature of the work…ECC’s technical superiority” justified paying an additional $2,984 to ECC.

Coastal, who was not part of the tradeoff process, filed a protest and alleged, among other issues, that the tradeoff process should not have been restricted to ECC and the other most highly rated offeror. Coastal’s proposal, while not as highly rated, was $17,434.44 lower in price than GCC’s proposal.  The GAO held that the SSA impermissibly limited the price/technical tradeoff analysis to a comparison of the two highest-rated, highest-priced proposals.  The SSA failed to conduct any qualitative assessment of the technical differences between the two (2) highest-rated, highest-priced proposals and any of the other technically acceptable proposals to determine whether either of these proposals contained features that would justify the payment of a price premium.

The GAO found that the two higher-rated, higher-priced proposals considered in the tradeoff both received overall adjectival ratings of “Good” and “Low Risk,” while Coastal’s proposal received the next lowest rating of “Acceptable” and “Low Risk,” but was priced approximately 20 percent lower. The GAO concluded that a proper tradeoff decision must, per Federal Acquisition Regulation § 15.308, provide a rational explanation of why a proposal’s evaluated technical superiority warrants paying a premium.  Here, the SSA did not identify what benefits in ECC’s proposal warranted paying a premium to ECC when compared to Coastal’s lower-priced proposal, which was found to be acceptable and low risk.

Lane F. Kelman is a Partner in the firm and a member of the Federal Contracting Practice Group

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.

By: Edward T. DeLisle

On Wednesday, January 20, 2010, President Obama signed a presidential memorandum directing the Internal Revenue Service to conduct an audit of all federal contractors.  As reported by Nextgov.com, the audit is designed to identify those federal contractors that have failed to pay taxes and prevent them from obtaining additional federal work.  The IRS is required to issue a report on its findings within ninety (90) days.

Calling out “deadbeat companies” that are being awarded government contracts while delinquent in their taxes, President Obama’s memorandum is intended to stop these companies from collecting government contracts while they are “gaming the system.”  Studies by the Government Accountability Office have identified tens of thousands of such companies that, collectively, owe more than $5 billion in back taxes, the president said.

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

By: Michael H. Payne and Edward T. DeLisle

In order to qualify as a Historically Underutilized Business Zone (“HUBZone”) contractor, a firm must be a “small business” based on the size standards provided by the North American Industry Classification System (NAICS); the firm must be at least 51% owned and controlled by citizens of the United States; the firm’s principal office (where the greatest number of employees perform their work, excluding contract sites) must be located in a designated HUBZone; and at least 35% of the firm’s total workforce must reside in a designated HUBZone. In construction, a company does not need to include its temporary, project specific, field labor force among the 35% of its employees who must reside in a HUBZone.   (See the SBA’s HUBZone regulations).

The program encourages small businesses to locate in and hire employees from economically disadvantaged areas. Small firms participating in the program can receive competitive advantages in winning federal contracts. The government generally expects approximately three percent (3%) of all federal contracting dollars to be awarded to HUBZone firms annually. As reported by the HUBZONE Contractors National Council, as of January 8, 2010, there were 9,255 HUBZone-certified small business concerns specializing in the following major industries:

• Construction – 2,984 firms (32% of total)
• Services – 4,176 firms (45.1%)
• Research & Development – 879 firms (9.5%)
• Manufacturing – 1,675 firms (18.1%)
(Numbers total more than 9,255 because some firms appear in more than one industry category.)

Many HUBZone-certified firms are also certified in other set-aside programs. 12.2% of HUBZone firms are also 8(a) small businesses (minority-owned); 8.0% are Service Disabled Veteran-owned firms; and 0.9% are qualified in all three set-aside programs.

The mission of the HUBZone program, as expressed by the SBA, is “to promote job growth, capital investment, and economic development to historically underutilized business zones by providing contracting assistance to small businesses located in these economically distressed communities.” See the SBA’s HUBZone website for more details. In order to apply for HUBZone status, companies are encouraged to apply using the electronic application on the SBA website.
Michael H. Payne is the Chairman of the firm’s Federal Practice Group. Edward T. DeLisle is a Partner in the firm and a member of the Federal Practice Group. He is a available to assist federal contractors on a whole range of small business issues including HUBZone certification, 8(a)compliance issues, Service Disabled Veteran-Owned Small Business formation, and teaming arrangements.

By: Michael H. Payne and Craig A. Schroeder

Acceleration is defined as a directive to increase efforts in order to complete performance on time, despite excusable delay.  If the government does not agree that the contractor is entitled to acceleration costs, a contractor must file a request for an equitable adjustment (“REA”), or a claim under the Contract Disputes Act.  Although different formulations have been used in setting forth the elements of constructive acceleration, the Court of Appeals for the Federal Circuit has generally described the requirements to include the following elements, each of which must be proved by the contractor: (1) that the contractor encountered a delay that is excusable under the contract; (2) that the contractor made a timely and sufficient request for an extension of the contract schedule; (3) that the government denied the contractor’s request for an extension or failed to act on it within a reasonable time; (4) that the government insisted on completion of the contract within a period shorter than the period to which the contractor would be entitled by taking into account the period of excusable delay, after which the contractor notified the government that it regarded the alleged order to accelerate as a constructive change in the contract; and (5) that the contractor was required to expend extra resources to compensate for the lost time and remain on schedule.  It is important to note that the contractor must prove that the costs claimed were actually incurred as a result of actions specifically taken to accelerate performance.

A contractor may accelerate on his own initiative to assure completion within the contract schedule or for other purposes. A contractor is, in fact, entitled to finish ahead of schedule, so long as he does not "tread upon the interests of others, or violate his contract."  The contractor cannot compel the Government to aid him in finishing ahead of schedule, however, or to recover the costs of acceleration unless the Government has actually or constructively ordered the effort. No compensation is due where a contractor voluntarily accelerates performance for his own purposes.

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

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.

By: Lane F. Kelman

As opportunities in the private sector remain, at best, stagnant, the public sector has become increasingly competitive. The desire to gain a competitive advantage, however, must be tempered by compliance with ethical obligations. When attempting to gain a competitive advantage, it is crucial to avoid the appearance that your advantage is unfair. A recent decision by the GAO, Health Net Federal Services, LLC, highlights the balance that must be had when you seek a competitive advantage and the risk if the balance is not maintained.

On November 9, 2009, the GAO sustained the bid protest of Health Net Federal Services, LLC (HNFS) of the award of a contract to Aetna Government Health Plans, LLC (AGHP). HNFS and AGHP issued offers in response to request for proposals issued by the Department of Defense TRICARE Management Activity (TMA) for T-3 TRICARE managed health care support services. TRICARE is a managed health care program implemented by the Department of Defense (DOD) for active-duty and retired members of the uniformed services, their dependents, and survivors.
HNFS was the incumbent contractor. Its bid protest focused on a number of different issues, the most compelling challenge was that AGHP should be excluded from the competition based on an alleged unfair competitive advantage stemming from AGHP’s hiring of a former TMA employee (the TMA Chief of Staff) to prepare AGHP’s proposal.

In evaluating the possibility of an unfair advantage on behalf of AGHP, the GAO acknowledged that a guiding principle is the obligation of contracting agencies to avoid even the appearance of impropriety in government procurements. Where a firm may have gained an unfair competitive advantage through its hiring of a former government official, the firm can be disqualified from a competition based on the appearance of impropriety – even if no actual impropriety can be shown – if the determination of an unfair competitive advantage is based on facts and not mere innuendo or suspicion.

The GAO went on to conclude that the former TMA Chief of Staff that was hired by AGHP did, in fact, have access to non-public propriety information. As a result of the actual access to this information, a prima facie case was established that an appearance of impropriety existed. Importantly, the access to propriety information and appearance of impropriety did not, in and of themselves, require disqualification. Rather, AGHP, despite a recommendation from TMA’s ethics advisor to disclose the Chief of Staff’s involvement to the Contracting Officer ("CO"), failed to do so. Since the CO was not provided the opportunity to investigate the issues stemming from the use of a high-level former TMA employee in the preparation of its proposal, the appearance of impropriety was necessarily not assessed by the CO prior to the award and the protest was sustained.

The recent emphasis on ethics on government contracting requires contractors to avoid any conduct that even appears to be unethical. The case highlights the care that must be taken when contractors hire former government employees and involve them in the procurement process. If the employee was involved in the planning of the project or procurement while employed by the government, or if the employee had access to non-public information, a risk exists that the relationship will result in the disqualification of the proposal. Regardless, there should be full disclosure to the Contracting Officer before submitting a proposal.

Lane F. Kelman is a Partner in the firm and is a member of the firm’s Federal Contract Practice Group. He may be contacted for advice regarding federal construction contracting matters, including issues involving ethics in federal contracting. His e-mail address is lkelman@cohenseglias.com.