"Mergers & Acquisitions & Complications Involving Government Contracts"

Richard Raleigh, Co-Chair of the Wilmer & Lee Government Contracts Practice Group, spoke at North Alabama Federal Bar Association's 49th Annual Acquisition Law Symposium in December 2021 on "Mergers & Acquisitions & Complications Involving Government Contracts".  A former U.S. Army Judge Advocate based in Huntsville, Mr. Raleigh frequently advises clients regarding the unique challenges facing businesses involved in federal government contracting.

Download "MandAPresentationRJRRDec2021.pdf"

"Defective Pricing Audits: Three Novel Negotiation Strategies To Protect Against DCAA Overreaching"

Jerry Gabig, Co-Chair of the Wilmer & Lee, P.A. Government Contracts Practice Group and Chair of the Alabama State Bar Government Contracts Section, recently authored an article, "Defective Pricing Audits: Three Novel Negotiation Strategies To Protect Against DCAA Overreaching".  In the article, Jerry explains how the number of DCAA defective pricing audits have been increasing over the last few years and he offers some helpful strategies that government contractors can employ if they find themselves in the DCAA's crosshairs.  The article is published in The Nash & Cibinic Report, February 2022, Volume 36, Issue 2.

Download "N&C Report on Defective Pricing Negotiation Strategies 2022.pdf"

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COVID-19 Vaccination

Recently attorneys with the Government Contracts Practice Group at Wilmer & Lee, P.A. have been called upon to provide advice on the federal mandates and requirements concerning COVID-19 vaccination.

Robert Lockwood has provided advice on his blog, https://employingalabama.com/, related to the implementation of the vaccine mandate https://employingalabama.com/2021/09/09/biden-vaccine-mandate/, deadlines for government contractor compliance https://employingalabama.com/2021/09/24/contractors-vaccinated-december-8-2021/, the FAR clause that was issued related to the vaccine mandates https://employingalabama.com/2021/10/04/far-vacccine/, and "How to Handle Religious Accommodations and Vaccine Mandates" https://employingalabama.com/2021/10/07/religious-accommodations-vaccine/.

Chris Lockwood (on Oct. 5), and Richard Raleigh (on Oct. 12) spoke at video conference/seminars hosted by the Huntsville/Madison County Chamber of Commerce.  They discussed the federal vaccine mandate and updated the Chamber and members of the public on issues related to compliance.  They answered many questions related to COVID-19 pandemic planning and response.  Here are links to recordings of those recent video seminars: https://hsvchamber.org/oct-5-zoom-call/ and https://hsvchamber.org/oct-12-zoom-call-legal-questions-about-the-vaccine-mandate-round-2/
Like others, the Government Contracts Practice Group of Wilmer & Lee, P.A. has been advising our federal government contractor clients that now is the time to begin protecting their businesses from the impact that the COVID-19 precautions are having on federal government contracts and federal government contractors.  Here are some of our tips.

Download "GOVCON PRACTICE GROUP TIPS 03242020.pdf"

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Richard Raleigh Recognized

Since 2013, Richard has been listed and recognized by The Best Lawyers in America, 2021 is no different.  Also in The Best Lawyers in America©, 28th edition, Wilmer & Lee Shareholder Richard Raleigh was recognized for his work in the practice areas of: Commercial Litigation, Employment Law - Management, Litigation - Labor and Employment, and Personal Injury Litigation - Defendants.  Mr. Raleigh was previously selected as 2017, 2019, & 2020 Lawyer of the Year for his specific practice areas and location.
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Richard Raleigh Recognized

In the current edition of The Best Lawyers in America©, Wilmer & Lee Shareholder Richard Raleigh was selected as a 27th Edition “Lawyer of the Year” for his work in Employment Law (Management), based upon his work in: Commercial Litigation, Employment Law - Management, Labor Law - Union, Litigation - Labor and Employment and Personal Injury Litigation - Defendants..  Mr. Raleigh was previously selected as 2017 and 2019 Lawyer of the Year in his for his specific practice areas and location.

News and Articles

Changes: Are You Losing Money on the Table?

The Idea: Through “changes” clauses, the government establishes its right to make changes in the contract’s statement of work or period of performance.

In Exchange: The Contractor receives a right to equitable adjustments in contract cost and/or schedule.

To read further, download the document below.

Download "Changes - Are You Leaving Money on the Table.pdf"

Why Vendors Need Non-Disclosure Agreements

by Jerry Gabig of Wilmer and Lee

NDAs-- Preventing IP Theft

Why Vendors Use NDAs?
Answer: To protect IP while exploring a potential business relationship

Types of IP 
•Trade Secrets

A Trade Secret is information that: 
a. Is used or intended for use in a trade or business;

b. Is included or embodied in a formula, pattern, compilation, computer software, drawing, device, method, technique, or process;

c. Is not publicly known and is not generally known in the trade or business of the person asserting that it is a trade secret;

d. Cannot be readily ascertained or derived from publicly available information;

e. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy; and

f. Has significant economic value.

Each party agrees not use the other party’s Confidential Information for any purpose except for the “Business Purpose.”

NDAs Government Role
Typically the government prefers not to be involved in agreements between vendors—especially involving prime/subcontractor relationships.

Question: What if government wants to provide a support contractor with limited rights technical data or restricted rights software?
AnswerRequire the support contractor enter into an NDA with vendor owning the IP rights. DFARS § 227.7103-7

DFARS § 227.7103-7
The Recipient agrees to indemnify and hold harmless the Government … from every claim or liability … arising out of … the misuse or unauthorized … release … of Data received from the Government”

Download "Nondisclosure Agreements - A License To Steal.pdf"

Has DCAA Disallowed a Cost? Don’t Give in Too Quickly

Because FAR § 31.201-3 states “the burden of proof shall be upon the contractor to establish that such cost is reasonable,” contractors often are too quick to give in when DCAA disallows a cost. Although not mentioned in the FAR, a corollary to the rule is that “when the government disallows costs on the basis of a FAR cost principle, the burden is on the government to prove that the costs are unallowable.” See SRI International, 11-1 BCA ¶ 34694, ASBCA No. 56353. In 2017 the Armed Services Board of Contracts Appeal (ASBCA) issued a decision that provides a good lesson about not giving in too quickly when DCAA disallows a cost.

The underlying controversy in A-T Solutions, Inc., ASBCA No. 59338, 17-1 BCA ¶ 36,655 involved an Army contract to provide professional services and materials to train on improvised explosive devices. The training was to take place both within the United States and overseas. The cost-plus fixed-fee contract was awarded for a base year and up to four option years. Under the contract, ATS provided the training materials and equipment as commercial items and was paid for them at its catalog prices. ATS’s proposal stated that it was a provider of commercial training and that its training materials were priced using its product catalog.

In July 2011, DCAA issued a report questioning ATS’s charging for training material based on commercial prices rather than at actual costs as set forth in FAR § 31.205-26 Material Costs. The contracting officer deferred to DCAA. The Army suspended a percentage of reimbursement of payment on the contract. ATS appealed to the ASBCA. The Board decided in favor of ATS by holding “we find that the government has not met its burden to show that the transfers of commercial ATS training materials between ATS divisions were not the sort of transfers contemplated by FAR 31.205-26(e).” Id. Hence, ATS prevailed simply by holding DCAA to its burden of proof—something DCAA could not meet.

In summary, do not give in too quickly when DCAA disallows a cost. There is no expense for a contractor to request the contracting officer to issue a final decision. Also, there is no expense to appeal the final decision to a Board of Contracts Appeal. Rarely do DCAA or contracting officers consider their burden of proof when disallowing costs. However, upon being confronted with this reality by going through the appeal process, the Government is likely to be more receptive to a fair settlement.

Another noteworthy point about the A-T Solutions decision is that the Government tried to use ATS’s basic accounting system, Peachtree, against ATS. As ATS’s business grew, the company transitioned to Deltek Costpoint. To the Board’s credit, it recognized that a small business’s accounting should not be held to the standard of a sophisticated accounting system:

Moreover, the government's argument relies on a negative—what ATS's 2007-2008 accounting records do not show. Those accounting records were the product of an unsophisticated small business accounting software application that did not provide visibility into transactions at the divisional level (finding 19). ATS witnesses testified credibly that the Training division determined what materials would be needed for a particular training….

Id. Hence, through the testimony of its Chief Financial Officer, ATS was able to explain to the satisfaction of the Board matters that were not fully documented in ATS’s accounting system

Download "Do Not Give Up To Quickly If DCAA Disallows A Cost.pdf"

Federal Grants v Federal Contracts:  Key Differences

Major Differences

Procurement Contract
•Awardees typically are private sector entities motivated by profit.
•Agencies have inherent authority to purchase goods and services to perform mission.
•Adequate accounting system required for a cost reimbursement contract.  FAR §16.301-3(a)(3)

•Awardees typically, state government, local government, tribe or nonprofit
•An agency needs express statutory authority to give aware appropriated money
•Grant officers less likely to insist on proof of an inadequate accounting system.

Download file below to read more on this topic.

Download "Federal Grants Compared to FAR Contracts.pdf"

Death By CPAR: Is There A Remedy?

Click the download below to read the article as published in The Nash & Cibinic Report Volume 33, Issue 10 in October 2019. The Nash & Cibinic Report is a government contract analysis and advice monthly from professors Ralph C. Nash and John Cibinic. The article was a guest piece written by Jerome Gabig. 

Download "Death By CPAR - Is There A Remedy.pdf"

DCAA Auditors Foraging Into Employee Qualifications

As printed in the January 2016, Volume 11, Issue 1 of Government Contract Costs, Pricing, and Accounting Report

DCAA Auditors Foraging Into The Qualifications Of Contractor Employees Whose Services Have Been Invoiced

Jerome Gabig and Michael Steen1

When tasked to establish indirect cost rates, Defense Contract Audit Agency auditors have become increasingly
active in challenging employee qualifications to perform service contracts.2 However, there are three reasons why this new trend in foraging by DCAA auditors is inappropriate. First, there is no contractual basis for DCAA auditors, when tasked to establish indirect
rates, to burden contractors to provide documents concerning whether employees who performed services
had the requisite contractual qualifications. Second, often the rule of finality of acceptance precludes
challenges to employee qualifications if the challenge is made years after invoices have been paid. Finally, the method used by the Government in challenging
the employee's qualifications wrongfully
places the burden of proof on the contractor. For these reasons, contractors should consider resisting forays into direct expenses when DCAA has been tasked by
contracting officers to finalize indirect cost rates for a specific fiscal year.

Chronology of DCAA Audit Policies Applicable to T&M Contracts

     Below is a brief chronology of DCAA policies with respect to service contracts which typically are time-and-materials (T&M) contracts as well as labor-hour
(LH) contracts described in Federal Acquisition Regulation
(“FAR”) Part 16.6.3

1. July 31, 2007. As described in DCAA Memorandum for Regional Directors (MRD) 07-PPD-023(R), the FAR and Defense FAR Supplement were “clarified” on Feb. 12, 2007 to ensure that subcontract and intercompany labor effort would be based on the subcontractor's own rates, and not on the rates of the prime contractor. Before and after this FAR change, DCAA maintained that subcontractor employees could be billed using a prime contractor labor category (“T” component of a T&M contract) only if explicitly stated in the prime contract; otherwise subcontract costs were billable at cost (under the “M” component). At the heart of this issue were so called windfall profits, in some cases achieved
by prime contractors' billing subcontractor labor hours at prime contractor “T” rates. The windfall consisted of the aggregate amounts paid to the prime contractor, which were significantly more than the subcontract costs.

2. Nov. 26, 2007. DCAA MRD 07-PPD-038(R), Reporting Questioned Costs on Time-and-Material (T&M)/Labor-Hour (LH) Contracts, focused on the expectation that auditors ensure that claimed or billed direct labor effort meets the labor category qualifications specified in the contract. In particular, FAR § 52.232-7(a)(3), effective Feb. 12, 2007, states, Labor hours incurred to perform tasks for which labor qualifications were specified in the contract will not be paid to the extent the work performed by employees do not meet the qualifications specified in the contract, unless specifically authorized by the Contracting Officer. The MRD provided an example of a junior engineer billed at a senior engineer “T” rate, in which case the auditor is to identify the entire amount billed as unallowable. Notably, DCAA's policy stated that this same guidance should be applied to contracts negotiated before Feb. 12, 2007; hence, equally applied to any audit (current invoices or historical incurred costs regardless of the years involved).

3. November 2010. DCAA Master Document—Audit Program, Incurred Cost—Major Post Year-End Audit, Version 8.10, dated November 2010, includes a step (F-1 Direct and Indirect Labor, step 4) to determine whether the claimed T&M labor hours, rates, and employee qualifications
comply with the contract provisions. Later,
in October 2011, this audit program and this particular step were expanded to include a profit margin test on T&M/LH contracts, comparing total contract billed amounts to total actual contract costs reported (i.e., comparing invoiced amounts on Schedule K to actual costs on Schedule H). The objective of the October 2011 expanded step was to focus additional testing in cases in which profits appeared excessive and could indicate that unqualified employees or subcontractor employees were invoiced at prime contractor “T” rates. As noted by a DCAA inquiry during an incurred cost audit, “We noted T&M projects with significant profits (28.3% to 39.7%), please explain” (the atypically high profit margins based upon a comparison of billed amounts to the recorded costs).

4. May 22, 2014. MRD 14-PPD-008(R), Labor Qualifications for Time-and-Material (T&M) Contracts, in essence restated the audit guidance from number 2 above. The memo emphasized that labor hours (that did not meet the contractual qualifications) could be billable if specifically authorized by the CO; hence, DCAA auditors were directed to coordinate with the CO prior to
questioning (unqualified) labor hours. If specific authorization had not been given, but was being contemplated, auditors were to provide the CO with information such as the actual cost of the labor delivered that did not meet the contract
qualifications. Although unstated, the purpose of this “information” was to dissuade the CO from authorizing labor hours that (in the eyes of the DCAA auditor) did not meet the contract qualifications for a specific labor category.

Because of these practices, DCAA's audit policies and audit programs relative to T&M contracts are resulting in Government claims being asserted against
contractors. Here are two examples:

-$3.9 million of noncompliant T&M labor costs for employees not meeting contractually required education experience or years of relevant

-$13.9 settlement for over-billing for work performed by DRS personnel who lacked the job qualifications required by contract.5

These examples are but the tip of the iceberg in terms of the dollars at issue based upon untimely DCAA audits mixed with DCAA auditors' unrealistic expectations for documentation supporting T&M contractual requirements (qualifications) such as “25 years of relevant experience.” These all-too-common DCAA audit issues raise the question of auditor competency to evaluate T&M contract qualifications (which require other than accounting expertise). Moreover, in its zeal to expose overcharging for labor on service contracts, DCAA has ignored contractual and regulatory limitations on its forays. Four of these limitations are discussed below.

1. When Tasked by a CO to Establish Indirect Cost Rates, a DCAA Auditor Has No Contractual Basis to Ascertain whether Contractor Employees Who Have Provided
Services on Specific Contracts Meet the
Requisite Qualifications

     The contractual authority for DCAA to perform incurred costs audits to finalize indirect rates is predicated on FAR § 52.216-7(d), Final Indirect Cost
Rates. That provision states.....

To read more, download the report below.

Download "DCAA Auditors Foraging Into Employee Qualifications.pdf"

Rights to Intellectual Property Developed Under a SBIR

Download the file below to read more on this topic.

Download "Rights to Intellectual Property Developed Under a SBIR.pdf"

The Nuts, Bolts, and Screws of Teaming Agreements

“A survey by the Centre for Global Corporate Positioning of estimates by business analysts indicates 50% to 70% of joint alliances fail.  A Columbia University study found cross-border joint ventures have similarly dismal chances:  only 43% become viable.”
The Deal, January 26, 2004 at 32

To read more of this summary, download the presentation below.

Download "Teaming Agreements - Nuts, Bolts and Screws.pdf"

Protests - Fighting Over Government Contracts as featured in The Alabama Lawyer Vol. 66, No. 1

Government contracts are a major contributor to Alabama's economy. Governor Riley has observed:

"(Defense spending is) an engine of economic growth that brings and creates good, quality jobs for Alabama. Over 30,000 of our citizens are employed on our military bases, and thousands more throughout the state have jobs today because these bases arc located here. Alabama's miLitary installations exceed $4 billion in operating budgets and payrolls, creating a multi-billion dollar impact to our stale economy.'

Of the 30,000 jobs, many or them are subject to being outsourced to industry through government contracts.' Much of the four billion dollars in operating budgets for Alabama's military installations is spent through government contracts. Although unmentioned by Governor Riley, four federal contracting activities in Alabama annually award many more billions dollars to companies that primarily per­form the work in other states. These four federal contracting activities arc the U.S, Army Aviation and Missile Command; NASA's Marshall Space Flight Center; the Missile Defense Agency: and the Corps of Engineers Support Center. For example, in fiscal year 2003, "Team Redstone" (i.e., the military contracting activities located on Redstone Arsenal) awarded about $11.3 billion in federal contracts.

To see the full article by Jerome Gabig, click the download link below.

Download "Protests - Fighting Over Government Contracts.pdf"

SBIR Stumbling Blocks

Click the download button to read more on this topic.

Download "SBIR Stumbling Blocks.pdf"

M&A - Complications Involving Government Contracts

Download the file (prepared by Jerry Gabig of Wilmer & Lee) below to read more about the merging and acquisition process and possible complications involving government contracts.

Download "M&A - Complications Involving Government Contracts.pdf"

What Caused The OCI Sea Change?

The last several years has seen a Sea Change in OCIs which has been brought about by GAO attorneys. To find more details on this topic, download the document below. 

Download "What Caused The OCI Sea Change.pdf"

Small Business Status... The "Line" is Not Easily Discerned

Read all about small business status. and where the lines are drawn. Click the download to read more!

Download "Small Business Status - Don't Cross The Line.pdf"

The Department of Defense Clauses on Rights in Technical Data and Computer Software

Notwithstanding its shrinking budget, the Department of Defense (DoD) has increased its spending for software development from $30 billion in fiscal 1990 to $42 billion in fiscal 1995 [1]. The enormous quantities of software developed under these large expenditures has created substantial interest in the intellectual property rights to the software. The allocation of intellectual property rights for software developed under DoD contracts is primarily accomplished through regulations, although there is some flexibility for the parties to negotiate. On June 28, I 995, DoD finally issued its new regulations on rights in technical data and computer software after a prolonged and controversial rule­making process. As a whole, the new regulations are beneficial to offerors, but there are also some changes that benefit DoD. This article identifies the more noteworthy changes. In light of the complexities of these new regulations, a helpful flowchart is located in the center of this issue of CROSSTALK. The flowchart will assist in ascertaining the allocation of rights to a specific deliverable. To read more in this issue click the download link below.

Download "Dissecting the Core DOD Technical Data Clause 52.227-7013"

Government Contract Interpretation


The Small Business Runway Extension Act of 2018 -- When does the new standard apply?

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December 21, 2018
By:  Christopher L. Lockwood, Richard J.R. Raleigh, Jr.
On Monday, December 17, 2018, President Trump signed into law the Small Business Runway Extension Act of 2018.[1]

The text of the Act states as follows:

"Section 3(a)(2)(C)(ii)(II) of the Small Business Act (15 U.S.C. 632(a)(2)(C)(ii)(II) is amended by striking '3 years' and inserting '5 years.'"

The Act does not contain an effective date. When a statute has no effective date, absent a clear direction by Congress to the contrary, it takes effect on the date of its enactment.  Johnson v. United States, 529 U.S. 694, 701 (2000).  Therefore, it appears that the Act took effect when it was signed into law on December 17, 2018.  But what, exactly, does that mean?

As a result of the Act, 15 U.S.C. § 632(a)(2)(C)(ii)(II) now reads, in pertinent part, as follows:

"(C) Unless specifically authorized by statute, no Federal department or agency may prescribe a size standard for categorizing a business concern as a small concern, unless such proposed size standard—

(i) is proposed after an opportunity for public notice and comment;

(ii) provides for determining—


(II) the size of a business concern providing services on the basis of the annual average gross receipts of the business concern over a period of not less than 5 years; [and]

(iii) is approved by the Administrator."

(Emphasis added).

As the statute above now reads, the Small Business Administration (SBA) may not “prescribe” a size standard unless such “proposed size standard” is (1) proposed after an opportunity for public notice and comment; (2) approved by the administrator; and (3) provides for determining size of business concerns providing services on the basis of annual average gross receipts over a period of not less than 5 years.

Problematically, the SBA has not yet updated its regulations to reflect the change set forth in the Act, and an update could take months, particularly given the above requirement of “opportunity for public notice and comment” regarding any regulatory change.

In the meantime, as far as we know, the SBA has not yet issued any guidance on whether service contractors should use “3 years” or “5 years” when self-certifying for small business set-aside contracts.  On one hand, an argument could be made that, because the Act took effect immediately, SBA should immediately begin allowing contractors to use the new standard.  Our colleagues at Koprince Law seem to think that the Act overrides the preexisting SBA regulations and therefore SBA is required to comply immediately:

"If the bill becomes law … it will become effective immediately. Although the SBA will need time to update its regulation (found at 13 C.F.R. § 124.104), the text of the Small Business Act will be clear that the measurement period will be five years, not three. Because statutes override regulations, the law will be five years and the SBA will have to follow that rule immediately."[2]

On the other hand, if the Act is read narrowly, an argument could be made that the Act does not directly change the size standard but instead modifies the methods for “prescribing” future standards.  Arguably, because SBA’s existing regulations were compliant with the Act when originally “prescribed,” and the SBA has not yet attempted to “prescribe” or “propose” new regulations, the SBA might assert that it can continue applying the existing standard until it prescribes a new standard in compliance with the Act.  An article from National Law Review posits that SBA might assert that the Act should not be treated as effective until SBA issues an interim or final implementing rule.[3]

It is worth noting that SBA apparently opposed modifying the standard to five years.[4]  SBA’s prior opposition to the five-year standard raises the question of whether SBA might attempt to delay applying the new standard.

Making matters even more complicated, several commentators have noted that the five-year standard could prove to be a double-edged sword and could potentially have the effect of disqualifying contractors who at some point exceeded the size threshold and are attempting to rely upon a three-year runway to re-qualify as small.[5]  As a result, contractors would be well-advised to evaluate where they stand under both standards, at least for now.

Since the new standard is potentially good for some contractors and bad for others, contractors should be very clear about which standard they are using when submitting their certifications.  If a contractor is attempting to rely upon continuation of the three-year standard to regain status as small, it should explicitly state this in its certification.  Similarly, if a contractor is attempting to take advantage of the new five-year standard to avoid being deemed other-than-small, it should be clear about doing so, in order to avoid any appearance of misrepresentation to the Government.  Contractors should also keep an eye on SBA’s Newsroom for any announcements or guidance concerning the effect or interpretation of the new law.[6]

Because contractors are likely to advocate for whichever standard happens to best for them, we would not be surprised if the uncertainty is eventually resolved by way of a size protest.  Inevitably, a contractor will attempt to take advantage of either the new or the old standard, will be denied, and will attempt to protest the decision.  Alternatively, it may be the protest of a contractor seeking to disqualify one of its competitors who would not qualify under one of the standards.  In absence of any guidance from SBA, we will be interested to see whether this change proves to be fertile ground for size protests.

OFCCP Affirmative Action Audits on the Horizon

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The OFCCP is about to commence audits of federal contractors to ensure compliance with their affirmative action obligations.
August 28, 2018 •  Robert C. Lockwood

The Office of Federal Contractor Compliance Programs (“OFCCP”) is focusing on the requirement that federal contractors adopt and annually update affirmative action plans. On August 2, 2018, the OFCCP’s Acting Director, Craig Leen, participated in a public discussion during which he reviewed the current compliance process for contractors.   Currently, contractors simply “check the box” to certify compliance with affirmative action obligations in the General Services Administration’s (“GSA’s”) System for Award Management (“SAM”) registration system.  Mr. Leen expressed concern that many contractors checking the box do not actually possess a valid affirmative action plan.

Mr. Leen’s comments were followed-up by a new OFCCP directive on August 24, 2018:  Directive 2018-07.  The subject of that directive is the commencement of an “Affirmative Action Program Verification Initiative.”  OFCCP “is concerned that many federal contractors are not fulfilling their legal duty to develop and maintain AAPs [Affirmative Action Plans] and update them on an annual basis.”  Therefore,  Directive 2018-07 requires OFCCP to develop a comprehensive program to verify that federal contractors are complying with affirmative action obligations on a yearly basis.  That program will include:

• Development of a process whereby contractors would certify on a yearly basis
compliance with AAP requirements.
• Inclusion of a criterion in the neutral scheduling methodology increasing the
likelihood of compliance reviews for contractors that have not certified compliance
with the AAP requirements.
• Compliance checks to verify contractor compliance with AAP requirements.
• Requesting proffer of the AAP by contractors when requesting extensions of time
to provide support data in response to a scheduling letter.
• Development of information technology to collect and facilitate review of AAPs
provided by federal contractors

Directive 2018-07 does not provide a timeline for implementation.  Nevertheless, it is abundantly clear that compliance audits are coming.  Therefore, federal contractors should carefully review their affirmative action plans for compliance, and make sure that those plan are updated annually.

Are You Losing Money By Not Pursuing Government Contract Changes?


Alabama Enacts Data Breach Notification Requirements

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By:  Richard J.R. Raleigh, Jr., April 24, 2018

Alabama businesses need to take note.  A recently enacted law, the Alabama Data Breach Notification Act (No. 2018-396), creates new requirements for “covered entities” who have “sensitive personally identifying information” that is the subject of a “data breach.”  The Act mandates certain security measures for businesses and requires notification if a breach occurs.  Failure to comply can result in significant fines, and a violation of the Act is also considered a violation of the Alabama Deceptive Trade Practices Act (Alabama Code Sections 8-19-1, et seq.).

Data breaches can be significant and can have far reaching effects.  In 2015, the U.S. Department of Defense notified more than 20 million former and current government employees that their information was stolen in one of the largest cybercrimes ever carried out against the U.S. Government.  As a result, the Office of Personnel Management provided each of the affected individuals with identify theft protection and awarded a $133 million contract for identity theft protection services to pay for that protection.  Nearly everyone can recall the 2015 Experian loss of personal data for around 15 million individuals, a loss that included social security numbers.  And, the Target data breach involved as many as 70 million Target customers.  Recently, Saks Fifth Avenue joined the ranks of businesses that have been hacked and whose customers’ information was stolen.

These types of events led Alabama Senator Arthur Orr (R–Decatur) and Alabama Representative Phil Williams (R–Huntsville) to sponsor legislation to help protect the sensitive personally identifying information of Alabama citizens.  Senator Orr previously tried to get legislation related to data breach notification through the legislature.  This year, the Alabama Legislature passed the Alabama Data Breach Notification Act.  Governor Ivey signed the bill into law on March 28, 2018.  “Beginning June 1, 2018, private and public entities must establish reasonable data security measures and notify those affected when personal data has been compromised.  Any breached entity that determines the compromised information is reasonably likely to cause substantial harm must notify those affected as expeditiously as possible’but no later than 45 days after discovery.

The requirements of the Alabama Data Breach Notification Act apply to covered entities and to third-party agents.  These terms are defined:

(2) COVERED ENTITY. A person, sole proprietorship, partnership, government entity, corporation, nonprofit, trust, estate, cooperative association, or other business entity that acquires or uses sensitive personally identifying information.

(7) THIRD-PARTY AGENT. An entity that has been contracted to maintain, store, process, or is otherwise permitted to access sensitive personally identifying information in connection with providing services to a covered entity.

The Act protects "sensitive personally identifying information," which is an Alabama resident’s first name or first initial and last name, combined with one or more numbers or other data – such as a social security number, bank account number, medical information, or username and email address information.

The Alabama Data Breach Notification Act requires: (1) reasonable security, (2) investigations, and (3) notification under certain circumstances.

Reasonable Security Measures.  Covered entities and third parties are required to consider, implement, and maintain certain security measures.  The Act contains a list of certain measures that should be considered.  But, the statute explains that “[r]easonable security measures [are] security measures practicable for the covered entity to implement and maintain.” Factors like the size of the entity, amount of sensitive information, and cost of implementation of measures are considered when determining what security measures should be undertaken.  What constitutes “reasonable security measures” is likely to be the subject of debate in the future.

Good Faith and Prompt Investigation.  If a covered entity or third party determines there has been a breach of security in relation to “sensitive personally identifying information,” they have a duty under the Act to conduct a good faith and prompt investigation.

Notification.  When there is a data breach, covered entities and third parties must notify affected Alabama residents.  Unless an exception in the act applies, they must do so “as expeditiously as possible and without unreasonable delay.”  In any event, notification must occur no later than 45 days after the covered entity or third party determines a breach has occurred and is likely to cause substantial harm.  The Act sets forth the information required to be provided.  Furthermore, if more than 1,000 Alabama residents are affected, the Alabama Attorney General and consumer reporting agencies must be alerted.

Businesses should review the Act and seek guidance from experts to determine appropriate data security measures.  While there will be questions when data breaches occur, such as what are “reasonable security measures” and when is a loss “likely to cause substantial harm,” the Alabama Data Breach Notification Act attempts to provides answers - including recommendations concerning appropriate security measures - in addition to setting forth requirements.

COFC Sustains Fifth Protest of Navy Services Contract

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By:  Christopher L. Lockwood, April 20, 2018
On March 29, 2018, the COFC released a decision sustaining the post-award protest of DZSP 21, LLC (“DZSP”) regarding a Navy contract to provide military base services in Guam.  The case comes with a lengthy procedural history.  DZSP was the incumbent contractor and was initially awarded the follow-on contract in a competition against Fluor Federal Solutions, LLC (“Fluor”).  Fluor filed a series of three GAO protests, each of which resulted in corrective action by the Navy, but which did not result in Fluor winning the contract.  On the fourth occasion, Fluor finally prevailed, and the award to Fluor was upheld by the GAO.  DZSP then sought relief from the COFC.

At the COFC, DZSP raised three challenges to the Navy’s award to Flour:  (1) that the Navy had changed its requirements and was required to issue a new, amended solicitation; (2) that Navy improperly assigned an unwarranted strength to Fluor’s proposal for retention of incumbent personnel; and (3) that the Navy improperly applied an upward cost adjust to DZSP’s proposal.

Regarding the argument that the Navy’s requirements had changed, DZSP sought to introduce evidence from bridge contracts awarded to it, showing that the Navy’s requirements had greatly increased since the initial solicitation.  The COFC allowed DZSP to introduce some of this evidence but nevertheless held that the Navy was not required to amend the solicitation.  In doing so, the COFC stated:  “the Navy, not the court, is in the best position to determine its needs, and this court gives great deference to the professional judgment of military authorities concerning the relative importance of particular military interests.”

As to DZSP’s second argument, the COFC agreed that the Navy erred in assigning a strength to Fluor for retaining incumbent personnel.  Although this part of the decision is heavily redacted, it appears that DZSP challenged Fluor’s ability to retain incumbents using a relatively low pay scale, and Fluor had proposed alternative sources of hire.  Ultimately, the COFC agreed that Fluor was not entitled to a strength for retaining incumbents.

The Navy tried to argue that, even if it had erred in assigning a strength to Fluor, it was not prejudicial error because it merely resulted in Fluor having an equal number of strengths as DZSP.  Although the COFC recognized the possibility that eliminating a single strength might not be enough to turn the tide in favor of DZSP, it nonetheless found that likelihood was great enough to constitute prejudice.

Finally, the COFC also agreed that the Navy had erred in applying an upward cost adjustment to DZSP’s proposal.  In one of the previous evaluations, the Navy had concluded that DZSP’s price was “very realistic” but later reversed that conclusion without a further technical evaluation and without much factual explanation.  Although the COFC stated that the Navy was not necessarily bound by its prior evaluation, it was nonetheless required to provide a rational explanation for the change.  The Navy attempted to rely on evidence DZSP’s bridge contracts showing that DSZP’s exempt labor rates had increased; however, the amount of the adjustment was not consistent with the

As a result of the foregoing, the COFC sustained DZSP’s protest, set aside the Navy’s award to Fluor, and ordered the Navy to either performance of new evaluation of proposal and conduct an entirely new solicitation.

COFC Rejects Protest of NASA Evaluation

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By:  Christopher L. Lockwood, April 19, 2018
On April 13, 2018, the COFC released a decision denying the post-award bid protest of Pinnacle Solutions, Inc. (“Pinnacle”).  Pinnacle protested a NASA award to Yulista Tactical Services, Inc. (“Yulista”) for aircraft logistics, integration, configuration management, and engineering services.  Pinnacle submitted the lowest price, and received an equal rating to Yulista in past performance, but its mission suitability score was several hundred points lower than Yulista.  Pinnacle initially filed a successful protest with the GAO, obtaining a reevaluation.  Upon reevaluation, Pinnacle’s mission suitability score improved, but Yulista’s score also improved by a greater margin.  Pinnacle filed a second GAO protest, which was denied, and then sought relief from the COFC.

In its COFC protest, Pinnacle faced a difficult burden, seeking to challenge the 11 weaknesses and one significant weakness assigned to its proposal.  Additionally, Pinnacle argued that NASA unreasonably failed to assign strengths to various aspects of its proposal, and that NASA unequally evaluated Yulista’s proposal.  Although the COFC suggested that Pinnacle raised potentially meritorious arguments regarding two of the weakness, it found that Pinnacle was unable to overcome the other remaining weaknesses and therefore could not establish prejudicial error.

A few highlights from the decision:
  • The COFC ruled that Pinnacle was unable to challenge a weakness that turned on a dispute over the term “physically demanding positions” used by NASA in the RFP.  Citing Blue & Gold Fleet, the COFC held that Pinnacle had waived any objection to the terms of the RFP by failing to challenge them prior to the close of bidding.
  • Citing the deference afforded to the agency on past performance evaluations, the COFC rejected an argument that NASA was required to update Pinnacle past performance evaluation based upon revised CPARS scores received during the reevaluation process.
  • The COFC found that NASA reasonably assigned a weakness for Pinnacle’s plan to ensure adhere to work schedules and breaks, even though Pinnacle proposed to that it would post work schedules and have supervisors monitor timekeeping and timesheets.  The COFC ruled that posting the schedules and having supervisor monitor timesheets was insufficient to show how Pinnacle would ensure adherence to the schedule.

COFC Upholds Disqualification of Chinese Printers

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By:  Christopher L. Lockwood, April 18, 2018

On March 27, 2018, the COFC released a decision denying the protest of Iron Bow Technologies, Inc.  Iron Bow submitted a quote to supply printers to the Social Security Administration (“SSA”).  Iron Bow was evaluated as the apparent awardee, subject to a supply chain risk assessment.  However, upon conducting the risk assessment, the SSA found that Iron Bow was proposing to supply Lexmark printers, and that Lexmark is owned by Chinese investment firms with connections to the Chinese government.  The SSA also considered Congressional reports that the Chinese government has been engaged in espionage against the United States.  In light of this information, the SSA concluded that Iron Bow’s reliance on Lexmark as its primary supplier presented an unacceptable security risk.

Iron Bow initially filed a GAO protest, which was denied.  In its COFC protest, Iron Bow argued that the SSA irrationally concluded that Lexmark’s owners are controlled by the Chinese government, that Lexmark’s owners have access or influence over Lexmark’s design and manufacturing process, and that the supply chain risk assessment was otherwise irrational and improper.

The Government initially tried to argue that the SSA’s supply chain assessment was beyond judicial review, but the COFC rejected that argument.  Nevertheless, the COFC ruled that the SSA disqualification of Iron Bow’s proposal was rational: “Given the undisputed evidence in the administrative record regarding the Chinese government’s engagement in cyberespionage activities against the United States and these new laws, the SSA reasonably determined that Lexmark’s Chinese ownership presented unacceptable risks to the government’s supply chain.”

COFC Denies Preliminary Injunction in VA Pharmaceutical Protest

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By: Christopher L. Lockwood, April 17, 2018

On March 23, 2018, the COFC released a decision denying the pre-award protest of Acetris Health, LLC (“Acetris”).  The dispute arose from the definition of “U.S.-made end product” set forth at FAR 25.003 and 52.225-5.  Under the FAR, a “U.S.-made end product” is defined as an article that is “mined, produced, or manufactured in the United States or that is substantially transformed in the United States into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was transformed.”

Acetris was the incumbent on a VA contract to supply Entecavir tablets used to treat chronic hepatitis B.  Acetris’s supplier manufactured the tablets in New Jersey, but the active ingredient was sourced from India.  During the initial contract, a dispute arose over whether Acetris’s tablets qualified as a “U.S.-made end product” under the Trade Agreements Act.  Relying on an interpretation from U.S. Customs and Board Protection, the VA determined the tablets were considered a product of India, since the active ingredient came from India, even though the tablets were manufactured in New Jersey.

When the VA issued a solicitation for a new contract, it required offers to identify the country of origin for all active ingredients and to certify that the end product was compliant with the Trade Agreements Act.  In its protest, Acetris argued that the solicitation reflected an erroneous interpretation of the requirements of the FAR as to whether its tablets qualified as a U.S.-made end product.  Nevertheless, the COFC found that the terms of the solicitation mirrored the definitions set forth in  the FAR.  Accordingly, the COFC found that Acetris was unlikely to succeed on the merits of its protest and it declined to enter preliminary injunctive relief.

GAO to Require Electronic Filing and $350 Fee Starting May 1, 2018

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By:  Christopher L. Lockwood, April 17, 2018

Effective May 1, 2018, the GAO will require bid protests to be filed using its new Electronic Protest Docketing System (“EPDS”) and will charge a $350 filing fee for each protest.  Although some had speculated that the purpose of the filing fee was to deter frivolous protests, the GAO has clarified that this is not the intended purpose.  According to the GAO, the fee was derived to help recoup the cost of the new system and is not intended to discourage or reduce the number of protests.  Additionally, the GAO has pointed out that the filing fee will be part of the costs that a successful protestor can potentially recover.

Other highlights of the EPDS system:
  • EDPS will be the exclusive way to file documents with the GAO subject to limited exceptions for (1) classified materials, and (2) documents unsuitable for electronic filing due to size or format;
  • Documents must be filed by 5:30 p.m. Eastern Time (this is different than other filing systems, where documents are timely if filed before midnight);
  • EPDS does not allow document access to non-parties; and 
  • Protestors must continue to provide a copy of the protest to the designated agency representative and/or contracting officer.

When filing a bid protest, it is important to consider the appropriate forum in which to file.  Previously, one of the advantages of filing a GAO protest was that there was no cost to do so.  By comparison, the U.S. Court of Federal Claims requires a $400 filing fee.  Now, however, the difference will only be $50.  An experienced lawyer can help you decide where to file a protest and guide you through the process of what comes next. 

Rich Raleigh Argues VA Bid Protest at the Federal Circuit

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Important Changes for DoD Debriefings and Bid Protests

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By:  Christopher L. Lockwood, December 29, 2017

On December 12, 2017, President Trump signed into law the 2018 National Defense Authorization Act (“NDAA”).  The NDAA contains two important developments affecting bid protests by Department of Defense (“DoD”) contractors.  These changes are aimed at reducing the number of non-meritorious protests by (1) requiring the agency to provide disappointed offerors with more information in pre-protest debriefings, and (2) imposing potential cost-shifting penalties against large contractors who pursue unsuccessful Government Accountability Office (“GAO”) protests.

Section 818 of the NDAA directs the Secretary of Defense to revise the DFARS to require enhanced post-award debriefings for contracts greater than $100 million.  The enhanced debriefing will include, at a minimum, (1) disclosure of the agency’s written source selection award determination, (2) an opportunity for follow-up questions within two business days of the debriefing, and (3) requirement for the agency to provide written responses within five business days, with the debriefing to be held open until such responses are provided. The good news for our small business clients is that you, along with other non-traditional contractors, will be afforded an option to obtain the same debriefing for contracts exceeding $10 million.

The goal of the enhanced debriefing is to provide disappointed contractors with more information by which to make a decision about whether or not to protest a particular award.  Hopefully, it will reduce the number of protests that are filed merely as a means of obtaining information about whether meritorious protest grounds exist.

In addition to the enhanced debriefing requirement, Section 827 the NDAA includes a pilot program where large contractors may be required to pay cost-shifting penalties for filing unsuccessful GAO protests.  The pilot program does not begin until October 2019, but will apply to protests filed by a party with more than $250 million in revenue, where the protest is denied in an opinion by the GAO.

Since the GAO’s “sustain” rate for 2017 was only 17%, this means that a large DoD contractor may face up to an 83% chance of having cost penalties assessed against them in an unsuccessful GAO protest!  As a result, large contractors will need to carefully consider the information available to them through the post-award debriefing before filing a protest with the GAO.  Moreover, since the cost-shifting provision only applies to GAO protests, large contractors may want to give consideration to filing their protest with the Court of Federal Claims as an alternative to the GAO.

Our team has experience with agency-level, GAO, and Court of Federal Claims protests, and we are happy to assist you with any questions you may have. 

10 Useful Tips Concerning IP Rights to Software or Technical Data Delivered Under DoD Contracts

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By:  Jerry Gabig
In 2016, Redstone’s Army & Missile Command (AMCOM) spent $13.4 billion. Other large government procuring institutions in Northern Alabama raise the annual federal spending to as much as $40 billion. Much of what is purchased is technology. Technology acquisitions bring countless intellectual property issues. Here are 10 useful tips:

TIP #1: Even if the software or technical data is developed totally at government expense, the contractor still owns the IP. DFARS § 227.7103-4 “The Government obtains rights in technical data, including a copyright license, under an irrevocable license granted or obtained for the Government by the contractor. The contractor or licensor retains all rights in the data not granted to the Government.”

TIP # 2: “Possession Is 9/10th of the Law.” If software or technical data is not a deliverable, there is nothing on which the government can exercise its rights. FAR § 27.403. “Data rights clauses do not specify the type, quantity or quality of data that is to be delivered, but only the respective rights of the Government and the contractor regarding the use, disclosure, or reproduction of the data. Accordingly, the contract shall specify the data to be delivered.”

TIP #3: Take seriously solicitation clauses requiring the identification of pre-existing IP. These clauses include DFARS § 52.227- 7013(e); DFARS 52.227-7014(e), and DFARS 52.227-7017. An example of unnecessary risk is DFARS §52.227-7013(e)(2): “The Contractor shall not deliver any data with restrictive markings unless the data are listed on the Attachment.”

TIP #4: IP rights typically follow the money.
• Government Unlimited Rights – Developed exclusively with government funds.
• Government Purpose Rights – Mixed funding.
• Government Limited Rights (technical data) – Exclusively at private expense.
• Government Restricted Rights (software) – Exclusively at private expense.
An anomaly is where the development is performed as IR&D. IR&D is treated as if developed exclusively at private expense even though the government often pays for the development as an indirect expense.

TIP #5: Allocation of IP rights is generally made at the lowest segregable level. DFARS § 227.7203-5(b) states: “The determination of the source of funds used to develop computer software should be made at the lowest practicable segregable portion of the software or documentation.”

TIP #6: The Government has a duty to protect the IP of contractors. In 2013, the army agreed to pay Apptricity Corporation $50 million for “pirating” the Apptricity’s logistics software. The army licensed the software for five servers but used the software on 93 servers.

TIP #7: Software can still be “commercial” even if developed totally at government expense. “But the commercial software regulations, unlike the technical data and noncommercial software regulations, do not grant the government different rights based on the commercial software’s source of funding. Instead, they simply require that the software qualify as ‘commercial,’ which includes commercial software that contains ‘minor modification[s],’ regardless of whether those modifications were funded by the government or otherwise. Thus, so long as the Navy Solution qualifies as commercial computer software, it makes no difference whether the Navy paid for any portion of GlobeRanger’s developmental work.” GlobleRanger Corp v. Software AG, 2014 WL 2807324, ND TX June 20, 2014.

TIP #8: The failure to properly mark deliverables with restrictive legends could result in a contractor losing IP rights. DFARS § 252.7013(b)(vi) states that the government has unlimited rights if the data has “been released or disclosed by the Contractor or subcontractor without restrictions….” See also, RESTRICTIVE LEGENDS IN FEDERAL PROCUREMENT: IS THE RISK OF LOSING DATA RIGHTS TOO GREAT? 38 Public Contract Law Journal 895 (Summer 2009).

TIP # 9: Improvements merit close attention. The definition of “developed” in DFARS § 52.227-7013(a), by having a focus on “workability,” resembles the definition frequently used in patent law. Arguably, an improvement is post workability and therefore not developed. Tip #9 works well with Tip #5. For a decision that supports that development ceases upon workability, see Dowty Decoto, Inc. v. Department of the Navy, 883 F.2d 774 (9th Cir. 1989).

TIP #10: IP can be the basis for awarding a sole source contract. FAR § 6.302-1 allows the award of a sole source contract where “only one responsible source and no other supplies or services will satisfy agency requirements.” Subsection (b)(2) further explains that “the existence of limited rights in data, patent rights, copyrights, or secret processes” may be the cause of only one responsible source.

In FN Manufacturing, Inc. v. U.S. & Colt’s Manufacturing, 44 Fed. Cl. 449 (1999), the Court of Federal Claims held that “sole-source contract for supply of M4 carbines represented a lawful exercise of procurement authority under the Competition in Contracting Act, as the government’s acknowledgment in settlement of competitor’s proprietary data rights precluded procurement of the weapon on a competitive basis.”