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Welcome to Jenner & Block’s Government Contracts Legal
Round-Up, a biweekly update on important government contracts
developments. This update offers brief summaries of key
developments for government contracts legal, compliance,
contracting, and business executives. Please contact any of the
professionals at the bottom of the update for further information
on any of these topics.
Investigations and Enforcement
There are a number of noteworthy developments in the
investigations and enforcement space:
- Precision Metals Corp. won injunctive relief preventing DLA
from maintaining the company’s debarment. DLA, which is
aggressive and takes a more expansive view of suspension and
debarment practice than most other federal agencies, is alleged to
have denied five requests for in person meetings to address the
facts underlying the company’s exclusion and focused on past
data rather than current operations. - An individual pled to bid rigging and set aside fraud relating
to more than $17 million in military contracts as part of a
Procurement Collusion Strike Force related matter. Read more here. - Numet Machining Techniques, LLC, and affiliated entities paid
more than $5 million to resolve allegations of set-aside fraud
relating to government contracts won after M&A activity
rendered the business other than small. Numet disclosed the
misconduct and “received credit” for the disclosure as
part of the resolution. This is a notable resolution because, while
follow on enforcement action after this type of disclosure is
possible, it is comparatively rare. Read more here. - And in a lower dollar settlement for procurement related
misconduct, McLain and Company paid $137,500 to resolve allegations
of falsified inspection documentation relating to inspection
vehicles customized for work on bridges. Read more here.
Claims Cases
1. Microtechnologies LLC v. United States
Attorney General, No. 2021-2169 (Fed. Cir. July 28, 2022)
(nonprecedential)
- The government contracted with MicroTech to provide
commercially available software licenses and maintenance for one
base year and two option years. On the first day of the base year,
MicroTech purchased the software licenses and maintenance for all
three years of potential performance. After accidentally executing
the first option year, the government terminated the first option
year for convenience on the first day of performance. - There was no dispute as to MicroTech’s entitlement for the
completed base year of performance. MicroTech, however, sought
termination costs for the option year equal to the price that
MicroTech paid for a full year of the relevant software license and
maintenance, even though the agency never used the software or
maintenance during the first option period. MicroTech argued that
the commercial software is only sold in one-year increments and
cannot be refunded once purchased; therefore, according to
MicroTech, once the government executed the first option year,
MicroTech was obligated to incur the full year’s worth of
licensing and support costs, even if never used. - The Civilian Board of Contract Appeals granted the
government’s cross-motion for summary judgment, and the Federal
Circuit affirmed in a non-precedential opinion: “The Board
correctly held that the cost of software maintenance for option
year one was not a ‘reasonable charge’ that ‘resulted
from the termination,’ as required for recovery under FAR
52.212-4(l),” which governs convenience terminations for
commercial item contracts. The panel explained that “MicroTech
acknowledges that the cost was not required under any contract when
it was incurred,” and therefore “even assuming that the
software maintenance could only be purchased in one-year increments
and that MicroTech’s purchase was nonrefundable, MicroTech
cannot show that the cost of software maintenance for the first
option year ‘resulted from’ the government’s
termination [of the option year].”
This is the latest in a growing line of important claims
decisions relating to software licensing disputes. Contractors
providing government customers with access to commercial software
licenses must keep in mind the risk that comes with the inherent
disconnect between (i) standard FAR clauses (e.g., termination for
convenience) and (ii) the terms and conditions that typically apply
to commercial software licenses. Software aside, while buying in
bulk at the beginning of a base year may allow for cost savings and
increased profit, there is always the risk that an agency will not
exercise option periods.
Protest Cases
1. KOAM Engineering Systems, Inc.,
B-420157.2, July 6, 2022 (Publicly issued July 18,
2022)
- GAO denied a protest alleging that the awardee gained an unfair
competitive advantage because one of the awardee’s proposed key
persons is married to a Navy contracting officer’s
representative (COR) on the protester’s incumbent
contract. - The protester argued that given the marriage and the fact that
both worked in close proximity at home and share a common financial
interest, there should be an “irrefutable presumption of
impropriety.” - The Navy investigated the matter, including by reviewing
declarations provided by the husband and wife. Based on this
investigation, the Navy found no evidence that the COR participated
in the instant procurement, or that the COR disclosed competitively
useful information. The Navy also concluded that the specific
information for which the COR had access, i.e., historical pricing
information from KOAM’s incumbent contract, would not have
provided a material competitive advantage to the awardee in light
of this RFP’s specific terms. - GAO concluded that the agency’s investigation sufficiently
rebutted the protester’s allegation of the appearance of
impropriety, and sufficiently demonstrated that KOAM’s
proprietary or otherwise competitively useful information was not
disclosed.
Contracting agencies are to avoid even the appearance of
impropriety in government procurements. Where a protester alleges a
conflict of interest, including one based on a marital or familial
relationship, GAO will not sustain the protest if the contracting
agency reasonably investigates the allegations and finds no
impropriety. A marital or familial relationship, without more, does
not establish that an awardee gained an unfair competitive
advantage.
2. Apprio, Inc., B-420627, June 30, 2022
(Publicly issued July 18, 2022)
- GAO sustained a protest challenging a Federal Emergency
Management Agency (FEMA) task order for training services to be
performed at the Center for Domestic Preparedness (CDP). - GAO first found unreasonable FEMA’s cost realism analysis
of awardee Leidos, Inc.’s proposed costs because the
contemporaneous evaluation record did not demonstrate any
evaluation of the awardee’s direct labor rates and lack of
escalation. Moreover, while GAO will take into account credible,
post-protest explanations that provide a detailed rationale for
contemporaneous conclusions and fill in previously unrecorded
details, here FEMA neglected to sufficiently explain how the agency
evaluated Leidos’s labor rates or how the specific conclusions
of those evaluations were made. - For example, while Leidos proposed to staff the task order with
its incumbent personnel, the awardee proposed rates for many of
these personnel based on the wage determination (WD) rates and not
necessarily actual labor costs on the predecessor efforts. GAO
sustained the protest because the agency’s cost realism
evaluation did not assess whether the WD rates proposed to be paid
to the majority of the incumbent workforce would be sufficient to
retain those employees. - GAO also found objectionable the agency’s use of a standard
deviation methodology as a tool to determine realism because the
solicitation here contemplated unique technical approaches by
offerors, and those unique approaches were not considered when FEMA
relied on a common standard deviation to assess realism. - And GAO sustained the protest because a weakness assigned to
the protester’s proposal under the corporate experience factor
was directly contradicted by the contents of Apprio’s
proposal.
Where an agency intends to award a contract containing
cost-reimbursable line items, an offeror’s proposed costs of
performing the cost-reimbursable CLINs are not dispositive because,
regardless of the costs proposed, the government is bound to pay
the contractor its actual and allowable costs. Consequently, the
procuring agency must perform a cost realism analysis to determine
the extent to which an offeror’s proposed costs are realistic
for the work to be performed, and this analysis must provide a
reasonable measure of confidence that the costs proposed are
realistic based on information reasonably available to the agency
at the time of its evaluation. GAO will sustain a protest where an
agency’s cost realism evaluation is not reasonably based.
3. Cellebrite, Inc., B-420371.2, April
28, 2022 (Publicly issued July 18, 2022)
- GAO found unobjectionable an agency’s decision to not
permit revised pricing as part of corrective action. - In response to a prior protest, the United States Secret
Service (USSS) took corrective action by amending the solicitation
to clarify language contained in the corporate experience factor
and the management and staffing approach factor. The amendment also
revised the curriculum demonstration factor to permit subcontractor
instructors to present during the curriculum demonstration
presentation, provided they were previously included in the
previous key personnel proposal submission. - USSS denied the protester’s request that the agency allow
it to amend its price because its investment and growth in the
interceding 5 months, as a newly listed public company, resulted in
increased efficiencies and reduced operating costs. - In response to the protest, the agency emphasized that
Cellebrite’s request to revise its price was not based on any
changes made to its proposal in response to the solicitation
amendment. - GAO found no basis to object to the agency’s corrective
action because the record established that the corrective action
was narrowly tailored to clarify the procurement improprieties that
the agency sought to resolve during corrective action.
Contracting officers in negotiated procurements have broad
discretion to take corrective action where the agency determines
that such action is necessary to ensure a fair and impartial
competition, and the details of corrective action are within the
sound discretion and judgment of the contracting agency. An agency
may reasonably limit the scope of proposal revisions permitted
during corrective action, provided such limitation is appropriate
to remedy the procurement impropriety. GAO generally will not
object to the specific corrective action, so long as it is
appropriate to remedy the concern that caused the agency to take
corrective action.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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