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H I G H L I G H T S
House Passes DOD Bill, Approves Acquisition-Related AmendmentsThe House culminates three days of floor debate on the FY 2015 DOD Appro-priations Act with a 340-73 vote on final passage. The bill would provide $491billion in discretionary funding and $79.4 billion for overseas contingency op-erations. Page 615
BNA Insights: Admission of Former Employees as ConsultantsTight deadlines apply to bid protests at the GAO, including the admission ofconsultants under protective orders to provide technical, quantitative or otherspecialized knowledge useful to the litigation, Donald J. Carney of PerkinsCoie writes. The GAO has occasionally expressed its reluctance to admit aprotesting party’s former employee as a consultant, particularly where theconsultant is unlikely to testify before the GAO again in the future. This ar-ticle examines the standards applied to determine whether to admit consul-tants under its bid protest protective orders in this time-sensitive environment.Page 633
View From Crowell & Moring: Commercial Item TerminationsThe federal agencies are still struggling to work through substantial budgetcuts and programmatic challenges. J. Chris Haile and Skye Mathieson writethat they see stark reminders of these struggles every day, as agencies con-tinue to scale back or entirely terminate even high performing contracts andprograms. They say the language of the standard commercial item termina-tion provision has generated confusion about how contractors are to be com-pensated in commercial item terminations. Page 636
New Contractor Compensation Cap Takes Effect Under Interim RuleThe allowable cost limit for reimbursement of compensation for contractorand subcontractor employees is set to drop to $487,000 for contracts awardedand costs incurred on or after June 24, 2014. The new limit on the amount ofexecutive compensation that could be reimbursed to federal contractors as al-lowable costs was set by the Bipartisan Budget Act, signed by PresidentBarack Obama Dec. 26. Page 617
GAO Faults Award Decision in NASA IT ProcurementNASA unreasonably failed to assign strengths to the protester’s proposal in anIT procurement, the GAO finds. In sustaining the protest, the GAO also saysthat NASA mistakenly credited the awardee for proposing a 30-day phase-inperiod. Page 630
A L S O I N T H E N E W S
DOD: The projected cost toupgrade F-35 jets built by Lock-heed Martin Corp. has declinedby about $920 million, or 36 per-cent, in less than two years,according to the Pentagon’s lat-est analysis. Page 618
INTELLIGENCE CONTRACTING.:Members of the Senate Home-land Security and GovernmentalAffairs Committee want to knowif the civilian intelligence com-munity is more accuratelyreporting its use of core contrac-tors. Page 618
OFCCP: Federal contractors mustadhere to new requirements per-taining to hiring and recruitingindividuals with disabilities andprotected veterans only whenspecific contract value andemployee thresholds are met,OFCCP officials say. Page 619
APPROPRIATIONS: Work on theSenate’s three-bill appropria-tions ‘‘minibus’’ is movingbehind the scenes, as key law-makers try to broker a compro-mise that could still revive themeasure and permit it toadvance again to the floor.Page 626
TIMELINESS: A gravel supplycontractor may pursue its claimthat the government improperlywithheld payment after deliv-ery in Iraq, the Armed ServicesBoard of Contract Appeals finds.Page 630
VOL. 101, NO. 23 PAGES 611 – 638 JUNE 24, 2014
COPYRIGHT � 2014 BY THE BUREAU OF NATIONAL AFFAIRS, INC. ISSN 0014-9063
Federal Contracts Report™
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News / Page 615
Legal News / Page 630
BNA Insights / Page 633
N E W S
AFGHANISTAN RECONSTRUCTION Proposed ruleclarifies no Afghan taxation on contractors ............... 620
APPROPRIATIONS Senate ‘minibus’ still on hold butamendment talks continue ..................................... 626
COAST GUARD GAO faults performance of certainCoast Guard acquisitions, calls for long-term plan ..... 625
COMPENSATION New contractor compensation captakes effect June 24 under interim rule .................... 617
CYBERSECURITY Senate panel expected to considerbill to shield cyberthreat data sharing ...................... 621
DOD DLA reducing excess inventory, but challengesremain, GAO finds ................................................ 624
House passes defense spending bill, approvesacquisition-related amendments ............................. 615
Lockheed F-35 upgrades to cost $920 million less,U.S. projects ........................................................ 618
Northrop Grumman in line for Navy Hawkeyeaircraft contract ................................................... 620
Proposed rule requires use of SPOT to list weaponsused in private security ......................................... 621
HEALTH CARE U.S. hires UnitedHealth’s Slavitt tolead Obamacare effort at CMS ................................ 623
Warnings on HealthCare.gov problems wereoverlooked, Republican report says ......................... 622
INFORMATION TECHNOLOGY BGOV Digest: Anothervehicle for health IT vendors .................................. 624
INSOURCING DOD issues final rule providing fornotification of insourcing decisions .......................... 621
INTELLIGENCE CONTRACTING. Lawmakers urgeintelligence agencies to accurately report corecontractor use ...................................................... 618
OFCCP OFCCP officers reiterate contract, employeethresholds for VEVRAA, section 503 rules ................ 619
U.S. BUDGET GAO would gain in Senate leg branchappropriation ....................................................... 626
OMB nominee Donovan slated for committee votesthe June 23 week ................................................. 624
L E G I S L AT I V E & R E G U L AT O R Y A C T I V I T Y
TABLE OF LEGISLATIVE ACTIVITY ............................... 628
TABLE OF REGULATORY ACTIVITY .............................. 629
L E G A L N E W S
ALSO IN THE COURTS Weekly case roundup................ 632
FALSE CLAIMS ACT District court permits claims thatArmstrong, others violated the FCA ......................... 630
District Court: FCA counterclaims allowed ifindemnification not sought .................................... 631
PROPOSAL EVALUATION GAO faults award decision inNASA computer engineering, software procurement .. 630
TIMELINESS ASBCA allows gravel provider to pursueappeal following timely claim ................................. 630
B N A I N S I G H T S
BID PROTESTS Admission of Former Employees asConsultants under GAO Bid Protest ProtectiveOrders ................................................................ 633
TERMINATIONS FOR CONVENIENCE View FromCrowell & Moring: Commercial Item Terminationsfor Convenience—Navigating to an EquitableConclusion .......................................................... 636
TA B L E O F C A S E S
BOARDS OF CONTRACT APPEALSBrookwood Research Ctr. LLC v. Gen Servs. Admin.(CBCA) .............................................................. 632
Bruce E. Zoeller (ASBCA) ...................................... 632
EHR Doctors Inc. v. Soc. Sec. Admin. (CBCA) .......... 632
New Iraq Ahd Co. (ASBCA) ................................... 632
Patriot Pride Jewelry LLC (ASBCA) ......................... 632
Superior Mar. Servs. Inc. (ASBCA) ......................... 632
TCG Int’l LLC v. Agency for Int’l Dev. (CBCA) .......... 632
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InThis Issue
FEDERAL CONTRACTS REPORT ISSN 0014-9063 BNA 6-24-14
TA B L E O F C A S E S
Continued from previous page
Tele-Consultants Inc. (ASBCA) ............................... 632
Zomord Co. (ASBCA) ........................................... 630
COURTSCafasso ex rel. United States v. Gen. Dynamics C4Sys. Inc. (9th Cir.) ............................................... 631
United States ex rel. Ahumada v. NISH (4th Cir.) ...... 632
United States ex rel. Landis v. Tailwind SportsCorp. (D.D.C.) .................................................... 630
Walsh v. Amerisource Bergen Corp. (E.D. Pa.) .......... 631
GOVERNMENT ACCOUNTABILITY OFFICEGaver Techs. Inc. ................................................. 630
614 (Vol. 101, No. 23)
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NewsDOD
House Passes Defense Spending Bill,Approves Acquisition-Related Amendments
T he House culminated three days of floor debate onthe fiscal year 2015 Department of Defense Appro-priations Act (H.R. 4870) with a 340-73 vote on fi-
nal passage June 20.The bill would provide $491 billion in discretionary
funding and $79.4 billion for overseas contingency op-erations.
The chamber approved several procurement-relatedamendments to the bill, including one prohibiting fundsfrom being used to retire the A-10 aircraft or disestab-lish active or reserve units associated with it. Proposedby Rep. Candace Miller (R-Mich.), the amendmentpassed 300-114.
‘‘The bipartisan legislation passed today providesfunding for our highest national duty—the security ofour country, the sustainment of our military operations,and the wellbeing of the brave men and women of ourArmed Forces,’’ House Appropriations CommitteeChairman Hal Rogers (R-Ky.) said in a press statementJune 20.
‘‘The bill helps to meet the most pressing needs to ad-dress current and arising threats to the safety of our na-tion, while finding ways to trim excess and reducelower-priority programs without negatively affectingour troops or the success of our military missions,’’Rogers said.
House Armed Services Committee Chairman Howard‘‘Buck’’ McKeon (R-Calif.) also expressed his satisfac-tion that the bill passed.
�I am pleased that the House continued its longstand-ing tradition and passed this year’s defense appropria-tions bill with broad bipartisan support,’’ McKeon said.‘‘While I recognize that the current budget environmentpresented Members of the Appropriations Committeewith some difficult choices, I believe this bill keeps faithwith our warfighters and provides them with the toolsthey need to ensure our national security.’’
Cracking Down on Fair Labor Act Violators. A closervote awaited an amendment prohibiting the use offunds on a contract with any business that violates theFair Labor Standards Act.
Sponsored by Rep. Keith Ellison (D-Minn.), the billsqueaked by in a 212-204 vote. It was supported by theHouse Progressive Caucus (CPC), which pushed similaramendments to the Commerce, Justice, Science and Re-lated Agencies Appropriations Act (H.R. 3547) and theTransportation, Housing and Urban Development Ap-propriations Act (H.R. 4745).
The amendment failed for H.R. 3547 but passed forH.R. 4745. It is meant to protect workers from practicessuch as receiving pay through debit cards charging a
fee for use or asking workers to show up 30 minutes be-fore their shift starts, the CPC said in a press release.
‘‘No working American should ever worry that heremployer might steal a part of her paycheck, especiallyif she works for a contractor paid by the federal govern-ment,’’ the CPC said. ‘‘It doesn’t matter which form ittakes—wage theft is wrong and it needs to stop.’’
Biofuels, TRICARE, Other Amendments. The House alsoapproved an amendment prohibiting funds from beingused to design or build new biofuels refineries unlessspecifically authorized by law.
‘‘The DOD should not be spending money on settingup a whole new industry when they already have oneset up,’’ Rep. Mike Conaway (R-Texas) said in a pressstatement. ‘‘For the time being, these funds could bebetter dedicated to our readiness shortfalls, troop train-ing and flight hours.’’ Programs that are already under-way are not affected by the amendment, Conaway said.
In addition, the House voted to prohibit funds frombeing used to promulgate Directive 293 by the Office ofFederal Contract Compliance Programs (OFCCP).
Directive 293, issued in December 2010, asserts thatcontracts under TRICARE, Medicare and the FederalEmployees Health Benefits Program will trigger OFCCPjurisdiction, amendment sponsor Rep. Tim Walberg (R-Mich.) said on the House floor during debate.
‘‘This directive would reclassify a majority of hospi-tals in the United States as federal contractors, subject-ing hospitals in your district and mine to OFCCP’s oftencrushing regulatory burden,’’ Walberg said.
The FY 2012 National Defense Authorization Act(Pub. L. No. 112-81) states that a TRICARE networkhealth provider is not a federal contractor or subcon-tractor, Walberg said. However, the amendment is nec-essary because the OFCCP has ‘‘defied Congress’’ onthis issue in the past, he said.
Other contracting-related amendments to H.R. 4870would:
s bar the Pentagon from taking steps to retire theA-10 ‘‘Warthog’’;
s prohibit contractors convicted of theft, forgery,bribery or federal tax law from receiving contracts;
s prevent the Air Force from using appropriatedfunds to retire the KC-10 tanker fleet; and
s bar federal agencies from contracting with firmsthat incorporated in the Cayman Islands or Bermudaand were previously incorporated in the U.S.
Major Procurement Programs. A list included in the billreport highlights major initiatives and budget modifica-tions in procurement programs.
The bulk of the programs on that list would befunded at more than the president’s request, with theEA-18G Growler aircraft, USS George Washington air-craft carrier and F-35 Lightning aircraft slated for thelargest unrequested increases.
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The bill provides funding of approximately:
s $1 billion for the Growler, an increase of $975 mil-lion and 12 aircraft more than requested;
s $790 million to refuel and overhaul the USSGeorge Washington, none of which was requested;
s $5.8 billion for 38 F-35s, $479 million and 4 air-craft more than requested;
s $1.3 billion for 87 UH-60 Blackhawk helicopters,$119 million and 8 aircraft more than requested;
s $2.1 billion for nine Poseidon multi-mission air-craft, $125 million and one aircraft more than re-quested;
s $351 million for the Israeli Iron Dome program,$175 million more than requested;
s $373 million for 24 MQ-9 Reaper unmanned aerialvehicles, $133 million and 12 aircraft more than re-quested; and
s $100 million for modernization of High MobilityMultipurpose Wheeled Vehicles, none of which theDOD asked for.
Other winners listed include the UH-1Y/AH-1Z heli-copter, Patriot missile, M88A2 Improved Recovery Ve-hicle, and Stryker.
Programs on the list funded at less than the re-quested level include the:
s WIN-T Ground Forces Tactical Network, fundedat $664 million, close to $1 million less than sought;
s Joint Tactical Radio System, budgeted at $125 mil-lion, $50 million less than requested;
s Evolved Expendable Launch Vehicle, funded at$35 million less than the $1.3 billion requested for infra-structure and procurement of three vehicles; and
s close to $1.5 billion for MV-22 aircraft, almost $6million less than the request.
Programs highlighted by the committee that meet theadministration’s request for funding in FY 2015 are theKC-46 tanker aircraft (close to $1.6 billion), C/HC/MC/KC-130J aircraft ($1 billion), Chinook helicopter ($892million), and UH-72A Lakota helicopter ($416 million).
GOP Frustrated By Lack Of Details on Overseas Forces.During the floor debate, House Appropriations Com-mittee Defense Subcommittee Chairman Rodney Frel-inghuysen (R-N.J.) called on President Barack Obamato explain how the administration plans to spend the$79.4 billion requested for Overseas Contingency Op-erations.
‘‘Our committee operates in a completely transparentand accountable manner, so clearly, this is not the waywe wanted to proceed to the floor—with no details, withno context, with no facts for those accounts,’’ he said.‘‘We have pressed administration officials at everyopportunity—I spoke to Secretary Hagel as recently aslast Thursday—to get us an OCO plan.’’
‘‘Many people find it just a bit bizarre that the admin-istration has proclaimed its opposition to this bill whenthey have failed to do their job and lay out their gameplan for overseas operations,’’ he added.
Obama Opposes Bill. The Obama administration in aJune 17 policy statement objected to inclusion of ‘‘bil-lions of dollars for items DOD did not request and doesnot need,’’ including additional EA-18G aircraft and the,HMMWV and M-1 Abrams tank upgrades.
At the same time, the statement said, the bill restrictsthe Pentagon’s ability to retire other weapon systemsand aircraft platforms to provide funding for higher pri-ority programs.
The statement also expressed concern about lan-guage that ‘‘makes spending on these and other unnec-essary items statutorily required, diverting scarce re-sources from more important defense programs andlimiting the Secretary’s flexibility to manage the De-partment efficiently.’’
The policy statement specifically focused on lan-guage:
s prohibiting cancellation or modification of theC-130 Avionics Modernization Program (AMP), whichthe DOD wants to replace with what it says is a less ex-pensive, fully capable and independently validated al-ternative;
s limiting the transfer of Apache helicopters fromthe Army National Guard to the active Army;
s providing $220 million for a development of a newliquid rocket, which reportedly will take eight years tofield and cost $1.5 billion, not counting an additional $3billion needed to develop a suitable launch vehicle; and
s reducing funding for the Littoral Combat Ship(LCS) program.
Also under fire from the administration is an amend-ment added at the committee markup by Rep. Rosa De-Lauro (D-Conn.) prohibiting contracts with the Rosobo-ronexport company (101 FCR 587, 6/17/14).
The bill’s expanded restrictions on contracts withRussia’s state-arms dealer would severely limit theDOD’s ability to sustain critical military assistance tothe Afghan National Security Forces and could requirethe department to seek more costly alternatives, thestatement said.
BY DAVID HANSEN AND DEBORAH BILLINGS
To contact the reporters on this story: David Hansenin Washington at [email protected]; Deborah Bill-ings in Washington at [email protected]
To contact the editors responsible for this story: JeffKinney at [email protected]
Text of the bill is available at: http://appropriations.house.gov/uploadedfiles/bills-113hr-sc-ap-fy2015-defense-subcommitteedraft.pdf. The billreport is available at: http://appropriations.house.gov/uploadedfiles/bills-113hr-sc-ap-fy2015-defense-subcommitteedraft.pdf. Amendments to the bill areavailable at: http://appropriations.house.gov/UploadedFiles/06.20.14_FY_2015_Defense_Bill_-_Floor_Adopted_Amendments.pdf.
616 (Vol. 101, No. 23) NEWS
6-24-14 COPYRIGHT � 2014 BY THE BUREAU OF NATIONAL AFFAIRS, INC. FCR ISSN 0014-9063
Compensation
New Contractor Compensation CapTakes Effect June 24 Under Interim Rule
T he allowable cost limit for reimbursable compensa-tion for contractor and subcontractor employees isset to drop to $487,000 for contracts awarded and
costs incurred on or after June 24, 2014.Opponents of the change have argued that a lower
cap is arbitrary and would hinder recruitment of newtalent.
The new limit on the amount of compensation thatcan be reimbursed to federal contractors as allowablecosts was set by the Bipartisan Budget Act (BBA) (H.J.Res. 59, Pub. L. No. 113-67).
An interim rule amending the Federal AcquisitionRegulation to implement the change is scheduled to bepublished in the Federal Register June 24. The rule ad-heres to requirements in section 702 of the BBA that therevised compensation cap apply to costs of compensa-tion incurred 180 days after enactment.
Issuing an interim rule that is effective upon publica-tion, before receiving public comment, will allow agen-cies and contractors to implement the law in a timelymanner, the rule writers said.
Exceptions Allowed. Legislators partially addressedcontractors’ concerns by including language in section702 allowing agencies to establish exceptions from thecap for highly skilled positions such as engineers or sci-entists. However, this has not satisfied many industryrepresentatives, which continue to maintain that thecap is too low.
Exceptions can be made if they are needed ‘‘to ensurethat the executive agency has continued access toneeded skills and capabilities,’’ according to the rule.The rule stipulates that, in making such determinations,agencies must at least consider, for each contractor in atargeted excepted position:
s the amount of taxpayer funded compensation tobe received by each employee; and
s the duties and services performed by each em-ployee.
The BBA established a $487,000 cap on reimbursablecontractor compensation for a single employee. This isa significant reduction from the more than $950,000 capset by the Office of Federal Procurement Policy for2012.
The BBA was approved by the Senate Dec. 18, a daybefore the fiscal year 2015 National Defense Authoriza-tion Act (H.R. 3304, Pub. L. No. 113-66), which calledfor a cap of $625,000.
The president signed both the BBA and H.R. 3304 onDec. 26. However, he signed the BBA last.
The $487,000 cap applies to all employees of contrac-tors and subcontractors, not just to the top five execu-tives.
Section 702 specifies that the cap be adjusted annu-ally to reflect the change in the Bureau of Labor Statis-tics’ Employment Cost Index for all employees.
No Cap for 2013. While the new compensation captakes effect June 24, Rich Wilkinson, a director withWatkins Meegan’s Government Contracting Group,
headquartered in Tysons Corner, Va., said contractors‘‘have no idea what the cap is for 2013.’’
The OFPP has been ‘‘erratic’’ regarding its responsi-bility for setting the cap under a statutorily mandatedformula; the last time it was set by the April 15 deadlinewas for 2011, he said. The agency did not announce the$952,308 cap for calendar year 2012 until last Decem-ber (100 FCR 537, 12/10/13).
The confusion has been compounded by otherchanges, including expansion of the cap on reimburs-able compensation two years ago to the salaries of allDefense Department, Coast Guard and National Aero-nautics and Space Administration contractor employ-ees rather than the top five employees. This changemeant that very large companies that did business withthose agencies as well as civilian agencies had to adjustaccounting methods to deal with different caps—onefor the top five employees and one for all others,Wilkinson said.
At the end of 2014, contractors may find themselvescomputing one general and administrative rate for civil-ian agency contracts awarded before June, 24, 2014, an-other for DOD contracts awarded prior to June 24,2014, and yet another for all contracts awarded on or af-ter June 24, 2014, he said.
It’s been ‘‘a little bit of a mess from the start,’’ agreedEric Crusius of the Centre Law Group, in part becausewas no clear indication at the time the president signedthe two bills Dec. 26 which of the caps took precedence.
Moreover, in addition to lowering the cap, the pool ofemployees to which it applies has been expanded, Cru-sius pointed out. Expanding the number of employeesaffected and simultaneously lowering the level of allow-able compensation basically amounts to a ‘‘two-prongattack on contractors,’’ he said.
A ‘Matter of Fairness.’ Sen. Charles Grassley (R-Iowa), a key player in the push for changes in this area,issued a statement June 23 saying the lowered cap is a‘‘matter of fairness.’’
‘‘Government contractors should be compensatedfairly for their work, but they shouldn’t be allowed tofeatherbed their salaries at taxpayer expense,’’ he said.‘‘I look forward to the savings that will occur for taxpay-ers due to this commonsense change.’’
The Project on Government Oversight ‘‘is pleasedthat the FAR Councils didn’t sit idle for years beforeimplementing the changes to the contractor compensa-tion cap regulations,’’ Scott Amey, general counsel forthe government watchdog group, told Bloomberg BNAin an e-mail.
‘‘This action will ease the financial burden on taxpay-ers, which should result in savings,’’ he said, ‘‘Despiteclaims that contractors will have trouble hiring employ-ees for jobs with high six-figure salaries, I don’t foreseeany drop-off in contractor expertise or performance.That claim was simply an effort to continue whatamounted to a corporate welfare program.’’
To contact the reporter on this story: Deborah Bill-ings in Washington at [email protected]
To contact the editor responsible for this story: JeffKinney at [email protected]
The interim rule is available at: https://s3.amazonaws.com/public-inspection.federalregister.gov/2014-14379.pdf.
NEWS (Vol. 101, No. 23) 617
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DOD
Lockheed F-35 Upgrades to Cost$920 Million Less, U.S. Projects
T he projected cost to upgrade F-35 jets built byLockheed Martin Corp. has declined by about $920million, or 36 percent, in less than two years, ac-
cording to the Pentagon’s latest analysis.The estimate for improvements and corrections for
aircraft already built or planned in the first 10 contractsto be awarded through 2016 has dropped to about $1.65billion from a $2.57 billion estimate in September 2012,the Pentagon said in an annual assessment to Congress.The projection is $100 million less than the one madelast year.
The need to retrofit the planes stems from the De-fense Department’s decision to produce the F-35, thecostliest weapons system, even as it’s still being devel-oped. The Pentagon’s chief weapons buyer has criti-cized that approach, known as concurrency.
‘‘Putting the F-35 into production years before thefirst flight test was acquisition malpractice,’’ FrankKendall, undersecretary of defense for acquisition, saidin a 2012 industry presentation. ‘‘It should not havebeen done. But we did it.’’
Kendall signed the latest report showing success inreducing the projected cost of upgrades.
That’s good news for Lockheed, the world’s largestdefense contractor. Since the fifth of seven contractssigned so far, the Pentagon has required the contractorto pay an increasing share of the costs for retrofittingthe planes. Beginning with the sixth contract, Lockheedhas had to absorb half the costs.
Escalating Costs. ‘‘This cost-sharing approach is in-tended to motivate Lockheed Martin to incorporate con-currency changes as quickly as possible on the produc-tion line,’’ according to the previously undisclosed re-port obtained by Bloomberg News and dated May 1.
The projected $398.6 billion acquisition cost for theF-35 has climbed 71 percent in inflation-adjusted dol-lars since the Pentagon signed its initial contract withBethesda, Md.-based Lockheed in 2001, even as planswere adjusted to buy 409 fewer aircraft. The estimatedcost to operate and support the plane over a 55-yearservice life has declined to $1.02 trillion from $1.11 tril-lion.
The revised estimate for upgrades bolsters findingsby U.S. Government Accountability Office analysts andPentagon program officials that Lockheed is makingprogress in managing the jet’s simultaneous develop-ment and production at this point, before the most dif-ficult combat testing begins.
Lockheed’s Commitment. ‘‘This is the result of im-proved efficiencies and total commitment to drivingcosts out of the program,’’ Lockheed spokesman Mi-chael Rein said in an e-mailed statement. ‘‘We will con-tinue’’ to ‘‘implement further cost savings measures,’’he said.
Concurrency has the benefit of producing aircraftfaster on the premise that advanced computer modelingand simulation can reduce the risk of error. The dangeris that costly changes will be needed to planes alreadybuilt because of flaws discovered in flight and groundtesting or in engineering analysis.
The reduction in projected costs stems in part fromfewer anticipated technical flaws and from Lockheedworking collaboratively with the Pentagon to managethe process and reduce time on the assembly line to ret-rofit planes, the report said.
The latest estimates also are based less on computermodels using historical data and more on actual costs ofimplementing approved changes.
The estimate for upgrades under the fifth contract of32 jets has dropped to $270 million from $450 million,according to the report. Estimates for the sixth lot of 36F-35s dropped to $190 million from $350 million. Pro-jections for the seventh batch of 35 jets have dropped to$140 million from $230 million, the report said.
Annual Updates. The retrofit cost for 43 jets in theeighth contract that’s now under negotiation is esti-mated at $100 million, down from an initial $120 mil-lion.
‘‘Estimates will be reviewed and updated on an an-nual basis’’ and ‘‘these will contain adjustments as a re-sult of retiring, realizing, re-scheduling or addingchanges as the program progresses,’’ according to thereport.
Among the forecast issues that could require retrofitsare those ‘‘that may occur’’ based on historical qualifi-cation and flight and ground test data from the F-35’spredecessors—the F-16, F-15, F-22 and F/A-18E/F fight-ers, the report said.
BY TONY CAPACCIO
To contact the reporter on this story: Tony Capaccioin Washington at [email protected]
To contact the editor responsible for this story: JohnWalcott at [email protected]
� 2014 Bloomberg L.P. All rights reserved. Used withpermission.
Intelligence Contracting.
Lawmakers Urge Intelligence AgenciesTo Accurately Report Core Contractor Use
M embers of the Senate Homeland Security andGovernmental Affairs Committee June 18 soughtassurances that components of the civilian intel-
ligence community are more accurately reporting onthe their use of core contractors.
The questions came in the wake of a Government Ac-countability Office evaluation last year questioning thereliability of intelligence contractors’ inventorying pro-cesses.
The GAO last January released an unclassified ver-sion of its September 2013 report that said shortcom-ings such as inconsistent reporting by the intelligencecommunity (IC) collectively limit the comparability, ac-curacy and consistency of the inventories used to reportnumbers and costs of core contract personnel.
These problems undermine reports from the IC ChiefHuman Capital Officer (CHCO) of an approximately 30percent decline in the number of core contract person-nel from fiscal year 2009 to 2011, the GAO report said.
The annual inventory reports on contractors that per-form ‘‘core’’ functions, characterized as direct supportto intelligence mission areas such as operations, analy-sis, management and research and development.
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The GAO reviewed inventory data for fiscal years2010 and 2011 from eight components—the Central In-telligence Agency, the Office of the Director of NationalIntelligence, the Drug Enforcement Administration’sOffice of National Security Intelligence, the State De-partment’s Bureau Intelligence and Research, theHomeland Security Department’s Office of Intelligenceand Analysis, the Department of Energy’s Office of In-telligence and Counterintelligence, the Federal Bureauof Investigation, and the Treasury Department’s Officeof Intelligence and Analysis.
The inventory ‘‘was not good,’’ Timothy DiNapoli,GAO director, acquisition sourcing and management,told the committee. Its information ‘‘just wasn’t accu-rate,’’ but the effect of these limitations was not clearlyexplained by the IC CHCO in reports to Congress.
In addition, none of the components had fully devel-oped policies to address the risks associated with con-tractors closely supporting inherently governmentalfunctions. However, the DHS and State had policies inplace at the time of the January report generally ad-dressing requirements related to contracting for ser-vices that closely support such functions, which are setout in a 2011 policy letter from Office of Federal Pro-curement Policy.
Continued Concerns. The departments of Treasuryand Justice since then have indicated movement in thisdirection, but the CIA, the ODNI and Energy Depart-ment have not been responsive in this area, DiNapolisaid.
Stephanie O’Sullivan, principal deputy director of theODNI, described the components’ efforts to respond tothe GAO concerns as mostly positive, while acknowl-edging that there has been some recalcitrance in reac-tion to the push for more transparency.
Actions spurred by the GAO’s recommendations,O’Sullivan said, include:
s guidance requesting that IC elements describesteps taken to comply with the OFPP policy letter;
s revision of the IC directive governing strategicworkforce planning; and
s requirements that components describe in the in-ventory methodologies used to identify data.
The GAO’s review of 287 records found that:
s approximately 20 percent under- or over-reportedthe amount of contract obligations by 10 percent;
s 37 percent were missing documentation to vali-date the number of contractor personnel reported;
s 40 percent lacked evidence to support agencies’stated reasons for using contractors instead of federalemployees;
s the definition of ‘‘core’’ contractor has changedover the years; and
s agencies used different methods of tracking num-bers, costs and functions of core contractors.
The unclassified version of the report, according tothe GAO, omits certain ‘‘sensitive’’ information such asthe numbers and associated costs of government andcore contract personnel involved in the intelligencework examined.
To contact the reporter on this story: Deborah Bill-ings in Washington at [email protected]
To contact the editor responsible for this story: JeffKinney at [email protected]
Testimony from the hearing is available at: http://www.hsgac.senate.gov/hearings/the-intelligence-community-keeping-watch-over-its-contractor-workforce2.
OFCCP
OFCCP Officers Reiterate Contract, EmployeeThresholds for VEVRAA, Section 503 Rules
F ederal contractors must adhere to new nondis-crimination and written affirmative action programrequirements pertaining to the hiring and recruit-
ment of individuals with disabilities and protected vet-erans only when specific contract value and employeethresholds are met, compliance officers and a regula-tory analyst of the Labor Department’s Office of FederalContract Compliance Programs said during an agencywebinar June 17.
Employers with federal contracts worth more than$10,000 are subject to the general nondiscriminationprovisions of Section 503 of the Rehabilitation Act,which prohibits employment bias against individualswith disabilities, OFCCP compliance officer Carlos Ga-mazo said.
However, similar nondiscrimination obligations re-garding protected veterans under the Vietnam Era Vet-erans’ Readjustment Assistance Act apply to only em-ployers with federal contracts valued at $100,000 ormore, OFCCP compliance officer Kaila Cwiekalo said.
OFCCP regulatory analyst Leo Lestino further ex-plained that new written AAP requirements and relatedcomponents—introduced in subparts C of the revisedOFCCP rules that went into effect March 24—attach un-der Section 503 when employers have federal contractsworth more than $50,000 and have 50 or more employ-ees.
That employee threshold remains the same forVEVRAA’s written AAP obligations, but the contractvalue must exceed $100,000, Lestino said.
Hiring Goals, Benchmarks Under Higher Thresholds.Subparts C in both rules respectively require contrac-tors to adopt quantifiable hiring goals for individualswith disabilities and hiring benchmarks for militaryveterans.
Specifically, contractors under Section 503 must es-tablish a nationwide 7 percent utilization goal for dis-abled individuals in each job group of a federal contrac-tor’s workforce, Gamazo said. If a contractor has lessthan 100 employees, the final rule requires the 7 per-cent goal to be applied to the entire workforce, he said.
Meanwhile, under VEVRAA, contractors have twooptions for setting hiring benchmarks for veteransbased on either the current national percentage of vet-erans in the workforce, which is available on theOFCCP’s website, or their own benchmark based on thebest available data, Cwiekalo said.
If the goal or benchmark is not met, the complianceofficers said contractors must assess their personnelprocesses, the effectiveness of their outreach and re-cruitment efforts and their AAPs to determine whether
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there may be impediments to equal employmentopportunity.
‘‘If the contractor identifies any problem areas, itmust develop and execute action oriented programs tocorrect them,’’ Gamazo said.
Both Gamazo and Cwiekalo emphasized that failureto meet the goal or benchmark alone is not a violationand will not carry any penalties.
‘‘The goal is intended to provide a management toolfor analyzing and assessing workplace processes andaffirmative action efforts,’’ Gamazo said.
He added, however, that the failure to apply the goalon an annual basis could be a violation, as could thefailure to conduct assessments as to whether EEO im-pediments exist.
‘‘The mere fact that the goal is not being met does notconstitute discrimination or a violation,’’ Gamazo said.
Invitations to Voluntarily Self-Identify. Subparts C alsorespectively include requirements for contractors to in-vite job applicants to voluntarily self-identify either asprotected veterans or as individuals with disabilities, orboth, at the pre-offer and post-offer phases of the em-ployment process.
To comply with Section 503’s self-identification re-quirements, the compliance officers said, contractorsmust use the standardized form posted to the OFCCP’swebsite.
Cwiekalo said the VEVRAA rules do not mandate aspecific voluntary self-identification form, but do pro-vide model invitations in an appendix B to theregulations.
BY JAY-ANNE B. CASUGA
To contact the reporter on this story: Jay-Anne B. Ca-suga in Washington at [email protected]
To contact the editor responsible for this story: SusanJ. McGolrick at [email protected]
DOD
Northrop Grumman in LineFor Navy Hawkeye Aircraft Contract
N orthrop Grumman Corp. is in line to get a five-year U.S. Navy contract valued at as much as$3.86 billion to build new surveillance and recon-
naissance aircraft, according to a Defense Departmentdocument.
The contract for 25 E-2D Advanced Hawkeye aircraftto be flown from aircraft carriers may be awarded bythe end of the month, according to a May 29 notice tocongressional defense committees from Frank Kendall,the Pentagon’s chief weapons buyer, that was obtainedby Bloomberg News.
Such multiyear deals are prized by defense contrac-tors because they make cancellation unlikely and lockin a funding commitment. The aircraft to be built byNorthrop, the fifth-biggest U.S. contractor, would ex-tend the range at which a Navy carrier battle group candetect incoming enemy missiles or planes.
‘‘No other program can provide the required capabil-ity for integrated air and cruise missile defense,’’ ac-cording to the letter explaining the contract’s rationale.The contract will call for building five aircraft this fiscalyear, four in 2015, five in 2016, six in 2017 and five in
2018, said the document. The aircraft was approved forfull-rate production last year, with eventual productionof as many as 75 aircraft.
Buying the aircraft in a five-year batch will saveabout $370 million over annual purchases, or 8.7 per-cent, according to the notice, which Congress requiresfor such multiyear commitments. Randy Belote, aspokesman for Falls Church, Va.-based Northrop, de-clined to comment and referred questions to the Navy.
‘‘There is a multiyear procurement contract award inprocess,’’ Naval Air Systems Command spokesman RobKoon said in an e-mailed statement. ‘‘We cannot releaseany details until the contract has been awarded,’’ Koonsaid.
BY TONY CAPACCIO
To contact the reporter on this story: Tony Capaccioin Washington at [email protected]
To contact the editor responsible for this story: JohnWalcott at [email protected]
� 2014 Bloomberg L.P. All rights reserved. Used withpermission.
Afghanistan Reconstruction
Proposed Rule ClarifiesNo Afghan Taxation On Contractors
T he Defense Department is scheduled to issue a pro-posed rule June 24 notifying contractors that theyare exempt from taxes, customs, duties and similar
charges in Afghanistan, and thus they cannot add themto contract prices.
Diplomatic agreements between the U.S. and Af-ghanistan exempt U.S. contractors from paying liabilityfor such charges. However the Afghan government hasimposed fees on U.S. contractors that the federal gov-ernment believes are inappropriate.
For example, the Special Inspector General for Af-ghan Reconstruction (SIGAR) found in a May 2013 re-port that the Afghan Ministry of Finance (MOF) leviedmore than $921 million in business taxes and fees on 43contractors working on U.S. projects (99 FCR 618,5/21/13).
The MOF restricted contractors’ movement in thecountry, denied business licences to firms and arrestedcontractors unwilling to pay, the report found.
SIGAR additionally found in a July 2013 report thatthe Afghan government imposed other inappropriatefines, fees and penalties on contractors (100 FCR 6,7/2/13).
The proposed rule requires a new clause for all solici-tations and contracts regarding performance in Af-ghanistan. The clause would notify contractors that theagreement exempts from taxes, customs duties or simi-lar charges any articles or services imported into Af-ghanistan by or for the U.S.
The clause makes clear that contractors shall excludeany Afghan taxes, customs, duties or similar chargesfrom contract prices.
The rule also provides a separate clause clarifyingthat articles and services awarded on behalf of NATOand approved by the DOD are exempt from taxationand similar fees.
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Problem for Contractors? The rule properly states thatcontractors are exempt from most taxes and charges bythe Afghan government, Professional Services CouncilVice President and Counsel Alan Chvotkin toldBloomberg BNA June 23. ‘‘The problem is, the Afghangovernment does not share that view,’’ he said. ‘‘Simplypublishing a rule in DFARS will make no difference tocompanies or to Afghanistan, so nothing will change.’’
The rule could be to the detriment of contractors be-cause it states the U.S. will not reimburse costs for Af-ghan taxes and fees, Chvotkin said.
The rule is available at: http://www.ofr.gov/OFRUpload/OFRData/2014-14595_PI.pdf.
Insourcing
DOD Issues Final Rule ProvidingFor Notification of Insourcing Decisions
T he Defense Department, in a notice scheduled forpublication in the Federal Register June 24, final-ized an interim rule to require timely notification
of any contractor that performs a function that the DODplans to convert to performance by civilian employees.
The rule amends the Defense Federal AcquisitionRegulation Supplement and implements a section of theFiscal Year 2012 National Defense Authorization Act(NDAA) (Pub. L. No. 112-81). No changes were made tothe interim rule as a result of public comments.
Section 938 of the NDAA requires the secretary of de-fense to establish procedures for the timely notificationof any contractor that performs a function that the sec-retary plans to convert to performance by DOD civilianemployees, as well as notify the congressional defensecommittees.
The rule requires the contracting officer to notify anaffected incumbent contractor about an insourcing de-cision within 20 business days of receiving the decisionfrom the insourcing program official.
Comments. One respondent submitted comments onthe interim rule, stating that it should require issuanceof the notice within a reasonable amount of time beforethe insourcing takes place.
However, the rule writers said insourcing of con-tracted services falls into the following three categories:
s inherently governmental functions;
s work closely associated with inherently govern-mental functions, critical in nature, and unauthorizedpersonal services, and;
s cost-based insourcing decisions.‘‘The nature of the contracts in these three categories
is such that it is essential for the government to have theability to take insourcing actions once notification isprovided to affected incumbent contractors,’’ they said.
The same respondent also suggested including spe-cific details of the rationale for the insourcing decisionin the notice to contractors.
The rule writers responded that the rule already re-quires the notice to include a summary of why the ser-vice is being insourced. Thus, it ‘‘fulfills the objective oftransparency and accountability.’’
The rule is available at: https://s3.amazonaws.com/public-inspection.federalregister.gov/2014-14584.pdf.
DOD
Proposed Rule Requires Use of SPOTTo List Weapons Used In Private Security
T he Defense Department plans to publish in theJune 24 Federal Register a proposed rule imposingDOD-unique requirements for defense contractors
performing private security functions outside the U.S.,including the use of the Synchronized Predeploymentand Operational Tracker (SPOT) system to registerweapons.
Comments on the rule are due 60 days from the dateof publication.
The rule would amend the Defense Federal Acquisi-tion Regulation Supplement (DFARS) to prescribe aclause for use in solicitations and contracts when de-fense contractors perform private security functionsoutside the U.S. It would address these broader require-ments by ensuring coverage in:
s contingency operations;
s combat operations;
s other significant military operations designed bythe secretary of defense and agreed to by the secretaryof state;
s humanitarian/peace operations; and
s other military operations or military exercises.The rule would instruct contractors performing pri-
vate security to register all weapons, armored vehicles,helicopters and other vehicles in the SPOT system.
It also would provide:
s for compliance with ANSI/ASIS PSC.1-2012, theAmerican National Standard, Management System forQuality of Private Security Operations-Requirementswith Guidance; and
s a definition of ‘‘peace operation.’’
The rule is available at: http://www.ofr.gov/OFRUpload/OFRData/2014-14594_PI.pdf.
Cybersecurity
Senate Panel Expected to ConsiderBill to Shield Cyberthreat Data Sharing
T he Senate Intelligence Committee is expected assoon as the week of June 23 to take up legislationto provide liability protection to U.S. companies
that share cyberthreat data with other private entities orthe federal government.
The measure is designed to encourage voluntaryinformation-sharing by addressing concerns such as therisk of a company being sued by consumers or share-holders after disclosing a data security breach to gov-ernment or industry partners.
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A draft version of the bill, dubbed the CybersecurityInformation Sharing Act, was unveiled June 17 by Com-mittee Chairman Dianne Feinstein (D-Calif.).
‘‘Information sharing legislation is one of the mostimportant things Congress can do to protect theeconomy and consumers from a cyberattack,’’ FinancialServices Roundtable Chief Executive Officer TimPawlenty said in an e-mailed statement. ‘‘Action on thisissue is urgently needed and this bill is a good step for-ward.’’
Bill Responds to ‘Massive Threat.’ The legislation re-sponds to the ‘‘massive and growing threat to nationaland economic security from cyber intrusion and at-tack,’’ according to a statement released by Feinstein.She collaborated with Committee Vice Chairman SaxbyChambliss (R-Ga.) on the proposal.
Lawsuits against companies that have shared ‘‘cyber-threat indicators or countermeasures’’ would bepromptly dismissed under the bill. In addition, compa-nies would be shielded from federal antitrust enforce-ment actions when they have shared cyberthreat infor-mation with competitors. Liability protection also wouldbe provided to companies for networking monitoring.
A similar bill (H.R. 624) passed by the House lastyear, the Cyber Intelligence Sharing and Protection Act(CISPA), triggered objections from privacy groups anda veto threat from the White House. Critics raised con-cerns about the possibility of companies being shieldedfrom liability under privacy laws when sharing Ameri-cans’ online data with other private organizations orwith federal entities such as the National SecurityAgency.
Feinstein had promised last year to introduce herown information-sharing proposal, but the effort endedup taking a back seat to the debate over controversialphone and Internet surveillance activities at the Na-tional Security Agency.
Gabe Rottman, a legislative counsel and policy ad-viser for the American Civil Liberties Union, said theSenate bill, at first glance, might provide the govern-ment with a new ‘‘loophole’’ to obtain e-mails and othercommunications for broad law enforcement purposes.
‘‘That’s a major step back, if true,’’ he told BloombergBNA.
Feinstein Puts Focus on DHS. Under the Senate bill, in-formation reported to the federal government throughreal-time information-sharing mechanisms or otherelectronic methods would be required to be provided tothe Department of Homeland Security in order to re-ceive liability protection, Feinstein’s statement noted.The data would be shared immediately with other rel-evant federal departments.
The bill also would:s require companies sharing cyberthreat data to
first remove ‘‘personally identifying information’’;s direct the attorney general to write procedures
limiting the government use of cyberthreat data to ap-propriate purposes and to ensure that privacy protec-tions are in place; and
s mandate reports by the Privacy and Civil LibertiesOversight Board and relevant federal inspectors generalon the use of authorities and protections under the bill.
A previous version of the legislation was circulated inApril for feedback from stakeholders.
BY ALEXEI ALEXIS
To contact the reporter on this story: Alexei Alexis inWashington at [email protected]
To contact the editor responsible for this story:Heather Rothman at [email protected]
Text of the draft bill is available at: http://op.bna.com/der.nsf/r?Open=tbay-9l6n3m.
Health Care
Warnings on HealthCare.gov ProblemsWere Overlooked, Republican Report Says
A contractor the Obama administration hired tomonitor progress on its health insurance website,HealthCare.gov, repeatedly warned the project
was falling behind before the site failed in October,Senate Republicans said in a report.
The contractor, TurningPoint Global Solutions,‘‘raised a litany of red flags’’ about the project in auditsfor the government beginning about a year before thewebsite opened Oct. 1, according to the report by Sens.Orrin Hatch (R-Utah) and Charles Grassley (R-Iowa). Amonth before the site went live, the contractor said thatof 355,000 lines of code, 21,000 had defects.
Many of the failures of HealthCare.gov, the federalinsurance marketplace that served 34 states in the firstyear of the Affordable Care Act, have been previouslydocumented. Programming and hardware errors pre-vented the site from working for most Americans untilDecember, and former Health and Human Services De-partment Secretary Kathleen Sebelius publicly ac-knowledged the project was a ‘‘debacle.’’ She resignedApril 10.
The failures ‘‘proved to be indicative of many ofObamacare’s problems,’’ Hatch said in a statement. ‘‘Inthe end, the problem with Obamacare is not just thefailed rollout of HealthCare.gov, but in the failed poli-cies of the law that restrict patient choice and expandthe powers of a bloated federal government.’’
The report by the Republicans, who have opposed thelaw, rehashes many missteps in the site’s developmentthat were already known, while shedding additionallight on some, such as a lack of testing. People familiarwith the project have said the site never underwent end-to-end testing before its launch.
Twenty-Three Percent Tested. TurningPoint, whichserved as the project’s ‘‘independent verification andvalidation’’ contractor, reported that just 23 percent ofthe site’s code had been tested before it went live, ac-cording to Hatch and Grassley.
TurningPoint’s role in the project and its reportshaven’t previously been disclosed, Aaron Fobes, aspokesman for Hatch, said in an e-mail. Officials at theCenters for Medicare and Medicaid Services, whichbuilt the site, wouldn’t say whether top executives incharge of the project saw TurningPoint’s audits and‘‘implied the reports were not useful or up to date,’’ ac-cording to Hatch and Grassley’s report.
‘‘It’s well known that we faced challenges during thelaunch of healthcare.gov,’’ Aaron Albright, a spokes-man for the CMS, said in an e-mail. ‘‘As it has beenwidely reported, we didn’t anticipate the levels of diffi-culty that we ultimately faced. We immediately worked
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to fix the issues and developed new management pro-cesses.’’
About 8 million Americans ultimately signed up forprivate plans under the Affordable Care Act, including5.4 million who used the federal enrollment system. Al-bright said the Medicare agency is ‘‘making additionalimprovements to technology and management struc-tures so that millions more Americans can sign up forquality, affordable coverage.’’
Enrollment for 2015 health plans opens on Nov. 15,and at least 13 million people are expected to sign up,according to the Congressional Budget Office.
BY ALEX WAYNE
To contact the reporter on this story: Alex Wayne inWashington at [email protected]
To contact the editor responsible for this story: RegGale at [email protected]
�2014 Bloomberg L.P. All rights reserved. Used withpermission.
Health Care
U.S. Hires UnitedHealth’s SlavittTo Lead Obamacare Effort at CMS
T he UnitedHealth Group Inc. executive whose Op-tum division helped states and the federal govern-ment fix Obamacare health exchanges will become
second-in-command at the agency that runs the U.S.program.
Andy Slavitt, Optum’s group executive vice presi-dent, was named principal deputy administrator at theCenters for Medicare and Medicaid Services, officialssaid. The company he comes from, UnitedHealth, is thenation’s largest health insurer.
The Department of Health and Human Services willalso hire a chief executive officer and chief technologyofficer for the insurance exchanges, said SylviaMathews Burwell, who was approved by Congress asthe HHS secretary on June 9, in a statement. Previously,no single person was in charge of the exchanges, a lackof accountability faulted by both foes and supporters ofObamacare after HealthCare.gov was found to beriddled with technical errors.
The changes ‘‘bring additional operational and tech-nological firepower and have a clear single point of con-tact in the marketplace CEO to streamline decision-making,’’ Burwell said in the statement.
In his new job, Slavitt will have broad responsibilityfor all of CMS’s operations, including Affordable CareAct programs, Medicare, the program for the elderlyand disabled, and Medicaid, the program for low-income people. He will report to the agency’s adminis-trator, Marilyn Tavenner.
Optum Hiring. Separately, two senators sent letters toTavenner June 19 questioning Optum’s role in thehealth exchanges. Sens. Charles Grassley (R-Iowa) andOrrin Hatch (R-Utah) suggested it may present a con-flict of interest for a UnitedHealth subsidiary to have ahand in running insurance exchanges while its parentcompany competes against other insurers in the mar-ketplaces.
‘‘We would like to ensure that all potential conflictsof interest are mitigated,’’ they wrote, requesting docu-
ments related to Optum’s contract with Tavenner’sagency.
A spokesman for UnitedHealth, Matt Stearns, de-clined to comment on the inquiry. A CMS spokesman,Aaron Albright, said in an e-mail that the agency hasensured Optum ‘‘has taken steps to meet standards re-quired by federal acquisition regulations to prevent or-ganizational conflicts of interest.’’
Slavitt offered his company’s services to the Obamaadministration in late October as the federal websitewas floundering. The government hired Optum’s Qual-ity Software Services Inc. unit as lead contractor for thesite, and by December, it functioned for most custom-ers.
Open Enrollment. The exchanges re-open for mostAmericans on Nov. 15, and making sure the technologyworks on day one is Burwell’s top concern. The man-agement shake-up for the Affordable Care Act pro-grams marks her first major decision as secretary.
‘‘Ensuring that the second open enrollment period isadministered as effectively as possible must be a toppriority, and it is most encouraging that Secretary Bur-well is acting promptly towards that end,’’ Ron Pollack,executive director of Families USA, a consumer advo-cacy group in Washington that supports the health law,said in an e-mail. ‘‘These administrative improvementswill enable the second enrollment period to build on,and to improve, the success of the millions of peoplewho gained health coverage recently.’’
States with exchange problems of their own begancalling Optum soon after HealthCare.gov was fixed, in-cluding Maryland, Minnesota and Massachusetts. Thecompany was credited with helping each of the statesenroll thousands of people in new Affordable Care Acthealth plans despite websites that barely functioned, ifat all. Vermont hired Optum this month.
Eight Million Enrolled. About 8 million people used theexchanges to sign up for private health plans by the endof April. UnitedHealth itself has a small footprint in themarketplaces, selling its plans in just five states thisyear. It plans to expand its exchange offerings in 2015.
‘‘I am excited to join such a talented team and be partof such an historic opportunity to make a difference inthe lives of millions of Americans who are impacted byCMS’ programs,’’ Slavitt said in an e-mail from a CMSspokeswoman.
Administration allies including the Center for Ameri-can Progress and Ezekiel Emanuel, a former WhiteHouse official now at the University of Pennsylvania,have previously urged Obama to appoint a CEO for theinsurance exchanges.
‘‘It is unclear whether decision-making authority re-sides with the White House, the Centers for Medicareand Medicaid Services, or the secretary of Health andHuman Services,’’ Emanuel and Neera Tanden, CAP’spresident, wrote in a May 17 report. ‘‘There still is nosingle leader who is accountable for successful imple-mentation of the Affordable Care Act.’’
Candidate Search. The government hasn’t yet identi-fied candidates for the exchange CEO and CTO jobs, of-ficials said. The CEO will have responsibility for bothfederal and state exchanges, and will report to Tav-enner, Slavitt and Burwell. Tanden and Emanuel rec-ommended that the CEO report directly to Obama andto Burwell.
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Kurt DelBene, a former Microsoft Corp. executivewho has been managing the federal enrollment systemsince December, will leave the government at the end ofthis month. His job has always been considered tempo-rary and his departure isn’t related to Slavitt’s appoint-ment, officials said.
Slavitt is the second UnitedHealth executive to re-cently leave the company for public service. Simon Ste-vens, who ran the company’s international business,was appointed in October to lead England’s NationalHealth Service. He started on the job April 1.
‘‘We are grateful to Andy for his contributions to Op-tum’s success and are sad to see him go, but we knowhis skills, experience and integrity will serve CMS andthe American people well,’’ Brian Kane, an Optumspokesman, said in an e-mail.
BY ALEX WAYNE
To contact the reporter on this story: Alex Wayne inWashington at [email protected]
To contact the editor responsible for this story: RegGale at [email protected]
�2014 Bloomberg L.P. All rights reserved. Used withpermission.
Information Technology
BGOV Digest: Another VehicleFor Health IT Vendors
R eversing an earlier decision, the Defense HealthAgency has announced a new indefinite-quantityindefinite-delivery contract vehicle to replace its
previous health information technology vehicle, De-fense Medical Information Systems/Systems Integra-tion, Design, Development, Operations and Mainte-nance Services, or D/SIDDOMS III.
The department had previously declined to renewD/SIDDOMS III, saying it would shift those orders tocompanies on other agencies’ contracting vehicles.
That means health IT vendors seeking to do businesswith the Defense Department have yet another contractvehicle to bid on. The impact of the D/SIDDOMS re-placement, which is likely to be called D/SIDDOMS IV,is the focus of this week’s Federal Contracts Digest, aBloomberg Government weekly report that examinesmajor new and existing federal opportunities.
Less CIO-SP3 Work. The shift in DHA purchasingstrategy will negatively affect the 54 vendors on theChief Information Officer-Solutions and Partners 3(CIO-SP3) contract vehicle and its small-businesscomplement, CIO-SP3 SB, which has 94 vendors. Be-fore the DHA announcement, many of the D/SIDDOMSexpiring task orders were slated to move to CIO-SP3and CIO-SP3 SB, both of which have a $20 billion ceil-ing and a performance period ending in fiscal 2022. Tocapture future DHA work, many of the contractors withslots on CIO-SP3 will now have to invest resources inbidding on the D/SIDDOMS replacement.
A previous BGOV analysis identified billions of dol-lars in expiring D/SIDDOMS III task orders that may berecompete opportunities. There are more than $600 mil-lion in task orders that expire after July 1, 2014, accord-ing to the latest BGOV Contracts Intelligence Tool data.
Orders Total $2.68 Billion. To date, D/SIDDOMS IIIvendors have won $2.68 billion in orders, with $667 mil-lion going to Science Applications International Corp.,$339 million to Northrop Grumman Corp. and $333 mil-lion to Planned Systems International Inc. Given theDefense Department’s priority of revamping its healthIT systems to make them interoperable with VeteransAffairs systems, contractors can expect continuedspending on this area.
For vendors interested in the new vehicle, an indus-try day is scheduled for July 10 at the Ronald ReaganBuilding in Washington, D.C.
BY AFZAL BARI
To contact the analyst: Afzal Bari in Washington [email protected]
To contact the director of government sales research:Evan Croen at [email protected]� 2014 Bloomberg L.P. All rights reserved. Used withpermission.
U.S. Budget
OMB Nominee Donovan SlatedFor Committee Votes the June 23 Week
T he nomination of Shaun Donovan, the WhiteHouse’s pick to head up its Office of Managementand Budget, is set to be voted on by the Senate
Budget Committee and the Senate Homeland Securityand Governmental Affairs Committee in the June 23week.
According to its meeting notice, the Budget Commit-tee is set to hold a vote June 24 in a meeting off of theSenate floor during a floor vote. The Homeland Secu-rity Committee has tentatively scheduled its consider-ation of the nomination for 10 a.m. EDT June 25, ac-cording to its web site.
Donovan would replace Sylvia Mathews Burwell,who was named to head the Department of Health andHuman Services. He has headed the Department ofHousing and Urban Development since 2009. WhileDonovan faced some sharp questions from senators athis confirmation hearings, particularly on OMB’s re-cord of tardy budget document submissions, he waswidely expected to be confirmed in the new post.
BY JONATHAN NICHOLSON
To contact the reporter on this story: Jonathan Nich-olson in Washington at [email protected]
To contact the editor responsible for this story:Heather Rothman in Washington at [email protected]
DOD
DLA Reducing Excess Inventory,But Challenges Remain, GAO Finds
T he Defense Logistics Agency (DLA) has met goalsfor reducing on-hand inventory and on-order ex-cess inventory—purchased items that may be un-
needed due to subsequent requirements changes—andit has made progress in reducing spare parts shortages,
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the Government Accountability Office reported June19.
However, the GAO said the agency still faces chal-lenges that could cause unnecessary expenditures inthe future.
According to the report, the DLA manages about one-fifth of the DOD’s $95 billion in secondary item inven-tory, such as spare parts for military equipment.
The GAO has identified Defense Department supply-chain management as a high-risk area, partly becauseof poor inventory management and forecasting of de-mand for spare parts. These factors have contributed toexcess inventory.
The report said the DLA disposed of $4 billion initems, for a net reduction of $2.5 billion to its on-handinventory after continued replenishments, to achieve itsfiscal year 2013 goal of $11.7 billion. The DLA used arisk-based approach to identify items to be disposed, re-sulting, for example, in a reduction of about $657 mil-lion in items with no demand in five years.
The agency also reduced on-order excess inventoryfrom 6.7 percent of the total value of on-order inventoryin 2011 to 5.6 percent in 2013.
Finally, the GAO said the DLA has reduced back or-ders by nearly 30 percent through monthly reviews.
But the report noted some continued difficulties. Forexample, to meet its FY 2013 goal, the DLA disposed of$855 million in items that its own economic analysesdetermined should be kept to avoid repeat purchases.
Regarding on-order excess inventory, the report saidresults across the DLA’s aviation, land, and maritimeorganizations have varied, with increases for land andmaritime in FY 2013.
Moreover, the agency has not established supplychain-specific goals and does not regularly collect dataor review on-order excess inventory performance for itssupply chains. Unless it takes these steps, the reportsaid, the agency might have difficulty meeting its goalof reducing on-order excess to 4 percent by the end ofFY 2016.
Recommendations. The report recommended that theDLA:
s reassess its inventory-reduction goals and sched-ule based on an economic analyses;
s regularly monitor progress in reducing on-orderexcess inventory;
s establish supply chain-specific on-order excess in-ventory goals; and
s improve its collaborative forecasting by, for ex-ample, regularly monitoring performance.
The DOD concurred with the recommendations.
The GAO report is available at: http://www.gao.gov/products/GAO-14-495.
Coast Guard
GAO Faults Performance of Certain CoastGuard Acquisitions, Calls for Long-Term Plan
A lthough certain assets in the Coast Guard’s acqui-sition portfolio are performing better than theyused to, they have yet to meet all key require-
ments, the Government Accountability Office reportedJune 18.
The report also said the Coast Guard’s acquisitionprograms continue to run into financial troubles.
The GAO said Congress should consider requiringthe Coast Guard to include more information in its capi-tal investment plan. In addition, it said the Departmentof Homeland Security should clarify when minimumperformance standards should be achieved and developa long-term modernization plan.
The Coast Guard is managing a multibillion dollar ef-fort to modernize aging assets, including ships, aircraftand information technology.
In 2007, the Coast Guard established a cost baselineof $24.2 billion for 13 assets. The GAO was asked to ex-amine the Coast Guard’s current and planned acquisi-tion portfolios.
The GAO found that two assets, the HC-144 patrolaircraft and Fast Response Cutter, did not meet all keyrequirements during operational testing before beingapproved for full-rate production. Moreover, the DHSand Coast Guard guidance do not clearly specify whenthis level of performance should be achieved.
Additionally, the Coast Guard changed its testingstrategy for the Command, Control, Communications,Computers, Intelligence, Surveillance, and Reconnais-sance (C4ISR) system. The agency thus is no longerplanning to test the system’s key requirements, theGAO said.
Long Way to Go. According to the report, the CoastGuard is in a bigger financial hole today than it was in2009 in terms of the money needed to finish its acquisi-tive programs. Specifically, the GAO found in 2009 thatthe Coast Guard needed $18.2 billion to finish its 2007baseline, whereas it now needs $20.7 billion to do so.
The GAO noted that the Coast Guard is not requiredto report the effects of actual funding levels on indi-vidual projects and thus has not done so.
For example, the Coast Guard has received less fund-ing than planned in its annual budgets, but it has not re-flected the effects of this reduced funding in terms of in-creased costs or schedules for certain projects. Thislack of information prevents Congress from knowingthe full cost of the portfolio, the report said.
Recommendations. To ensure that Congress and otherdecision makers are properly informed regarding thestatus of programs, the report recommended that theDHS and Coast Guard revise acquisition guidance to:
s specify when minimum performance standardsshould be met, such as prior to entering into full-rateproduction; and
s clarify the performance data that should be usedto assess whether or not minimum performance criteriahave been met, prior to full-rate production, to deter-mine whether a performance breach has occurred.
The report also recommended that the Coast Guard:
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s assess the operational effectiveness and suitabilityof the C4ISR system; and
s develop a 20-year fleet modernization plan thatidentifies all acquisitions needed to maintain the cur-rent level of service and the fiscal resources necessaryto build the identified assets.
Although the DHS concurred with the recommenda-tions, its position on developing a long-term plan didnot fully address concerns in the report, the GAO said.
The GAO report is available at: http://www.gao.gov/products/GAO-14-450.
U.S. Budget
GAO Would Gain in SenateLeg Branch Appropriation
T he Government Accountability Office comes outthe biggest winner in the 2015 Legislative Branchspending bill approved by the Senate Appropria-
tions Committee.Under this version of H.R. 4487, the GAO would re-
ceive $525 million. That would be $20.1 million morethan it’s getting in fiscal 2014 and $6 million more thancalled for in the version that the House passed in May.
The agency, which is the investigative arm of Con-gress and the arbiter in federal contracting disputes,has lost 500 positions since 2011, or 15 percent of itsformer staff strength, said Leg Branch SubcommitteeChairwoman Jeanne Shaheen (D-N.H.).
‘‘As the result of the sequester in recent years, GAOwas hit very hard. We have been concerned that keep-ing GAO at a bare-bones funding level would be penny-wise and pound-foolish,’’ Shaheen said.
The Congressional Research Service would get a $2.4million increase to $107.8 million and the Congressio-nal Budget Office would receive $46 million an increaseof $360,000.
The bill’s total spending would be $4.3 billion, an in-crease of $42 million.
BY ERIC WASSON
To contact the reporter on this story: Erik Wasson inWashington at [email protected]
To contact the editor responsible for this story: Kath-erine Rizzo at [email protected]
� 2014 Bloomberg L.P. All rights reserved. Used withpermission.
Appropriations
Senate ‘Minibus’ Still on HoldBut Amendment Talks Continue
W ork on the Senate’s three-bill appropriations‘‘minibus’’ is moving behind the scenes, as keylawmakers try to broker a compromise that
could still revive the measure and permit it to advanceagain to the floor.
Lawmakers said the spending bill package will be onhold the week of June 23 but private talks will continue
over possible amendment strategies that could allowdebate on the measure to resume later.
Those discussions were said to be under way even asSenate Majority Leader Harry Reid (D-Nev.) took stepsto move on to nominations and other legislation afterthe minibus (H.R. 4660) stalled on the floor June 19.
Republican Riders Derail Process. The fate of the mini-bus was put in doubt after Senate Minority LeaderMitch McConnell (R-Ky.) rejected Reid’s proposal to al-low members to offer many germane amendments butsubject them to a 60-vote threshold. McConnell andother Republicans revealed they wanted to offeramendments to the noncontroversial spending packageto go after President Barack Obama’s priorities, includ-ing the Environmental Protection Agency’s rulemakingon greenhouse gasses and the Affordable Care Act.
Senate Appropriations Chairwoman Barbara Mikul-ski (D-Md.) said Republicans’ plans to offer legislativeriders are also affecting markup plans for measuressuch as the Energy and Water, and Labor, Health andHuman Services bills. The panel has scheduled back-to-back subcommittee markups of the Homeland Securityand Financial Services bills June 24, but an expectedfull committee markup of the measures on June 26 hasnot yet been announced.
Across Capitol Hill, the House passed the huge De-fense appropriations bill (H.R. 4870) June 20, bringingto five the number of spending measures approved sofar. But appropriators said work on the annual Agricul-ture bill (H.R. 4800)—which was first brought up on thefloor June 11—now will not resume until after the July4 recess. Instead, Majority Leader Eric Cantor (R-Va.)said the House will take up energy legislation the weekof June 23.
‘Rules of the Road’ Unclear. The various developmentsare bringing into question whether appropriators cansucceed in their plans to return to ‘‘regular order’’ andpass the 12 fiscal year 2015 spending bills this year.Both Mikulski and House Appropriations Chairman HalRogers (R-Ky.) said they remain determined to avoidanother continuing resolution to fund the governmentwhen the new fiscal year begins Oct. 1.
Rogers’s plans call for the House to pass all 12 billsby the start of the August recess. Besides Defense, theHouse has passed another four: Military Constructionand Veterans Affairs (H.R. 4486), Legislative Branch(H.R. 4487), Commerce-Justice-Science (H.R. 4660),and Transportation, Housing, and Urban Development(H.R. 4745). Minus floor work on the bills prior to thenext break, that will leave Rogers with only four weeksto complete the other seven before the August recess.That includes Agriculture, which was pulled from thefloor in June amid uncertainty in the wake of Cantor’sunexpected primary loss.
The Senate has not yet passed any of the bills, butReid and Mikulski decided to ‘‘cluster’’ three of them inone package to expedite work on the floor. Mikulskiused the C-J-S bill as the lead vehicle for a package thatalso includes THUD and Agriculture.
Appropriations Committee Upstaged. That strategy alsohad the support of Senate Appropriations Committeeranking member Sen. Richard Shelby (R-Ala.), and thebill easily cleared its first procedural hurdles on thefloor. After that, however, the measure stalled, and itsfate became more clouded when McConnell revealed
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plans to offer legislative amendments to the minibusand to the Energy and Water bill in committee. Mikul-ski said the White House informed her and Reid that theEPA amendment would lead to a veto threat.
Sen. Lamar Alexander (R-Tenn.) also planned to of-fer amendments to the minibus that had already causedthe Labor-Health and Human Services markup to bepostponed. Those included one to amend the Afford-able Care Act.
The Senate did adopt the motion to proceed to theminibus June 19 but then almost immediately laid themeasure aside. After that, Reid filed cloture on four fed-eral judges and also undertook moves to bring up billssuch as the Workforce Invest Act rewrite. The majorityleader scheduled votes on nominees the evening ofJune 23 and on June 24.
Mikulski said leadership has to find a way to movethe minibus and the committee’s other bills forward.
‘‘[N]ow we have to truly arrive on rules for the roadon how to proceed to bring these bills to the floor,’’ Mi-kulski said. ‘‘I really hope we can do so. There has beenso much good will on both sides of the aisle, and alsoon both sides of the aisle really incredible effort to beable to meet the needs of our country, have a more fru-gal government, and a really, truly civil process.’’
Mikulski Going ‘Day by Day.’ Meanwhile, Mikulski saidshe is following a ‘‘day by day’’ strategy in committee,where she said the Financial Services and Interior billsare also problematic.
Mikulski’s panel announced back-to-back subcom-mittee markups June 24 for the Homeland Security andFinancial Services bills. Homeland, it said, will bemarked up at 10 a.m. and Financial Services at 11 a.m.on that date.
But Mikulski has not yet revealed whether she willfollow her custom and schedule them for full commit-tee markups by June 26, the last day the Senate is ex-pected to be in session until after the July 4 recess. Mi-kulski said the Financial Services bill is expected todraw amendments to restrict the Internal Revenue Ser-vice.
In the House, Rogers said he is going ahead withplans to mark up in full committee two more spendingbills in order to have them ready for floor action in July.
The committee said it will mark up the State and For-eign Operations bill on at 10 a.m. June 24. Then, it said,it will meet at 10 a.m. on June 25 to mark up the Finan-cial Services bill.
With those actions, the panel will have marked upand reported 10 of the 12 measures to the House floor.But it is unclear when the panel will mark up its ver-sions of the Labor-HHS and Interior bills. Rogers earlierhad planned to have all 12 bills marked up by June 27.
BY NANCY OGNANOVICH
To contact the reporter on this story: Nancy Ognano-vich in Washington at [email protected]
To contact the editor responsible for this story:Heather Rothman at [email protected]
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LEGISLATIVE ACTION
BillNumber Sponsor Description Action Previous Cite
H.R. 4870 Freylinghusen A bill to provide FY 2015 appropriations forDefense Department discretionary spending andoverseas contingency operations
Passed byHouse 6/20/14,340 - 73
See story inthis issue
H.R. 4876 Carson A bill to amend the Small Business Act to providefor contracting preferences and other benefits foremerging business enterprises
Introduced6/17/14;referred toSmall Business
None
H.R. 4912 Nolan A bill to limit Department of Defense funds tosupport United States or Iraqi combat activities inor around Iraq
Introduced6/19/14;referred toArmed Services
None
H.R. 4920 Tiberi A bill to amend title XVIII of the Social SecurityAct to require State licensure and performanceguarantees for entities submitting bids under theMedicare durable medical equipment, prosthetics,orthotics, and supplies (DMEPOS) competitiveacquisition program
Introduced6/19/14;referred toEnergy andCommerce,Ways andMeans
None
S. 2481 Shaheen A bill to amend the Small Business Act to provideauthority for solep-source contracts for certainsmall business concerns owned and controlled bywomen
Introduced6/17/14;referred toSmall BusinessandEntrepreneurship
None
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REGULATORY ACTION
Agency Action Description
Comment Due Date/Effective Date;
Federal Register CitePrevious
Cite
DOD Proposed rule To amend Defense Federal AcquisitionRegulation Supplement to clarify theflowdown requirements for the DFARSclause entitled ‘‘Restriction on Acquisitionof Certain Articles Containing SpecialtyMetals’’
Comments due 8/22/14(79 Fed. Reg. 35,507,6/23/14)
None
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LegalNewsProposal Evaluation
GAO Faults Award Decision in NASAComputer Engineering, Software Procurement
T he National Aeronautics and Space Administrationunreasonably failed to assign strengths to the pro-tester’s proposal in an IT procurement, the Gov-
ernment Accountability Office found (Gaver Techs.Inc., GAO, B-409535, 6/3/14, decision released 6/18/14).
In sustaining the protest, the GAO also found thatNASA mistakenly credited the awardee for proposing a30-day phase-in period.
NASA issued a request for proposals (RFP) seeking asmall business to provide computer science, computersoftware engineering, information technology security,networking, application development and web services.
The RFP would be awarded based on the proposalmost advantageous to the government, considering mis-sion suitability, relevant experience/past performanceand cost.
Of the six proposals received, the agency rated pro-tester Gaver Technologies Inc. and awardee PeerlessTechnologies Inc. the highest. Due to its ‘‘slight advan-tages’’ under the three factors, Peerless received theaward.
Gaver protested, arguing that the source selection au-thority (SSA) failed to adhere to the evaluation schemeor credit its proposal for innovations identified by thesource evaluation board (SEB).
Withholding of Credit Not Sufficiently Explained. Ac-cording to the GAO, the SSA did not sufficiently explainwhy she failed to credit the innovative approachesGaver proposed.
The SSA at a hearing expressed concern about Gav-er’s lack of detail concerning these approaches. How-ever, she made no contemporaneous reference to insuf-ficient detail in her source selection statement, nor wasthere an indication in the record that she directly re-viewed the content of proposals herself.
In addition, the SSA’s testimony that Gaver did notprovide enough details in its proposal was at odds withthe SEB chair’s testimony.
The GAO also sustained the protest because NASAimproperly credited Peerless for proposing to satisfy a60-day phase-in period in only 30 days. Peerless did notpropose a 30-day phase-in period.
Barton, Baker, Thomas & Tolle LLP represented theprotester.
The GAO’s decision is available at: http://op.bna.com/fcr.nsf/r?Open=dsen-9l7rsw.
Timeliness
ASBCA Allows Gravel ProviderTo Pursue Appeal Following Timely Claim
A gravel supply contractor may pursue its claim thatthe government improperly withheld payment af-ter delivery in Iraq, the Armed Services Board of
Contract Appeals found (Zomord Co., ASBCA, No.59065, 6/10/14, decision released 6/23/14).
Administrative Judge David W. James, Jr., said thecontractor met the deadlines for filing a claim and ap-pealing to the board.
In January 2007, the OCF-I Contracting Office inBalad, Iraq, awarded Zomord Co. a contract to delivergravel at Shark Base, Ar Ramadi, Iraq.
The gravel was timely delivered. However, the con-tracting officer (CO) subsequently terminated the con-tract for cause due to Zomord’s alleged failure to meetdelivery and pricing terms.
Zomord objected, but the CO denied its Feb. 5, 2013,certified claim. Zomord appealed, and the governmentmoved to dismiss on grounds that both the claim andthe appeal were untimely.
90-Day Appeal Period Satisfied. The board found thatZomord satisfied the 90-day appeal filing period at 41U.S.C. § 7104(a). The government did not show thatZomord received the CO’s March 22, 2013, decisionprior to June 22, 2013.
Specifically, the board was persuaded that Zomordcould reasonably have concluded that the CO was re-considering the March 22 decision. Because the finalityof the CO’s March 22 decision ‘‘was vitiated by his re-consideration of the issues,’’ Zomord’s Dec. 6, 2013, ap-peal was not untimely, the board ruled.
In addition, the board found that Zomord’s contractclaim satisfied the Contract Disputes Act’s six-year stat-ute of limitations.
The board said Zomord’s claim accrued around April9, 2007, the date a CO said Zomord could expect pay-ment. Therefore, Zomord’s Feb. 5, 2013, claim was sub-mitted two months before the statute of limitationswould have expired.
The board’s decision is available at: http://op.bna.com/fcr.nsf/r?Open=dsen-9lcnjg.
False Claims Act
District Court Permits ClaimsThat Armstrong, Others Violated the FCA
A False Claims Act relator and the government stillhave time to bring claims that Lance Armstrongand some of his associates defrauded the govern-
ment in connection with U.S. Postal Service sponsor-
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ship agreements, the U.S. District Court for the Districtof Columbia held (United States ex rel. Landis v. Tail-wind Sports Corp., 2014 BL 170677D.D.C., No. 10-cv-00976, 6/19/14).
Judge Robert L. Wilkins found that knowledge ofFrench authorities’ investigation into alleged blood dop-ing by Armstrong’s cycling team had not tolled the stat-ute of limitations.
Relator Floyd Landis was a member of the USPS-sponsored cycling team along with Armstrong. Pursu-ant to two agreements, the USPS paid team ownerMontgomery Sports and its successor TS LLC approxi-mately $42 million.
In June 2010, Landis filed an initial complaint alleg-ing that the team’s doping and use of banned enhancedperformance techniques breached the sponsorshipagreements, resulting in fraud against the government.
Investigation Did Not Start Statute of Limitations. Thedefendants argued for dismissal, claiming the six-yearstatute of limitations had run out because the govern-ment and the relator knew of a doping investigationthat French authorities’ conducted in 2000.
The court disagreed, finding that the statute of limi-tations period does not begin with allegations of impro-priety, but rather when the impropriety itself is knownor reasonably known by the relevant official. In otherwords, an actual finding of doping—not merely aninvestigation—would have caused the statute of limita-tions to commence.
Aaron P. Silberman of Rogers Joseph O’Donnell’sSan Francisco office told Bloomberg BNA that the deci-sion shows just how difficult it is to win a motion to dis-miss based on a statute of limitations defense, and evenmore so based on tolling of limitations.
He said that with regard to whether the governmentshould have known about doping, ‘‘the court agreedthat the responsible official must act with due diligencebut refused to equate that to a duty to investigate inde-pendently every allegation of wrongdoing. In the casehere, the court found that the pleadings did not showthat the government should have known of the viola-tions based on the French investigation.’’
‘‘The court considered it highly significant,’’ headded, ‘‘that the French investigation actually vindi-cated the subjects of doping. This, combined with theabsence of any complaint allegations that the govern-ment had any reason to question the sufficiency of theFrench investigation, meant that, at least based on thecomplaint on a motion to dismiss, the relevant govern-ment officials reasonably could have relied on the in-vestigation findings and not conducted their own inves-tigation.’’
However, the court refused to toll the FCA’s statute oflimitations to allow claims dating back to June 2000. Asa result, it dismissed with prejudice Landis’s allegationsbased on alleged fraudulent payments or reverse falseclaims that occurred prior to June 10, 2004.
Sufficient Reverse False Claim Against Armstrong. Thecourt also said that Landis sufficiently raised a reversefalse claim contending that Armstrong was obligated toreimburse the government because of the sponsorshipagreement breaches, and that he made false statementsto avoid or prevent the occurrence of any reimburse-ment.
The alleged doping, the court stated, would constitutea breach of contract with the USPS because the agree-
ments required compliance with anti-doping rules, andbecause of damage to the USPS’s goodwill and reputa-tion.
The court added that the government’s and Landis’scomplaints were rife with allegations that Armstrongknew about the doping and made false statements toconceal it.
Finally, the court allowed Landis to amend his com-plaint to address deficiencies and incorporate addi-tional information. Some pleading defects could becured through discovery or further investigation, thecourt said.
Law Offices of Paul D. Scott represented relatorFloyd Landis. Keker & Van Nest LLP; Patton Boggs LLPrepresented defendant Lance Armstrong.
The court’s decision is available at: http://www.bloomberglaw.com/public/document/LANDIS_v_TAILWIND_SPORTS_CORPORATION_et_al_2014_BL_170677_DDC_Jun.
False Claims Act
District Court: FCA CounterclaimsAllowed if Indemnification Not Sought
A pharmaceutical services company accused of vio-lating the False Claims Act may pursue a counter-claim that the relator disregarded a confidentiality
agreement, the Eastern District of Pennsylvania ruled(Walsh v. Amerisource Bergen Corp., E.D. Pa., No. 11-7584, 6/17/14).
Judge R. Barclay Surrick of the U.S. District Court forthe Eastern District of Pennsylvania said the counter-claim was independent of the alleged fraud and did notprovide for indemnification or contribution.
Relator Patrick Walsh filed his FCA complaintagainst pharmaceutical services company AmerisourceBergen Corp., his former employer, and other defen-dants.
The defendants filed an amended counterclaim alleg-ing, among other things, that Walsh violated a confiden-tiality agreement signed as a condition of employmentby removing proprietary and privileged information.
Walsh argued that public policy should bar counter-claims in qui tam actions.
Relator Not Implicated in Alleged Fraud. The court re-fused to dismiss the counterclaim, stating that indepen-dent counterclaims may be permitted in FCA cases ifthey do not have the effect of providing for indemnifi-cation or contribution.
The court said the counterclaim in this case was al-lowed because it did not state that Walsh participated inthe alleged fraud, nor did it suggest that the defendants’injuries resulted from Walsh’s disclosure of the fraud.Rather, the damages sought in the counterclaim werealleged to be solely the result of Walsh’s breach of theconfidentiality agreement.
Citing Cafasso ex rel. United States v. Gen. Dynam-ics C4 Sys. Inc., 9th Cir., Nos. 09-16181, 09-16607, 09-17710, 3/24/11, (95 FCR 369, 4/5/11), the court said it ispossible for a defendant to evade FCA liability but pre-vail on a counterclaim.
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Finally, the court said it was premature to determinewhether the information Walsh took from the defen-dants’ premises was required to prove his FCA claim.
Begelman & Orlow PC represented the relator. Mor-gan Lewis & Bockius LLP represented the defendants.
The court’s decision is available at: http://www.bloomberglaw.com/public/document/WALSH_et_al_v_AMERISOURCE_BERGEN_CORPORATION_et_al_Docket_No_211c/1.
Also in the Courts
Weekly Case Roundup
ASBCA Rejects Rule 30 Dismissal Request.
T he Armed Services Board of Contract Appeals re-fused to dismiss an appeal without prejudice underRule 30 (Tele-Consultants Inc., ASBCA, No. 58129,
6/9/14, decision released 6/23/14).The appellant said it lacked the financial resources to
pursue litigation and had decided to seek relief withCongress.
The board’s decision is available at: http://op.bna.com/fcr.nsf/r?Open=dsen-9lcmjg.
ASBCA: Navy Is Appropriate Respondent in Appeals. TheArmed Services Board of Contract Appeals said it hadjurisdiction over appeals alleging the breach of a trans-portation contract that was not based on the FederalAcquisition Regulation (Superior Mar. Servs. Inc., AS-BCA, No. 58580, 58691, 6/9/14, decision released6/23/14).
The board also found that the Navy, not the Army,was the appropriate respondent.
The board’s decision is available at: http://op.bna.com/fcr.nsf/r?Open=dsen-9lcqfw.
ASBCA Denies Retailer’s Appeal. The Armed ServicesBoard of Contract Appeals denied an appeal challeng-ing the government’s conduct under an agreement withthe Army & Air Force Exchange Service (Patriot PrideJewelry LLC, ASBCA, No. 58953, 6/9/14, decision re-leased 6/23/14).
The contract did not require the government to ad-vertise the appellant’s products.
The board’s decision is available at: http://op.bna.com/fcr.nsf/r?Open=dsen-9lcq3a.
CBCA: Submission Lets CO Rescind Decision. The Civil-ian Board of Contract Appeals dismissed the appeal ofa contracting officer’s decision claiming that a contrac-tor owed the Agency for International Development $2million because it did not provide an incurred cost sub-mission (TCG Int’l LLC v. Agency for Int’l Dev., CBCA,No. 3622, 6/10/14, decision released 6/23/14).
The CO rescinded the decision after the contractorprovided the submission.
The board’s decision is available at: http://op.bna.com/fcr.nsf/r?Open=dsen-9lcldv.
CBCA: Agency Did Not Receive Claim Prior to Appeal.The Civilian Board of Contract Appeals dismissed acount in a Social Security Administration contractor’sappeal seeking additional labor and expenses becausethe contractor did not present that claim to the agencybefore filing the appeal (EHR Doctors Inc. v. Soc. Sec.Admin., CBCA, No. 3522, 6/11/14, decision released6/23/14).
However, material factual issues existed as towhether the appellant properly agreed to a price reduc-tion under a modification.
The board’s decision is available at: http://op.bna.com/fcr.nsf/r?Open=dsen-9lcqrl.
ASBCA Compensates Appellant for Seed Crop. TheArmed Services Board of Contract Appeals compen-sated an appellant $27,000 plus interest related to seedcrop value after the government revoked a propertylease (Bruce E. Zoeller, ASBCA, No. 56578, 6/11/14, de-cision released 6/23/14).
The board previously rejected the appellant’s supe-rior knowledge and bad faith claims in this case.
The board’s decision is available at: http://op.bna.com/fcr.nsf/r?Open=dsen-9lcmdv.
ASBCA: Fence Contract Never Occurred. The ArmedServices Board of Contract Appeals dismissed an ap-peal seeking compensation for materials purchased toinstall a fence in Iraq (New Iraq Ahd Co., ASBCA, No.58778, 6/12/14, decision released 6/23/14).
Funding for the project was never approved.The board’s decision is available at: http://
op.bna.com/fcr.nsf/r?Open=dsen-9lcprm.
CBCA Awards Real Estate Tax Claim. The Civilian Boardof Contract Appeals awarded $12,000 in real estatetaxes to an appellant under a lease agreement with theGSA (Brookwood Research Ctr. LLC v. Gen Servs. Ad-min., CBCA, No. 3783, 6/19/14, decision released6/23/14).
The appellant established that it timely submitted in-formation as required by the lease.
The board’s decision is available at: http://op.bna.com/fcr.nsf/r?Open=dsen-9lclkp.
Fourth Circuit Upholds FCA Dismissal. The Fourth Cir-cuit upheld the dismissal of FCA claims accusing defen-dants of providing containers that were not manufac-tured by the severely disabled as required by the JavitsWagner O’Day Act (United States ex rel. Ahumada v.NISH, 2014 BL 173404, 4th Cir., No. 13-1672, 6/23/14).
The public disclosure rule barred claims against mostdefendants, and the relator failed to prove viable FCAclaims against a specific defendant.
The court’s decision is available at: http://www.bloomberglaw.com/public/document/US_ex_rel_Mike_Ahumada_v_NISH_2014_BL_173404_4th_Cir_Jun_23_2014_.
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BNAInsightsBid Protests
Admission of Former Employees as Consultants under GAO Bid Protest ProtectiveOrders
BY DONALD J. CARNEY
T ight deadlines apply to bid protests at GAO, includ-ing the admission of consultants under protectiveorders to provide technical, quantitative or other
specialized knowledge useful to the litigation. GAOgenerally allows protesters to choose the assistancethey deem necessary to pursue their bid protest, includ-ing consultants, unless the party opposing admissionraises valid objections. GAO, however, has occasionallyexpressed its reluctance to admit a protesting party’sformer employee as a consultant, particularly where theconsultant is unlikely to testify before GAO again in thefuture.
Nevertheless, GAO has admitted former employeesas consultants, even where the former employee waspreviously involved (several years before the protest) inthe protester’s competitive decision-making. This ar-ticle examines the standards that GAO applies in deter-mining whether to admit consultants under its bid pro-test protective orders in this time-sensitive environ-ment. It focuses on the gray area of whether aconsultant’s prior—as opposed to ongoing—involvement in a party’s competitive decisionmaking isgrounds for rejection of an application for admissionunder a protective order.
GAO’s Two-Part Test for Consultant Protective Order Ap-plications. If it appears that a consultant is necessary, aprotester (or intervenor) needs to move quickly for theiradmission. The consultant needs to be ready by the timethe agency produces its report on the protest (duewithin 30 days of receiving notice of the protest filing).If the agency makes an early document production, theconsultant may assist with the case even earlier by re-viewing and analyzing relevant documents. Typically, aconsultant’s analytical work in a GAO protest is nar-rowly focused on demonstrating whether the agency’sevaluation followed the solicitation’s requirements orwas reasonable. See PCCP Constructors, JV; Bechtel In-frastructure Corp., B-405035 et al., Aug. 4, 2011, 2011CPD ¶ 156, at 9-131 (civil engineer demonstrated thatagency departed from Request for Proposal’s (RFP’s)requirements); AAR Aircraft Serv.—Costs, B-291670.6,May 12, 2003, 2003 CPD ¶ 81, at 3-4 (aircraft perfor-mance consultant showed that an awardee could notsatisfy the RFP’s technical requirements).
Consultants must satisfy a two-part test for admissionunder a GAO protective order. First, a consultant mustestablish that he or she is not ‘‘involved’’ in competitivedecisionmaking for any firm that could gain a competi-tive advantage from access to protected information. 4C.F.R. § 21.4(c). Second, the applicant must establish
1 In a subsequent protest of the agency action implement-ing GAO’s decision, the Court of Federal Claims agreed, basedin part on expert testimony, that the agency took ‘‘an approachto the technical evaluation in general that was inconsistentwith the solicitation.’’ CBY Design Builders v. United States,105 Fed. Cl. 303, 350 (2012).
Donald J. Carney is a partner in the Washing-ton, D.C. office of Perkins Coie. He focuseshis practice on government contracts law.
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that there is no significant risk of inadvertent disclosureof protected information from the applicant’s admis-sion. Id. Protected information can include proprietaryor confidential contractor information, sensitive agencysource-selection material, or other information thatcould result in a firm gaining a competitive advantageagainst competitors or at the procuring agency. See 4C.F.R. § 21.4(a). Absent any special concern over thesensitivity of protected material or any reason to believethat the admission of an expert would pose an unac-ceptable risk of inadvertent disclosure, GAO maintainsa ‘‘strong policy in favor of permitting protestors tochoose the assistance they deem necessary to pursuetheir protest.’’ Global Readiness Enterprises, B-284714,May 30, 2000, 2000 CPD ¶ 97, at 2 n.1 (citing BendixField Eng’rCorp., B-246236, Feb. 25, 1992, 92-1 CPD ¶227, at 6-7).
The first prong of the two-part inquiry is a bright-linetest derived from the Federal Circuit’s decision in U.S.Steel Corp. v. United States, 730 F.2d 1465 (Fed. Cir.1984). In that case, the court identified an applicant’sinvolvement in competitive decisionmaking as poten-tially disqualifying, defining it as follows:
[A] counsel’s activities, associations, and relationship witha client that are such as to involve counsel’s advice and par-ticipation in any or all of the client’s decisions (pricing,product design, etc.) made in light of similar or correspond-ing information about a competitor.
Id. at 1468 n.3. In MatsushitaElec. Indus. Co. v.
United States, 929 F.2d 1577 (1991), the Federal Circuitsubsequently confirmed that advice and participation incompetitive decisionmaking is the test for determiningwhether an applicant’s access under a protective orderwould pose an unacceptable risk. Pursuant to this rea-soning, an applicant’s ongoing involvement in competi-tive decisionmaking is generally fatal to an applicationfor admission under a GAO protective order. Allied Sig-nal, B-250822, B-250822.2, Feb. 19, 1993, 93-1 CPD¶ 201, at 9-10.
GAO’s prescribed form for consultant applicationsrequires applicants to certify—consistent with U.S.Steel, and at the risk of criminal penalties—that the ap-plicant is ‘‘not involved in competitive decisionmakingfor or on behalf of any party to this protest or any otherfirm that might gain a competitive advantage from ac-cess to the material disclosed under the protective or-der.’’ GAO, Office of the General Counsel, Guide toGAO Protective Orders (June 2009) at 42, ¶ 3 (consul-tant application form). The applicant must also statethat neither he nor his employer is engaged in the ac-
tivities of competitive decisionmaking, such as provid-ing advice concerning or participation in decisionsabout marketing or advertising strategies, product re-search and development, product design, or competi-tive structuring and composition of bids, offers, or pro-posals where the use of protected material could pro-vide a competitive advantage. Id.
As to the second prong, GAO considers several fac-tors to determine whether there is a significant risk ofinadvertent disclosure from admitting the applicant, in-cluding GAO’s desire for assistance in resolving thespecific issues of the protest, the protester’s need forconsultants to pursue its protest adequately, the natureand sensitivity of the material sought to be protected,and whether there is opposition to an applicant ex-pressing legitimate concerns that the admission of theapplicant would pose an unacceptable risk of inadver-tent disclosure. See EER Sys. Corp., B-256383, et al.,June 7, 1994, 94-1 CPD ¶ 354, at 9.
As part of the application process, GAO requires con-sultants to provide a resume and a list of all clients forwhom (1) the consultant and (2) his employer have per-formed work in the two years prior to submitting theapplication (with, for the consultant’s list, a descriptionof the work performed). Guide to GAO Protective Or-ders (June 2009) at 43, ¶ 5. The application also in-cludes two-year restrictions on future activities in-tended to protect future competition. First, the consul-tant must agree not to engage or assist in thepreparation of a proposal to be submitted for the typeof program at issue in the protest, where the consultantknows that a party to the protest or any successor en-tity will be a competitor, subcontractor or teamingmember. Id. at ¶ 7. Second, the consultant must agreenot to engage or assist in the preparation of a proposalfor submission to the subject agency for the same typeof program that is being protested. Id. The parties to theprotest may agree to different or other (frequently,more onerous) future employment restrictions in orderto protect especially sensitive information. Id. at 7.
GAO has rejected a consultant’s application seekingto limit the restrictions to certain geographic locations.Restoration & Closure Services, LLC, B-295663.6 et al.,Apr. 18, 2005, 2005 CPD ¶ 92, at 3-5. In that case, GAOnoted that a consultant’s refusal to agree to the stan-dard protective order application for the ‘‘subject mat-ter involved in the protested procurement’’—regardlessof locale—meant that in the future he might ‘‘very wellperform proposal preparation assistance for this verytype of work, even where a party to the protest may bea competitor, subcontractor, or teaming member.’’ Id. at4.
While counsel and consultants who are admitted un-der the protective order can use protected informationin the pursuit of a protest at GAO, they must also safe-guard this information. They cannot disclose it to any-one not admitted under the protective order, includingtheir clients. Guide to GAO Protective Orders at 19-20(model protective order).
Because GAO considers the proper functioning of theprotective order essential to the bid protest process, itmay sanction anyone who violates its terms. PWC Lo-gistics Services Company KSC(c), B-310559, Jan. 11,2008, 2008 CPD ¶ 25, at 12. GAO has the inherent au-thority to dismiss the protest, prohibit an intervenorfrom participating in the remainder of the protest, referthe violation to bar associations (for counsel) or profes-
Practice TipsConsultants must satisfy a two-part test for ad-
mission under a GAO protective order:
s establish that he or she is not ‘‘involved’’ incompetitive decisionmaking for any firm that couldgain a competitive advantage from access to pro-tected information, and;
s establish that there is no significant risk of inad-vertent disclosure of protected information from theapplicant’s admission.
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sional associations (for consultants) or other disciplin-ary bodies, and restrict the future practice of counsel orconsultants before the GAO. 4 C.F.R. § 21.4(d); Guide toGAO Protective Orders at 22; PWC Logistics Services,2008 CPD ¶ 25, at 12. In exercising this power, GAO hasexplained its concerns as follows:
Private parties and agencies whose information, whetherproprietary or source-selection-sensitive, is provided underthe aegis of our protective orders need to have assurancethat our Office will be vigilant in protecting that informa-tion, to the extent that we are able to do so.
Id. at 14. GAO has dismissed a protest where a pro-tester received materials from counsel marked with aprotective legend, but retained and further distributedthe materials within the company. Id. Where a violationrelated only to counsel’s conduct, and without theknowing participation of the protester, however, GAOhas declined to dismiss a protest. Waterfront Technolo-gies, Inc. —Protest and Costs, B-401948.16 et al., June24, 2011, 2011 CPD ¶ 123.
GAO’s Assessment of Risks Relating to a ‘One Time’ For-mer Employee Consultant’s Involvement in Competitive De-cisionmaking. While GAO maintains a bright-line rulethat an application will not be approved where the ap-plicant is involved in ongoing competitive decisionmak-ing, neither GAO’s rules nor its protective order guid-ance expressly precludes a consultant applicant’s ad-mission based upon prior involvement in competitivedecisionmaking. Nevertheless, GAO may reject an ap-plicant who was formerly involved, if it believes that theextent or relevance of the prior involvement to the spe-cific program at issue creates a heightened risk of inad-vertent disclosure.
GAO has held that prior involvement in competitivedecisionmaking does not automatically disqualify aconsultant from admission. For example, GAO admitteda consultant under a protective order even though hewas a former employee of the protester. Sys.Research&Applications Corp.; Booz Allen Hamilton, Inc.,B-299818 et al., Sept. 6, 2007, 2008 CPD ¶ 28, at 11. Ingranting the consultant access in that case, GAO as-sessed that his admission ‘‘did not pose more than aminimal risk of inadvertent disclosure’’ because he lefta position with the protester that would have been oth-erwise disqualifying ‘‘several years ago’’ and had nocontinuing financial interest in the protester. Id.
Counsel considering retaining a former employee ofthe client as a consultant in GAO proceedings face a di-lemma. The former client employee may have expertiseregarding technical or competitive issues in theprotest—particularly if they previously worked on thespecific program or project that is being protested—thatwould make them a particularly valuable consultant. Atthe same time, however, there may be significant riskthat GAO may not admit the former employee competi-tive decision maker, although the exact standard for itsdetermination is unclear. Specifically, it is unclearwhether ‘‘several years’’ has to pass from when an em-ployee leaves a position before he can be admitted un-der a protective order, or whether a shorter time maysuffice, depending upon the nature of the former em-ployee’s involvement in competitive decisionmaking.
Several factors appear to drive GAO’s concerns withformer employees, as compared to professional consul-tants. First, GAO may be concerned regarding its abilityto meaningfully police compliance with the protective
order if neither the consultant nor his employer seemslikely to testify again before GAO. Without thatleverage—even where the applicants may agree to com-prehensive and extended restrictions on their future in-volvement in proposals to the government—GAO mayidentify heightened risk.
Second, GAO may believe that a former employeewho is not a professional consultant may be more proneto inadvertent mistakes in handling protected informa-tion, given such employee’s lack of familiarity withGAO procedures. Third, GAO may be wary that the con-sultant has ongoing social or other ties to the companyor may subsequently develop an interest in returning tothe company or industry as a consultant given their ex-pertise in the field, again heightening the risk of inad-vertent disclosure.
In the author’s experience, on a case-by-case basis,GAO lawyers have expressed concern that consultantcandidates with prior experience in a party’s competi-tive decisionmaking may not be good candidates for ad-mission under the protective order—even where the ap-plicants agree to comprehensive and extended restric-tions on their future involvement in proposals to thegovernment. The factors that GAO appears to considerimportant include (1) the recency of the involvement,(2) the depth of the involvement, and (3) the likelihoodthat the consultant will be concerned with protective or-der compliance because of the risk of sanctions for fail-ing to comply. While GAO’s form application for con-sultant admission requires the identification of clientsfor whom the candidate and his employer have per-formed work within the two years prior to the applica-tion, the consultant’s resume provides GAO with infor-mation that likely provides an even longer time periodfor GAO’s review. Consequently, the parameters thatGAO will use to determine whether prior involvementin competitive decisionmaking is prohibitively recent isunclear.
The caselaw on this specific issue does not appear tobe well-developed because GAO often signals its intentto deny a consultant’s application before actually doingso. This allows consultants to withdraw their applica-tions before GAO documents the basis for the denial.Given the volume of protests on GAO’s docket and itsresource constraints, GAO seems to be interested inwinnowing down consultant candidates (particularlyone-time, former or retired employee consultants) toboth minimize the risk of inadvertent disclosure and re-duce the likelihood of having to police compliance withprotective orders after the completion of the protest. Tothe extent that GAO may have increasing concern overthis issue, greater openness and guidance from GAO onthese issues would contribute to greater efficiency inthe litigation of bid protests.
Given the tight timelines in which protests proceed,counsel considering retaining a former client employeecompetitive decisionmaker as consultant are well ad-vised to have backup candidates available for admissionunder the GAO protective order given the murkiness ofthe standard by which the candidates will be evaluated.Should GAO deny, or signal that it will deny, admissionto a consultant candidate, standby candidates posingless apparent risk as measured against the factors thatGAO appears to consider should be available to fill thevoid.
Clarification Regarding Prior Consultant Involvement inCompetitive Decisionmaking as a Risk Factor Would Pro-
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mote Efficiency in Protests. As discussed above, GAOconsiders prior involvement in competitive decision-making as part of its analysis of the risk of inadvertentdisclosure. GAO could foster greater efficiency by aug-menting the guidance that it provides in the Guide toGAO Protective Orders regarding the admission of con-sultants. In particular, GAO should state its position re-garding the relevance of an applicant’s prior involve-ment in competitive decisionmaking, particularly insituations where the applicant does not seem likely toappear before GAO again.
This guidance would also provide better focus to par-ties when they identify appropriate applicants. Suchclarification would reduce the burden upon parties in-volved in disputed applications and reduce the burdenon GAO in dealing with consultant issues—thereby en-hancing the efficiency of litigating protests before GAO.In any event, bid protest practitioners should be awareof GAO’s concern in this area, even if it is not spelledout in GAO’s rules, caselaw or guidance.
Terminations for Convenience
View From Crowell & Moring: Commercial Item Terminations forConvenience—Navigating to an Equitable Conclusion
BY: J. CHRIS HAILE AND SKYE MATHIESON
T he political fire storms over sequestration, shut-downs, and debt ceilings have diminished this sea-son, and it is perhaps easy for some to forget that
federal agencies are struggling to work through sub-stantial budget cuts and programmatic challenges. Butwe see stark reminders of these struggles every day, asagencies continue to scale back or entirely terminateeven high performing contracts and programs.
Federal contracts include provisions allowing thegovernment to terminate for convenience, and this istrue even for contracts procuring ‘‘commercial items.’’But the language of the standard commercial item ter-mination provision has generated confusion about howcontractors are to be compensated in commercial itemterminations. That confusion has been extended, ratherthan resolved, by the relatively limited number of deci-sions from the boards of contract appeals and thecourts that address the issue.
In our experience, federal agencies and contractorsmost often are able to negotiate terminations of com-mercial item contracts successfully, keeping their focuson achieving a fair and equitable resolution. But thatwill not always be the case. In this article, we brieflyhighlight some of the most common points of confusionsurrounding the commercial item termination provi-sion, differing approaches that the courts and boardshave used, and considerations that contractors shouldtake into account – not only after a termination occurs,but even before performance begins.
The Standard Commercial Item Termination for Conve-nience Clause. The standard commercial item termina-tion for convenience provision is included in the clauseentitled ‘‘Contract Terms and Conditions – Commercial
Items’’ at FAR 52.212-4. The clause states in part that,when there is a termination for convenience:
the Contractor shall be paid a percentage of the contractprice reflecting the percentage of the work performed priorto the notice of termination, plus reasonable charges theContractor can demonstrate to the satisfaction of the Gov-ernment using its standard record keeping system, have re-sulted from the termination.1
The clause also states that the contractor ‘‘shall notbe required to comply with the cost accounting stan-dards or contract cost principles for this purpose’’ andthat this ‘‘does not give the Government any right to au-dit the Contractor’s records.’’2 The confusion aboutthese provisions has been mainly in two areas: (1) howto determine ‘‘the percentage of work performed’’ priorto the termination; and (2) how to define ‘‘charges’’ that‘‘have resulted from the termination.’’
In addition, FAR 12.403(a) advises that, while theFAR Part 49 regulations do not strictly apply when ter-minating contracts for commercial items,‘‘[c]ontracting officers may continue to use Part 49 asguidance to the extent that Part 49 does not conflictwith [FAR 12.403] and the language of the terminationparagraphs in 52.212-4.’’3 Courts and boards have re-ferred to and relied on these standards, to varying de-grees, when addressing commercial item terminationsfor convenience.
The percentage of work performed
1 FAR 52.212-4(l).2 Id.3 FAR 12.403(a).
J. Chris Haile is a partner in the GovernmentContracts Group at Crowell & Moring LLP. Hehas extensive experience in government pro-curement law. Skye Mathieson is an associatein Crowell & Moring’s Washington, D.C. officeafter serving three years in the contract liti-gation office of the U.S. Air Force.
Practice Tipss Focus on achieving a fair and equitable resolu-
tion when negotiating a termination.
s Where terminations cannot be resolved throughnegotiations, carefully consider choice of forum inany appeal.
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In determining the ‘‘percentage of work performed,’’we have seen a range of approaches by contracting par-ties as they successfully negotiate commercial item ter-minations for convenience. Often these approaches aredriven by the particular facts surrounding the procure-ment, the nature of the items being procured, the vari-ous types of deliverables involved, and the methods rea-sonably available to the parties without resort to exten-sive audits or cost principles. These approaches reflectthe practical reality that all ‘‘commercial item’’ con-tracts are not alike. Both in practice and by regulation,the umbrella of ‘‘commercial item’’ procurements ismuch broader than simple deliveries of off-the-shelfitems.4 In part, these successful approaches might alsobe viewed as an application of the principle of ‘‘fair-ness’’ in determining how, under a particular contract,‘‘the percentage of work performed’’ should be mea-sured.5
The courts and boards of contract appeals have alsotouched on this issue, using various approaches butalso leaving some uncertainty about extent to whichthose approaches will have broader application.
For example, in Red RiverHoldings, the Armed Ser-vices Board of Contract Appeals (ASBCA) addressed acontract with daily hire rates for a ship to carry DoDcargo, and determined that the ‘‘percentage of workperformed’’ should be measured by length of perfor-mance as compared to the original contract term.6 Thatdecision was later reversed on other grounds by theDistrict Court of Maryland (discussed below), exercis-ing its jurisdiction over appeals involving maritime con-tracts.7
In a different circumstance, the Civilian Board ofContract Appeals (CBCA) rejected arguments that the‘‘percentage of work performed’’ should be calculatedbased solely on the length of performance. In Dream-scapes, LLC, the CBCA addressed the termination of acommercial services contract to thin trees on 98 acresof land, with a 90-day period of performance. The boardspecifically declined to calculate the percentage of workperformed based on the number of days worked and,instead, based its determination on the number of acrescompleted.
The Court of Federal Claims has indicated still an-other approach. For example, in United Partition, thecourt examined a commercial item contract for deliveryand demolition of prefabricated modular units.8 At thetime of the termination, the contractor had completedall work except the demolition of two buildings.9 Thecourt held that the termination entitled the contractor topayment for the work performed plus a reasonable
profit.10 To determine the amount owed, the courtstarted with the full contract price, removed the antici-pated price of the terminated work,11 and deducted theunit price of work that did not conform to contract re-quirements.12
Charges that have resulted from the terminationDecisions addressing ‘‘charges’’ that ‘‘have resulted
from the termination’’ also have been diverse. TheCourt of Federal Claims does not appear to have di-rectly addressed this issue, and there are two very dif-ferent histories before the ASBCA and the CBCA.
The ASBCA decision in Red River took a somewhatnarrow approach.13 In that case, the contractor soughtto be paid not only the contract’s monthly payments forthe lease of its ship (up to the time of the terminationfor convenience), but also its unrecovered costs of ac-quiring and modifying the vessel for the contract.14 Thecontractor argued that these were reasonable chargesresulting from the termination.15 But the board con-strued the FAR provision to include ‘‘charges in the na-ture of settlement expenses’’ and held that‘‘[i]ncurrence of costs solely for the purpose of contractperformance, or incurrence of costs in anticipation ofsuch performance, are not criteria under the FAR52.212-4(l) ‘reasonable charges’ provision . . . .’’16
As noted above, however, the District Court of Mary-land reversed the board’s decision on this point, reason-ing in part that it was inconsistent with the ‘‘longstand-ing principle that a contractor is not supposed to sufferas the result of a termination for convenience of theGovernment, nor to underwrite the Government’s deci-sion to terminate.’’17 The court held that costs incurredin anticipation of contact performance were recover-able, provided that such costs were neither avoidablenor adequately reflected as a percentage of the workperformed.18 The court then remanded the case to theASBCA for reevaluation in light of the court’s holding.
The CBCA has focused particularly on the principle,as set out in FAR 49, that ‘‘[a] settlement should com-pensate the contractor fairly for the work done and thepreparations made for the terminated portions of thecontract, including a reasonable allowance for profit.’’19
Accordingly, much like non-commercial contracts withthe standard FAR Part 49 termination for convenienceprovisions, the CBCA has stated that a termination forconvenience ‘‘essentially acts to convert a fixed-pricecontract into a cost reimbursement contract.’’20 Theboard also noted that ‘‘the use of business judgment, asdistinguished from strict accounting principles, is theheart of a [termination] settlement’’ and ‘‘[c]ost ac-counting data may provide guides, but are not rigid
4 See FAR 2.101 definition of ‘‘commercial item’’; see alsoPrecision Lift, Inc. v. United States, 83 Fed. Cl. 661, 666 (2008)(noting that what constitutes a commercial item is ‘‘broad, un-clear, and will be interpreted as setting the ‘commercial item’standard very low’’).
5 FAR 49.201(a) (‘‘A settlement should compensate the con-tractor fairly for the work done and the preparations made forthe terminated portions of the contract, including a reasonableallowance for profit.’’).
6 Red River Holdings, LLC, ASBCA No. 56316, 09-2 BCA¶ 34,304 at 169,456-57.
7 Red River Holdings, LLC. v. United States, 802 F. Supp.2d 648, 660-63 (D. Md. 2011).
8 United Partition Sys. v United States, 90 Fed. Cl. 74, 88-89, 91-93 (2009).
9 Id. at 91-92.
10 Id. at 91.11 Id. at 92.12 Id. at 93-94.13 Red River Holdings, LLC, ASBCA No. 56316, 09-2 BCA
¶ 34,304 at 169,456-57.14 See id.15 See id.16 Id. at 169,457.17 Red River Holdings, LLC. v. United States, 802 F. Supp.
2d 648, 660 (D. Md. 2011).18 Id. at 662.19 Russell Sand & Gravel Co. v. Int’l Boundary & Water
Comm’n, CBCA No. 2235, 13-1 BCA ¶ 35,455 at 173,868 (quot-ing 49.201(a)).
20 Id.
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measures, for ascertaining fair compensation.’’21 Fol-lowing this approach, the CBCA has stated that entitle-ment to ‘‘reasonable charges’’ is governed by the rule ofreasonableness.22 And the CBCA and its predecessorboards have, for example, construed ‘‘reasonablecharges’’ to include costs incurred ‘‘in anticipation ofperforming the entire contract’’ but that ‘‘may not befully reflected as a percentage of the work per-formed.’’23
Conclusion. We have seen that federal agencies andcontractors most often are able to negotiate termina-tions of commercial item contracts successfully bykeeping their focus on achieving a fair and equitableresolution. But where terminations cannot be resolvedthrough negotiations, the developing nature of this areaof law means that there may be uncertainty about thestandards that will ultimately apply. Contractors willneed to carefully consider their choice of forum in anyappeal. When it is particularly important to eliminaterisks and uncertainties associated with a terminationfor convenience, the parties might also consider tailor-ing their contract’s termination for convenience clause.Instead of using the language of FAR 52.212-4(l), theparties could modify the FAR 52.212-4(l) clause to re-flect the language of the standard non-commercial ter-mination for convenience clause of FAR 52.249-2, forwhich the law is more consistently applied.
21 Id. at 173,869.22 Dreamscapes, LLC v. Dept. of Interior, CBCA No. 1331,
09-1 BCA ¶ 34,032 at 168,334-35.23 Jon Winter & Assocs., AGBCA No. 2005-129-2, 2005 WL
1423636 at *5 (June 20, 2005); see Russell Sand & Gravel Co.v. Int’l Boundary & Water Comm’n, CBCA No. 2235, 13-1 BCA¶ 35,455 at 173,868.
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