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SmallGovCon Week in Review: May 22-26, 2023
Happy Friday and we hope you are looking forward to a nice, long weekend. Monday, May 29 is Memorial Day and an official federal holiday, but do you know when and why it was established? If not, here’s a brief history lesson.
After the Civil war, in late 1860s, Americans in various towns and cities had begun holding springtime tributes to countless fallen soldiers. In 1966 the federal government declared Waterloo, New York as the official birthplace of Memorial Day because it hosted an annual, community-wide event, during which businesses closed and residents decorated the graves of soldiers with flowers and flags. In 1968, Congress passed the Uniform Monday Holiday Act, which established Memorial Day as the last Monday in May and declared Memorial Day a federal holiday. So, now you have the background story of how this day was established. We hope you all have a wonderful weekend and here are some recent articles, including ones on a pending default, VA contracts, and small disadvantaged businsses.
- Biden-Harris Administration to Launch New Initiative to Increase Federal Contracting with Small Disadvantaged Businesses [SBA]
- U.S. Office of Personnel Management Employee Pleads Guilty to Conflict of Interest Violation [DoJ]
- DOJ IG Horowitz reviews a decade of Bureau of Prisons crisis oversight [FedNewsNet]
- Veterans Affairs: Observations on IT Contracting Trends and Management Oversight [GAO]
- OPM employee pleads guilty to steering millions in government contracts to family business [WTOP]
- US Department of Labor Asks Judge to Force Federal Contractor to Provide Documents, Info Needed for Equal Employment Opportunity Evaluation [DoL]
- WHAT THEY ARE SAYING: GSA’s Buy Clean Inflation Reduction Act Requirements for Low Carbon Construction Materials [GSA]
- Infant formula producers probed by FTC over bids for government contracts [FinTimes]
- A default isn’t a shutdown, but agencies could treat it that way [FeedNewsNet]
- F-35 Program: DOD Needs Better Accountability for Global Spare Parts and Reporting of Losses Worth Millions [GAO]
- CIO-SP4 protests move toward final decision [WashTech]
- A Government Accountability Office representative told House lawmakers that Veterans Affairs’ IT obligations have been “increasingly concentrated with a small group of vendors. [NextGov]
- How GSA’s Technology Transformation Services is Harnessing Change in Tech Modernization [GovConWire]
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The ongoing debt ceiling negotiations are approaching the “X Date” with little certainty of a resolution. The X Date, the date on which the U.S. Government runs out of money to pay all of its bills, is estimated to be June 1. Failing to raise the debt ceiling by that date would be unprecedented and, by most accounts, would have dire consequences for the economy.
The current brinkmanship related to the debt ceiling is reminiscent of prior talks leading up to government shutdowns. The scenarios are different, but the impacts (and preparations) for government contractors likely will be similar. Here’s a breakdown of the differences and how government contractors can prepare for the possibility of reaching the X Date without a resolution on the debt ceiling.
Debt Ceiling v. Shutdown
A government shutdown results from a quirk of appropriations law—the government cannot spend money that Congress has not yet authorized/appropriated. The government still has the means to pay the commitments, but the commitments have not yet been authorized, so agencies have to go into a holding pattern. Without an approved budget, the government lacks the legal authority to spend money, resulting in a shutdown. Agencies cease operations except for essential activities to protect life and property and other specific exceptions. Contractors are issued stop work orders and/or have to give notice that they will stop work because their contracts are subject to limitation of funds or limitation of costs clauses.
The debt ceiling is unrelated to appropriations. The government has authorized the commitments and the Government could legally pay them, but it cannot do so practically. It does not have sufficient funds and cannot borrow any additional money. But reaching the debt ceiling does not immediately result in a government shutdown. Agencies can still use money that they have (until it runs out), but there is uncertainty around how agencies will use that money and what happens after the funds are exhausted.
Although the causes of the funding shortfall are different in the debt ceiling context, the result likely is the same. Contractors may need to be prepared to stop work and seek to recover any impacts from the disruption after the debt ceiling issue is resolved.
The Right to Stop Work
Failing to raise the debt ceiling by the X Date may have limited immediate impact, particularly for contracts that are fully funded. In theory, the funds necessary to pay the contractor for the work were already authorized and appropriated and are allocated to the contract in the agency’s account. If those funds are sitting in the agency’s account, the debt ceiling should not prevent payment of funds that are already available.
Of course, the agency might decide to reallocate its funds (where possible) and move funding from one purpose to another. The agency would issue revised Funds schedules and/or stop work orders, and contractors’ ability to recover additional costs in that situation should be similar to any other stop work situation. But if the Government does not issue a stop work order, or simply runs out of money to pay its obligations, there are two potentially important considerations.
First, the contractor is not required to keep working without payment. The CBCA’s 2014 decision in Kiewit-Turner addresses this point. There, the agency was attempting to force the contractor to construct a building that was estimated to cost more than the amount that had been appropriated. The contractor repeatedly advised the agency of this fact and requested design changes to bring the cost in line with the available funding. The agency refused to adopt the design changes and the contractor stopped work. The CBCA upheld that decision because the contractor could not be forced to perform without any expectation of payment. The same rationale extends to the debt ceiling context. If an agency runs out of money (or diverts available funds to other causes), the contractor could (and probably should) stop work.
The second important consideration is that a lack of funds is not an excuse to the Government’s payment obligation. That was the ruling in the Supreme Court’s decision in Salazar v. Ramah Navajo Chapter back in 2012. In that case, the agency had issued multiple support contracts and had enough money to cover any one contractor’s costs, but not enough to pay them all. The agency paid costs on a pro-rata basis and then argued it was excused from further payment when the funds were exhausted. The Court rejected that argument because contractors cannot be charged with knowing how the agency internally allocates the funds appropriated to it. If there is enough money in an appropriation to cover your contract, you are not required to monitor whether the agency is using those funds to pay someone else. This principle applies with equal force to the debt ceiling. The agency should not avoid paying for costs incurred by a contractor simply because money ran tight and the agency prioritized who to pay first.
Another consideration is whether the failure to raise the debt ceiling is a sovereign act that excuses the government’s failure to pay its obligations. Assessing that risk, particularly in light of the numerous new justices appointed to the Supreme Court, requires more than a blog article. But the Court previously held in United States v. Winstar Corp., 518 U.S. 839 (1996), that government agencies accept certain risks that they cannot control when they enter into contracts with private parties. There, the government sought to be relieved of its contractual obligations after Congress changed a regulatory scheme that impacted numerous government contracts. The Court held that the agencies assumed the risk of regulatory change and were not excused from their obligations:
The mere fact that the Government’s contracting agencies . . . could not themselves preclude Congress from changing the regulatory rules does not, of course, stand in the way of concluding that those agencies assumed the risk of such change, for determining the consequences of legal change was the point of the agreements. It is, after all, not uncommon for a contracting party to assume the risk of an event he cannot control, even when that party is an agent of the Government.
In the context of the debt ceiling, the rationale above would support the notion that the government agencies assumed the risk of the X Date and Congress’s failure to authorize additional borrowing should not be an excuse for contractors to go unpaid if they incur additional costs from the debt ceiling brinkmanship and resulting uncertainty.
- Surviving a Government Shutdown
- Strategies for Sequestration
- The right to stop work due to inadequate funds
- Contractors get paid even if appropriations are exhausted
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Check Your SAM Registration Early and Often
Federal contractors must be registered on SAM.gov to be eligible for award of federal contracts. Failure to do so can have significant consequences, as the recent U.S. Court of Federal Claims (CFC) decision in Myriddian, LLC v. United States, No. 23-443 makes clear.
In Myriddian, the Centers for Medicare & Medicaid Services (CMS) awarded a five-year, $11 million contract to Cloud Harbor Economics, LLC (Cloud) for coding support services. Myriddian, an unsuccessful offeror, protested at the CFC, arguing Cloud was ineligible for award under FAR 52.204-7, which provides that an offeror must “be registered in SAM when submitting an offer or quotation, and shall continue to be registered until time of award.” Although Cloud was registered in SAM at the time of proposal submission and at the time of contract award, Cloud’s registration had lapsed for three weeks during the proposal evaluation period. The CFC sustained the protest, holding that FAR 52.204-7 unambiguously requires a contractor to maintain its SAM registration throughout the entire proposal and evaluation process, and that an agency lacks the authority to waive that requirement. Because Cloud failed to “continue to be registered until time of award,” the CFC found Cloud ineligible for award and enjoined CMS from proceeding with the contract.
Myriddian comes on the heels of the CFC’s recent decision in Thalle/Nicholson Joint Venture v. United States, No. 22-755, upholding an agency’s elimination of a joint venture from competition where each of the joint venture members was individually registered in SAM at the time of proposal submission, but the joint venture itself was not. These cases stand as cautionary tales reminding offerors to ensure active SAM registration at all times throughout the proposal process and not to wait until the last minute—especially given processing delays that contractors continue to experience with SAM registrations.
- Key takeaway #1 – Register and renew/update early. Although we generally are seeing smoother registration processing recently, issues and delays remain. We advise clients to begin new registrations—and updates and renewals to existing registrations—as early as possible to get ahead of potential delays (e.g., with entity validation).
- Key takeaway #2 – When in doubt, reach out. Our team is experienced in navigating SAM registration issues and can provide support at every juncture. Please do not hesitate to reach out.
The post Check Your SAM Registration Early and Often appeared first on Government Contracts Legal Forum.
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Recent EntriesEric S. Crusius, Robert K. Tompkins
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Recent EntriesOn May 10, 2023, the National Institute of Standards and Technology (“NIST”) released an Initial Public Draft of Revision 3 to NIST Special Publication (“SP”) 800-171, Protecting Controlled Unclassified Information in
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Late last year, the United States Office of Management and Budget (OMB) published a memorandum, M-22-18, that required federal agencies to comply with the guidelines regarding ensuring the safety and integrity of third-party software on federal information technology systems. This memorandum applied to the use of firmware, operating systems, applications, cloud-based software and general software.
The memo requires federal agencies to comply with the National Institute of Standards and Technology (NIST) guidance, as detailed in President Biden’s cybersecurity Executive Order 14028, and stipulated that agencies “only use software provided by software producers who can attest to complying with the Government-specified secure software development practices, as described in the NIST Guidance.”
The memo instructed agencies to collect a standardized self-attestation form from all software contractors before deploying their products. Initially, each agency will identify the software and collect the self-attestations forms. The end goal is to create a government-wide central repository of all software-related information, to shore up any cybersecurity vulnerabilities.
I wanted to provide you with a brief update on where the NIH Information Technology Acquisition and Assessment Center (NITAAC) is in the self-attestation process and make you aware of some key dates that will impact your company.
NITAAC is working with the OMB to determine the formal agency posture on this matter. We also are working to finetune the process for our communications requirements, as it relates to collecting the self-attestation forms.
In the meantime, contractors should be aware of the following key dates:
- June 11, 2023: NITAAC deadline to collect self-attestation forms from critical software providers.
- September 14, 2023: NITAAC deadline to collect the forms from all software providers on the NITAAC networks.
- TBD: If needed, NITAAC will request a software bill of materials or other artifact(s) that demonstrate conformance with secure software development practices.
You will hear more from NITAAC as we get additional clarity, however, I wanted you to know you are not in this alone. I understand that this request presents several challenges on your end, in terms of staffing and the additional labor required to conduct and submit the self-attestations.
We face those same challenges at NITAAC. One of the biggest obstacles being faced on the federal level is that of time. The reality is that the government likely will not be able to produce and distribute the attestation forms in a timely manner. Unfortunately, if we cannot do so, this administrative burden will fall upon our contract holders, as you will then need to develop your own forms.
I can’t promise that this process will be smooth, as there are several variables at play, but what I can promise is that we will be as transparent as possible and will make it our business to provide you with timely and relevant updates.
I value our partnership and look forward to attesting the safety, integrity and security of all the software our contract holders provide to the federal government. This will become just one more example of the high-quality, best in class service agencies can expect from the NITAAC Contract Holders.
We will discuss this further on our next Contact Holders’ call.
To read the Executive Order, visit https://www.nist.gov/itl/executive-order-14028-improving-nations-cybersecurity. To learn more about the OMB Memo, visit https://www.whitehouse.gov/wp-content/uploads/2022/09/M-22-18.pdf.
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When The Last Dinosaur Turns Out the Lights!
In the middle of July 2023, Wifcon.com will begin its 25th year online, if I'm still alive and functioning. I'm Bob Antonio, I'm Wifcon.com, I'm 73 years old now, and I started Wifcon.com in 1998, before many of you were born. I'm well but I am mortal.
Over the years, I've met a handful of you in person including Vern Edwards, Ralph Nash and Joel Hoffman. Others I've met by accident include a Procurement Executive at the Department of Commerce when I was a member of the workaday world. That's it. I've simply been the man behind the curtain. I'm writing this because I want to share some of my thoughts about the changes in contracting that I've noticed.
Wifcon.com started when Steve Kelman was the Administrator of the Office of Federal Procurement Policy (OFPP). He was a vibrant leader who tried to make changes in procurement policy and tried to connect directly with contract specialists. One of the ways he connected with contract specialists was through a discussion board. When that discussion board died in 1998, Wifcon.com started its own Discussion Forum immediately. Many, if not all, of OFPP's users moved to Wifcon.com's Discussion Forum. Yes, if you look at Wifcon.com's Discussion Archives, you will notice that some discussions are over 20 years old. It seems to me that in the early years of the Wifcon Forum there were more seasoned contract specialists participating. I'm really not sure. On the other hand, there are many more industry members using the Wifcon Forum. Although the Wifcon Forum is viewed about 250,000 times a month, the users are mostly quiet with only a handful participating regularly. As the regular posters age and disappear, I don't know who will replace them. Participation is the lifeblood of discussion forums. Without active participation, discussion boards die. To try to enhance the Wifcon Forum, I have started adding specialized blogs that can provide feeds to Wifcon.com. In that way, I can provide them with silent and unpaid advertising while providing information to you.
Wifcon.com's Home Page and its daily update preceded the Discussion Forum by a few days in 1998. When I began the Home Page my goal was to provide important information faster to you than was available from other sources. In many cases, I have done that for most of Wifcon.com's life. At first, there was a good deal of information to publish. However, over the years, agencies published less and less useful information. Where OFPP was once vibrant in 1998 it is now comatose. It hasn't had an Administrator for years and I don't even check it anymore. Contracting information has always taken a back-seat to most anything else but the goveernment seems to have forgotten what it is altogether. Why pay attention to contracting with only hundreds of billions of dollars spent annually, with the defense of the nation depending on it, with the pandemic defeated by it? Forget us at your own risk. With the exception of the Departments of Defense and Energy, information from agancy sites is hard to find. To counter this lack of information, I have had to search for more and more sources to find contracting information. Since Wifcon.com is a one-person show, that additional time to find sources takes more and more of my time and I only have so much time in a day.
In 2008, Wifcon.com stopped for a week. I decided to quit. Instead, I converted it to a commercial site and accepted advertising. Until then, I paid all costs myself. The advertising increased until the pandemic and the business slowdown reduced advertising throughout the economy. I've lost advertisers as have some of the largest companies in the United States. I'm still covering my costs to maintain the site and now pay myself about $.10 (ten cents) an hour for my effort. That's down from a high of about $.25 (25 cents) an hour. Someone once told me that Wifcon.com was a labor of love. Maybe it's just a bad habit.
Over the next couple of months and before Wifcon.com's 25th anniversary, I hope to convert the outdated--non-discussion board--software to a current software that looks attractive. At that time, I will reduce the number of site pages from the current hundreds of pages to something manageable. Currently, the advertising on the Discussion Forum conflicts with the software used to operate the Forum. I also hope to hire someone to fix the flaws in the Disscussion Board software and to correct its conficts with my advertising.
Before I end, I want to thank my former and current advertisers, especially Vern Edwards, who also contributes articles for publication on the Discussion Forum and has written wonderful Articles over the years for Wifcon.com's main site. If you see something posted from him, read it, study it! Also, I would be remiss if I didn't thank the regular posters on the Disscussion Forum. Without them and all posters, the Discussion Forum would die. I cannot keep it alive, only you can. I just wish some of the thousands of lurkers would participate before it is gone.
There are times when I think of myself as a dinosaur from another era. I can neither explain to you nor to myself why I maintain this site. There are others you will find more interesting and knowledgeable on the Discussion Forums. However, I know they are aging as I am and they are mortal too. Take advantage of them while you can. Myself and the regular posters that you see on the Discussion Forum have one thing in common. We are all here to share our knowledge with those who ask and we do it for free. We have done that from the start of Wifcon.com. Quite often, I see a poster thanking those that respond to their question on the Discussion Forum. I like that and appreciate that.
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Describing Contract Type: Watch What You Say
Consider the following exchange between two people:QuoteSpeaker 1 (asking Speaker 2): What type of car do you drive, foreign or domestic?
Speaker 2: I drive a red car.
Obviously, Speaker 2's answer is not responsive to Speaker 1's question. Speaker 1 wanted to know about a particular aspect of Speaker 2's car: its origin. Speaker 2 described a different aspect of his car: its color. While Speaker 2's statement about the color of his car may be true, it doesn't tell us anything about the origin of his car.
Easy enough, right? Ok, let's try another one. Consider the following exchange between two contract specialists:QuoteContract Specialist 1: Is Contract X a fixed-price or cost-reimbursement contract?
Contract Specialist 2: Contract X is an indefinite delivery contract.
Is Contract Specialist 2's answer responsive to Contract Specialist 1's question? No, the answer is no more responsive to the question than Speaker 2's answer was to the question of whether his car was foreign or domestic. Why? In this exchange, Contract Specialist 1 wanted to know about a particular aspect of Contract X: ts compensation arrangement. Contract Specialist 2 described a different aspect of Contract X: its delivery arrangement. While Contract Specialist 2's statement about the delivery arrangement of Contract X may be true, it doesn't tell us anything about the compensation arrangement of Contract X.
Make sense? If so, see if you can spot anything wrong with the following passage of an article on contract types that recently appeared in the December 2010 issue of Contract Management (see Government Contract Types: The U.S. Government?s Use of Different Contract Vehicles to Acquire Goods, Services, and Construction by Brian A. Darst and Mark K. Roberts):QuoteFAR Subparts 16.2 through 16.6 describe 11 different permissible contract vehicles. These vehicles can be subdivided into three different families:
- Fixed-price contracts,
- Cost-reimbursement contracts, and
- Other contract vehicles that can be used when the quantity of supplies or services cannot be determined at the time of award (i.e., indefinite delivery, time-and-materials (T&M), labor-hour (LH), and level-of-effort contracts) or where it is necessary for the contractor to begin performance before the terms and conditions of the contracts can be negotiated (i.e., letter contracts).
Do you see anything wrong? Notice that the first two "families" are categorized by compensation arrangement. However, the third family contains a mix of terms used to describe compensation arrangement (T&M/LH), delivery arrangement (indefinite delivery), the extent of contractor commitment (level-of-effort), and a unique term used to describe a contract that is not definitive (letter contract). The way this passage is written implies that an indefinite delivery contract, a level-of-effort contract, and a letter contract are necessarily different (belong to a different "family") from a fixed-price or cost reimbursement contract. However, an indefinite delivery contract or a level-of-effort contract will have a compensation arrangement. The compensation arrangement can be fixed-price, cost-reimbursement, T&M/LH, or some combination thereof. A letter contract may or may not have a compensation arrangement when it is issued. You could conceivably have a letter contract that had a cost-reimbursement compensation arrangement, an indefinite delivery arrangement, and that provided for level-of-effort orders. As such, the authors? categorization of contract types makes as much sense as categorizing cars into three families?foreign, domestic, and red.
Incentive Contracts? Not What You Think They Are
Consider the following simplified description of a compensation arrangement:QuoteThe buyer agrees to pay the seller $100,000 to provide a specified quantity of medical transcription services. If the accuracy of the transcriptions exceeds 99%, the buyer agrees to pay the seller an additional $5,000.
Does the preceding describe an incentive contract? Many would say yes, because the arrangement provides for an incentive--specifically, a performance incentive. However, that would be incorrect. Just because a contract contains an incentive does not mean that it is an incentive contract. FAR 16.202-1 contains the following statements in a description of firm-fixed-price contracts (similar statements pertaining to fixed-price contracts with economic price adjustment can be found at FAR 16.203-1.QuoteThe contracting officer may use a firm-fixed-price contract in conjunction with an award-fee incentive (see 16.404) and performance or delivery incentives (see 16.402-2 and 16.402-3) when the award fee or incentive is based solely on factors other than cost. The contract type remains firm-fixed-price when used with these incentives.
Further, FAR 16.402-1(a) states:QuoteMost incentive contracts include only cost incentives, which take the form of a profit or fee adjustment formula and are intended to motivate the contractor to effectively manage costs. No incentive contract may provide for other incentives without also providing a cost incentive (or constraint).
Thus, it's not enough for a contract to contain an incentive to be an incentive contract. It must contain a cost incentive (or constraint).
In the aforementioned Contract Management article, an endnote references FAR 37.601(3) and misinterprets this paragraph as--encouraging the use of incentive-type contracts where appropriate. Here's what FAR 37.601(3) actually says:QuotePerformance-based contracts for services shall include-
(3) Performance incentives where appropriate. When used, the performance incentives shall correspond to the performance standards set forth in the contract (see 16.402-2).
The authors have made the mistake of assuming that a contract that contained a performance incentive was necessarily an incentive contract. In fact, when acquiring services FAR 37.102(a)(2) states the following order of precedence:Quote(i) A firm-fixed price performance-based contract or task order.
(ii) A performance-based contract or task order that is not firm-fixed price.
(iii) A contract or task order that is not performance-based.
As shown above, a firm-fixed-price contract would take precedence over an incentive contract.
A Genuine Misunderstanding
In a discussion of additional contract types and agreements, the Contract Management article contained the following statement (which caused me to stop reading and start writing):QuoteT&M and LH contracts are varieties of indefinite-delivery contracts and provide procuring agencies with the flexibility to acquire recurring services or when the amount of the effort required to deliver an end-item is uncertain.
Huh? T&M/LH is a type of indefinite delivery contract? I'll let you readers ponder that one.
The article concludes with a plug for the authors-two-day course in, you guessed it, types of contracts. I will pass.
At the beginning of Fiscal Year 2008 John Krieger and John Pritchard, two professors at the Defense Systems Management College, Defense Acquisition University, were kicking around the topic of Acquisition Reform. They reflected on what Jim Nagle wrote in the Epilogue to A History of Government Contracting, "If someone were asked to devise a contracting system for the federal government, it is inconceivable that one reasonable person or a committee of reasonable people could come up with our current system. That system is the result of thousands of decisions made by thousands of individuals, both in and out of government. It reflects the collision and collaboration of special interests, the impact of innumerable scandals and successes, and the tensions imposed by conflicting ideologies and personalities."
They reflected that those thousands of decisions were like putting bandages on the acquisition, contracting and procurement processes. Every time a piece of legislation is passed to “fix” the acquisition process, it’s another bandage. Every time a change is made to the Federal Acquisition Regulation (FAR), it’s another bandage. Every time a change is made to the Defense Federal Acquisition Regulation Supplement (DFARS), it’s another bandage. Every time a procurement or contracting policy memorandum is issued, it’s another bandage.
They joked about that being a great visual aid for the classroom. (Remember classrooms, the places you went to learn before COVID-19?) And the joking became reality. They started with a golf ball, and added a bandage for each new law, executive order, regulation, guide handbook, etc. And it would grow, and grow, and grow. “Acquisition Reform and the Golf Ball” was born that day.
The story of the golf ball was chronicled each fiscal year, and reported in the National Contract Management Association’s Contract Management (CM) after the end of each fiscal year. That is each year up until the report on the results for Fiscal Year 2020, when CM declined the latest installment in the series. Although John and John sought publication elsewhere, there didn’t appear to be a good fit, which brings the latest iteration, “Acquisition Reform and the Golf Ball—A Baker’s Dozen,” to Wifcon.com. (See attachment.)
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