By: Edward T. DeLisle

In recent testimony provided to the House of Representative’s Committee on Small Business, a disturbing fact was revealed: millions of dollars earmarked for Service-Disabled Veteran-Owned Businesses (“SDVOSBs”) have been paid to companies that do not qualify for the program. Compounding the problem is the fact that insufficient fraud-prevention programs exist to effectively combat such abuses. This was the conclusion reached by United States Government Accountability Office (the “GAO”) following a case study that included an investigation of ten (10) companies claiming SDVOSB eligibility.

In 2008 alone, $6.5 billion in federal contracts were awarded to companies that self-certified themselves as SDVOSBs. While this figure only represents 1.5% of all government contracts paid in that fiscal year, it is still a very large number. If the federal government ever attains its mandated goal of 3%, many more billions will become available to qualified SDVOSBs. Given the paucity of work in the private sector over the course of the last eighteen (18) months, many companies are attempting to tap into this potential source of revenue. As the GAO pointed out, however, a number of these companies have misrepresented their credentials, effectively taking contracts away from those that truly qualify to receive them.

The companies identified in the GAO case study received approximately $100 million in SDVOSB contracts, and over $300 million in additional 8(a), HUBZone and other non-SDVOSB contracts through the federal government. Certainly, none of these monies should have been paid to the companies in question. Notwithstanding the same, because there are no requirements to terminate contracts when a firm is deemed ineligible, in certain circumstances, companies were permitted to continue performing, despite the government’s determination that the firm did not qualify as an SDVOSB. Many more were not debarred from receiving federal contracts, even though the transgressions noted were obvious and seemingly blatant.

The GAO did note that Department of Veteran’s Affairs (the “VA”) has taken steps to address this problem by introducing an SDVOSB validation process. That process includes confirming an owner’s status as a disabled veteran, as well as his or her control over day-to-day operations. The problem, however, is that the VA’s certification and validation process is not a government-wide system. It is limited to those contracts issued directly by the VA. Because many other federal agencies issue contracts that are earmarked for SDVOSBs, there are considerable gaps in the SDVOSB program.

If your company is an SDVOSB, or if you are interested in forming a company that qualifies for participation in the program, it is very important for you to comply with applicable SBA and procurement regulations. The fierce competition for federal government contracts exposes many companies to size status protests which, if successful, can cause an SDVOSB to lose an award. Our Federal Contracting Practice Group is available to assist you with these important compliance issues.

Edward T. DeLisle is a Partner in the firm and is a member of the firm’s Federal Contract Practice Group. He is extensively involved in the representation of construction contractors on small business issues.

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

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

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

Continue Reading Federal Construction Contracting – Does a Newcomer Have a Chance?

The Court of Appeals for the Federal Circuit has decided two cases that assure the continued use of the Multiple Award Task Order Contract (“MATOC”) in federal construction contracting. In the first case, Weeks Marine, Inc. v. United States, the United States Court of Federal Claims decided a bid protest in favor of Weeks Marine.  The protest challenged the right of the South Atlantic Division of the Corps of Engineers to use MATOC procurement to solicit all maintenance dredging and shore protection projects for the next five years by establishing a MATOC pool of contractors who would compete for projects solicited on a task order basis.  The Protester contended, and the Court agreed, that since sealed bidding had been used successfully in the procurement of dredging for many years, there was no basis to use contracting by negotiation, much less MATOC. The Court found that the Corps’ Acquisition Plan did not provide a rational basis for a departure from sealed bidding.

The Court of Appeals reversed the lower court and concluded that the Corps was required to “supply a reasoned chronicle of the risk assessment,” and did so “by stating the reasons for its procurement decision and the thinking behind those reasons.”  Therefore, the Court concluded that as long as the Corps stated its reasons, and the thinking behind those reasons, the Court would not “second-guess” the Corps. In other words, even if the Corps’ rationale for using MATOC procurement made no sense and was not well supported, the Court would not disturb the Corps’ right to use a MATOC as long as some reasons were given.  In this regard, the Court stated “If the court finds a reasonable basis for the agency’s action, the court should stay its hand even though it might, as an original proposition, have reached a different conclusion as to the proper administration and application of the procurement regulations.”

The second MATOC decision, Tyler Construction Group v. United States, involved a protest by a small business concern against the use of MATOC procurements to procure barracks construction in an eight state region. The protester contended that Indefinite Delivery Indefinite Quantity (“IDIQ”) contracts may only be used to procure supplies and services, and not construction, pursuant to FAR 16.5.  MATOC procurements are solicited through the IDIQ contracting procedures specified in FAR 16.5, but that section of the FAR does not mention “construction” even once.  Tyler argued that the Corps, under the guise of “innovation,” had adapted a contracting method used to procure supplies and services, like rounds of ammunition or electrical repair services, to the acquisition of large multi-million dollar buildings.

The Tyler protest also addressed the issue of improper bundling in violation of the Small Business Act. By taking individual projects, many of which were less than the $31.5 million (now $33.5 million) small business size standard for general construction, and bundling them into a $300 million MATOC procurement, the Corps effectively prevented small business concerns from competing as prime contractors.  In other words, even though many small businesses could compete for projects in the $30 million range, they are excluded by the size of the bundled MATOC solicitation. In fact, both small businesses and small to medium-sized large businesses are effectively excluded from competition by MATOC procurements.

The Court of Federal Claims ruled that since the use of IDIQ/MATOC was not specifically prohibited in the procurement of construction by the FAR, it was therefore permitted.  The Court also found that the Corps had conducted market research and had concluded that there was an industry consensus that bundling was “necessary and justified.”  The Court of Appeals agreed with the lower court and decided that “The Corps, like other federal procurement entities, has broad discretion to determine what particular method of procurement will be in the best interests of the United States in a particular situation.”

In this writer’s opinion the widespread use of MATOC procurements to procure large dollar value construction projects is not consistent with the FAR. It is interesting that the use of the IDIQ procedure for construction was not subjected to review by the Defense Acquisition Regulations Council (DAR Council), as is commonly done when a new regulation is needed, or when there is a request for a deviation from an existing regulation.  Although the Corps has taken the position that IDIQ/MATOC is an innovative method that is within its procurement discretion, we find it to be strange that a method affecting billions of dollars of construction procurement is not specifically addressed by the FAR, or the supplemental agency regulations (DFARS, AFARS, EFARS). In fact, when the Corps was challenged because it was not following its own regulations (EFARS) that addressed IDIQ contracting,  it promptly rescinded those regulations. What the construction contracting community is left with is a multi-billion dollar procurement methodology that is unregulated, is ripe for abuse, and that only serves the interests of a reduced federal procurement workforce.  It certainly remains to be seen whether MATOC is truly more efficient or cost-effective than traditional single project solicitations.

Most disturbing of all, is the hands-off policy adopted by the Court of Appeals for the Federal Circuit on matters of federal procurement.  If the agencies can do whatever they want, as long as it is not expressly prohibited by law or regulation, and as long as they provide some reason for their decisions, the competitive opportunities that have been the hallmark of federal construction contracting will continue to be eroded.  Many capable contractors have been, and will be, denied a fair opportunity to compete and, in the long run, that cannot possibly be in the best interests of the construction contracting community, or the federal government.

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

Contractors continue to be concerned about the impact that the filing of protests or claims will have on their past performance evaluations in negotiated procurements.  While it is never a good idea to file a frivolous protest or claim, it is improper for procurement officials to downgrade past performance evaluations simply because a contractor has exercised a right afforded by law and regulation.  In fact, the Office of Management and Budget issued a Memorandum for Senior Procurement Executives on April 1, 2002, and stated that “. . . the filing of protests, the filing of claims, or the use of ADR, must not be considered by an agency in either past performance evaluations or source selection decisions.”  The Memorandum went on to provide that contractors may not be given “downgraded past performance evaluations for availing themselves of their rights by filing protests and claims or for deciding not to use ADR; and Contractors may not be given more positive past performance evaluations for refraining from filing protests and claims or for agreeing to use ADR.”

The Under Secretary of Defense endorsed the Memorandum and circulated it on December 16, 2002.  The cover letter stated that “We should continue to work with our contractors to avoid or minimize unnecessary protests and claims and encourage the use of ADR, where appropriate, while not discouraging contractors from availing themselves of the rights provided to them by law. The policy embodied in the Memorandum has not changed and contractors should challenge any past performance evaluation that is downgraded because of previous protests or claims.  It must be recognized, moreover, that the reason for a lower than expected evaluation may not always be revealed during a debriefing.  If a contractor suspects that an inappropriate downgrading has occurred, the only way to prove it may be to file a protest so that the agency’s Administrative Record may be reviewed by the protester’s attorney. (Note: In a negotiated procurement, the Administrative Record is almost always subject to a Protective Order that prohibits disclosure of the information to anyone other than the protester’s attorney).

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

By:  Michael H. Payne and Craig A. Schroeder

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

The rule, however, exempts the following contracts:

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

Contracts of less than the simplified acquisition threshold ($100,000);

Contracts with a performance period of less than 120 days; and

Contracts where all work is performed outside the United States.

Employees who normally perform support work, e.g., indirect or overhead functions, and do not perform any substantial duties under the contract, are also excluded from the E-Verify requirement.

Proponents of the E-Verify rule say that it confirms the government’s commitment to maintain a legal workforce, creating more reliable employees and reducing illegal hiring practices.  They also say that E-Verify reduces discrimination against immigrant workers since employers feel confident that the new hires are authorized to work and are not using false documents.  This alleviates employer concerns about discrimination lawsuits since the employer is relying on the government for authorization.

While the system is accurate, it’s not fail-proof – if the program inaccurately rules out a potential employee, that employee may not get a job.  It also creates yet another hoop through which contractors that want to work with the government must now jump through.

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

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

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

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

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

By: Lane F. Kelman and Christopher Soper

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

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

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

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

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

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

An Armed Services Board case, ADT Construction Group, Inc., involves an appeal from a contracting officer’s final decision denying a claim for $826,725.16 and a 278-day time extension. The contractor had filed a claim for pre-construction delays arising out of a contract for the design and construction of a munitions maintenance facility at Nellis Air Force Base, Nevada. Although the contract in question was ultimately terminated for default and appealed to the Board (ASBCA No. 55358), the termination appeal was suspended pending the outcome of the appeal on the underlying delay claim. The Board obviously concluded that the merits of the underlying delay claim could have an effect on the merits of the termination for default.

Although the Board found that some of the delay was the fault and responsibility of the Government, we were particularly interested in the Board’s conclusion about the contractor’s right to pursue "fast track." After drafting the solicitation the government learned that the Department of Defense Explosives Safety Board ("DDESB") required 100% design of the entire project before it would review the plans. Thus, the drafters sought to modify the solicitation to remove all references to fast track as an option. The Board found that they "failed miserably at that task" and several references to fast track as an option remained in the solicitation when it was issued. ADT stated in its proposal that it would use the fast track method for design and construction.

The Board concluded that to the extent the contract was ambiguous in that regard, the contractor repeatedly gave notice when it said it wanted to do fast track and the government repeatedly ignored that notice. The evidence shows that the government never intended to allow fast track, and indeed its actions supported that intention, yet it failed to communicate those intentions to ADT. The government’s utter silence when the contractor repeatedly raised the issue of fast track squarely put the burden on the government to respond during the design phase – and it did not. Therefore, the Board found that the contractor had a contract right to pursue fast track.

The U.S. Army Corps of Engineers has posted the Civil Works projects that it intends to fund from the appropriations Congress provided in the American Recovery and Reinvestment Act of 2009 (Pub. L. 111-5) on its website. In order to spend its $5 billion slice of the $787 billion stimulus pie, the Corps selected approximately 178 Construction projects and 892 Operation and Maintenance projects, nine Formerly Utilized Sites Remedial Action Program (FUSRAP) projects. These projects or useful increments of these projects will be completed with stimulus funding.

The only state that is not slated to receive any stimulus projects is Wyoming, because no eligible work on any ongoing Civil Works activity was presently available. The Corps applied the selection criteria which largely revolved around contracts that could be awarded and completed quickly. The wide geographic distribution of selected projects spreads the employment and other economic benefits across the United States and across Civil Works programs to provide the nation with project benefits related to inland and coastal navigation, the environment, flood and storm damage reduction, hydropower, and recreation.

The Corps has indicated that the majority of the contracts will be competitively bid. Some contracts will be awarded by issuing task orders on existing contracts generally referred to as Indefinite Delivery Indefinite Quantity (IDIQ) contracts or Multiple Award Task Order Contracts (MATOC). At this time the Corps is unable to specify what projects will be procured in what fashion. The Corps has indicated that it intends to make maximum use of small businesses, either as prime contractors or subcontractors, in its stimulus program.

In a recent article in Engineering News Record, Bruce Buckley reported that “Driven by a need to speed projects to market, federal agencies are drawing heavily on accelerated delivery methods to move stimulus-funded work into the express lane. More than ever, traditional stand-alone procurement will take a back seat on federal jobs, as many new opportunities end up with firms holding existing “task order” contracts.” The risk that overuse of task order contracts will be anti-competitive was stressed in the article. Mr. Buckley noted that “Agencies are already leaning heavily on IDIQ contracts. Data from the Federal Procurement Data System show that orders through contracts grew from 14% of total dollars in fiscal 1990 to about 52% in fiscal 2005, says OMB.” In a May 2007 memo to federal acquisition officers, then-OMB Administrator Paul Denett warned of “a lack of meaningful competition for orders” in light of the increased use of IDIQ vehicles.

Mr. Buckley quoted Michael Payne, chairman of the federal construction practice group in Cohen Seglias Pallas Greenhall & Furman: “As more tasks go to IDIQ holders, some small to medium-size firms who don’t have IDIQ contracts are locked out . . . With IDIQ contract limits now reaching into the hundreds of millions of dollars and the scope sometimes spanning multiple states, many firms can’t get adequate bonding to compete.” Mr. Payne also stressed that the method could hurt many of those the stimulus is designed to help, “The purpose is to lead to job creation. What better way than to go with open competition and make it available to the maximum number of companies?”

Co-authored by Michael H. Payne and Craig A. Schroeder

On February 17, 2009, the President signed Public Law 111-5, the American Recovery and Reinvestment Act of 2009 (also known as “ARRA,” the “Recovery Act,” and the “Stimulus Act”), including a number of provisions to be implemented in Federal Government contracts.  The Recovery Act’s purposes are to stimulate the economy and to create and retain jobs. The Act gives preference to activities that can be started and completed expeditiously, including a goal of using at least 50 percent of the funds made available by it for activities that can be initiated not later than June 17, 2009.

An Interim Rule issued on March 31, 2009, implements section 1512, which is also known as the “Jobs Accountability Act.”  Subsection (c) of section 1512 requires contractors that receive awards (or modifications to existing awards) funded, in whole or in part, by the Recovery Act to report quarterly on the use of the funds. The comment period on the interim rule expires on June 1, 2009. In addition, a new section was added to the FAR, subpart 4.15, “American Recovery and Reinvestment Act – Reporting Requirements,” and a new clause was added to implement the reporting requirements, FAR 52.204-11.   Contracting Officers are now required to include the new clause in solicitations and contracts funded in whole or in part with Recovery Act funds, except classified solicitations and contracts.  Commercial item contracts and Commercially Available Off-The-Shelf (COTS) item contracts are covered, as well as actions under the simplified acquisition threshold.

Effective March 31, 2009, five (5) interim Federal Acquisition Regulation (FAR) rules went into effect that implement several requirements of the Recovery Act. See Federal Acquisition Circular (FAC) 2005-32, published at 74 Fed. Reg. 14,639 (Mar. 31, 2009). These new rules only apply to federal procurement contracts funded with stimulus money. Their goal is increased transparency and accountability in the spending of Stimulus Act funds. The new rules include:

1. Reporting Requirements for Recipients of Recovery Funds (See 74 Federal Register 14639);

2. Publicizing Contract Actions (See 74 Federal Register 14636);

3. GAO and IG Access to Company Employees (See 74 Federal Register 14646);

4. Whistleblower Protections (See 74 Federal Register 14633); and

5. Buy American Requirements for Construction Materials (See 74 Federal Register 14623).

Each rule is discussed, in turn, below.

1. Reporting Requirements for Recipients of Recovery Funds

This is the most onerous of the new requirements and contractors must now file quarterly reports documenting their use of stimulus funds. See FAR Case 2009-009, Interim Rule, American Recovery and Reinvestment Act of 2009 (the Recovery Act)— Reporting Requirements, 74 Fed. Reg. 14,639 (Mar. 31, 2009).  Information on the Recovery Act may be found on the Recovery Act website.

The new mandated contract clause, FAR 52.204-11, which must be included in all contracts receiving stimulus funds, requires the prime contractor, and first-tier subcontractors, to report the following information:

(i) Contract and order number;

(ii) Amount of stimulus funds invoiced by the contractor for the reporting period;

(iii) List of significant supplies delivered or services performed;

(iv) Assessment of the contractor’s progress on the contract;

(v) Employment impact of the contract (e.g., an estimate of the number of jobs      created and retained);

(vi) The names and compensation of the five most highly compensated officers of the contractor for the calendar year in which the contract is awarded if the contractor receives 80 percent and $25 million or more of its annual gross revenues from federal awards and the public does not have access to the information through periodic reports filed with the Securities and Exchange Commission or the Internal Revenue Service; and

(vii) Detailed information on first-tier subcontracts.

Reporting on invoices submitted prior to June 30, 2009 are due no later than July 10, 2009.   After those dates, contractor reports must be submitted no later than the 10th day after the end of each calendar quarter. The new reporting requirements apply to all solicitations and contracts funded in whole or in part with Recovery Act funds, except classified solicitations and contracts. This includes Government-wide Acquisition Contracts (GWACs), multi-agency contracts (MACs), Federal Supply Schedule (FSS) contracts, or agency indefinite-delivery indefinite-quantity (ID/IQ) contracts that will be funded with Recovery Act funds.

Continue Reading The American Recovery and Reinvestment Act of 2009: What it Means for Federal Construction Contractors