October Government Contractor Update: Cases, Rules, and Regulations Discussed in Our Latest Podcast

Tune in to our podcast for an overview of the October updates impacting government contractors highlighted below.

Agency Regulations:

DoD – Defense Federal Acquisition Regulation Supplement: Assuring Integrity of Overseas Fuel Supplies

Overview: The Department of Defense (“DoD”) issued a final rule amending the Defense Federal Acquisition Regulation Supplement to implement Section 843 of the National Defense Authorization Act for Fiscal Year 2022. This rule introduces important certification requirements for contractors providing fuel for overseas contingency operations, ensuring compliance with export control and anticorruption laws.

Key Changes:

• Certification on Fuel Sourcing: Offerors must certify that fuel supplied under a contract for an overseas contingency operation is not sourced from prohibited nations or regions. This includes fuel and derivatives of fuel that exceed the simplified acquisition threshold.
• Compliance with Export Control and Anticorruption Laws: Contractors must comply with relevant export control and anticorruption statutes and regulations, and they may be required to provide documentation to verify compliance upon request by the contracting officer.
• Tradeoff Process Requirement: When selecting contractors for fuel acquisitions in support of overseas operations, contracting officers must consider using a tradeoff process and specific evaluation factors. If a tradeoff process is not considered, the officer must justify and obtain approval for this decision.
• Prohibition on Unsupported Disqualification: Contracting officers are prohibited from disqualifying an offeror based solely on an unsupported denial of access to facilities or equipment by a host nation.

Impact: This final rule directly impacts contractors involved in fuel acquisitions for overseas contingency operations. Contractors must be prepared to certify their fuel sourcing and demonstrate compliance with export and anticorruption regulations. Additionally, the rule imposes new procedural requirements on contracting officers, including justification for not using tradeoff processes in source selection. Contractors should ensure their compliance systems are robust and ready to meet these new certification requirements.

Effective Date: October 1, 2024

DoD – Transactions Other Than Contracts, Grants, or Cooperative Agreements for Prototype Projects

Overview: The DoD proposed updates to 32 CFR Part 3, which governs Other Transaction (“OT”) authority under 10 U.S.C. 4022. OTs are unique legal instruments that allow the DoD to acquire cutting-edge technologies from nontraditional defense contractors and small businesses. These agreements provide flexibility by bypassing the complex requirements of traditional procurement contracts, grants, and cooperative agreements.

The updates aim to align existing regulations with current statutory authority, including Section 4022, which replaced Section 845 of the National Defense Authorization Act of 1994. While many of the previous provisions remain, the proposed rule incorporates significant updates related to cost-sharing, competition requirements, and follow-on production contracts.

Key Changes:

• Update to 10 U.S.C. § 4022: The proposed rule updates 32 CFR Part 3 to align with the current OT authority under 10 U.S.C. § 4022, replacing outdated references to previous statutes.
• Prototype Projects: The definition of what constitutes a prototype project is expanded to include proofs of concept, models, reverse engineering efforts, pilots of commercial technologies for defense purposes, agile development activities, and more.
• Elimination of Mandatory Cost-Sharing: When a nontraditional defense contractor or a small business participates significantly in a project, the requirement for cost-sharing is waived.
• Exceptional Circumstances Justification: Senior procurement executives can now justify the use of OTs without cost-sharing under exceptional circumstances, such as expanding the defense supply base in ways not practical under traditional contracts.
• Limitation on Cost-Sharing: Clarifies limitations and shifts approval authority for cost-sharing limitations to higher-level officials when necessary.
• Non-Competitive Follow-On Awards: Allows for non-competitive follow-on production OTs or contracts if the prototype project was competitively awarded and successfully completed.
• Consortium Awards: Introduces provisions for awarding follow-on production contracts or OTs to consortiums, even if not all consortium activities are completed, provided individual prototype projects are successful.
• New Authority for GFE: Explicitly allows prototypes and follow-on production items to be provided as government-furnished equipment to support other contractors or performers of OTs.

Impact: The proposed updates to Title 32 CFR Part 3 will impact several groups, including nontraditional defense contractors, who will benefit from reduced regulatory burdens, and small businesses, which can participate in defense projects without mandatory cost-sharing when they are significantly involved. Defense contractors, both traditional and nontraditional, working on prototypes or follow-on production contracts must adhere to new OT guidelines. Consortiums may also benefit from flexible follow-on production contracts even if not all consortium projects are completed. Government contracting officers will have new responsibilities related to competition, justifying awards, and overseeing compliance. Additionally, DoD acquisition personnel will need to follow updated procedures for planning and awarding OT agreements.

Relevant Date: Comments must be received by November 4, 2024

Recent Cases/Decisions:

Joint Venture Dispute Leads to ASBCA Dismissal for Lack of Jurisdiction

Issues Considered: The core issue in this Federal Circuit case was whether Contrack Watts, Inc. (“CWI”), acting on behalf of a joint venture with Uejo Kogyo K.K. (“UK”), had the authority to submit a claim to the U.S. Army Corps of Engineers under the Contract Disputes Act (“CDA”) without the consent of its joint venture partner, UK.

Overview: CWI and UK entered into a joint venture to bid for and execute a federal construction contract in Japan. According to the joint venture agreement, decisions related to the contract required consensus between both parties, and no party could unilaterally bind the joint venture.

Despite such requirement, CWI submitted a claim to the government under the CDA without obtaining UK’s approval, leading to a jurisdictional challenge before the Armed Services Board of Contract Appeals (“ASBCA”).

Allegations: CWI argued that as the “Lead Party” under the joint venture agreement, it had the authority to submit the claim without UK’s approval. UK, in contrast, contended that the submission of the claim violated the joint venture agreement’s requirement for consensus, as UK had expressly objected to the claim.

Initial Ruling: The ASBCA dismissed the case, ruling that the claim was unauthorized because it lacked the required consent from both parties. As a result, the board concluded that it lacked jurisdiction under the CDA.

Key Findings – Federal Circuit Court: On appeal, CWI asserted that its role as the “Lead Party” granted it the authority to act unilaterally in submitting the claim. However, the Federal Circuit affirmed the ASBCA’s dismissal, holding that the joint venture agreement explicitly required joint written consent for actions taken on behalf of the venture, including submitting claims. The court found no provision in the agreement that allowed CWI to act unilaterally in matters related to the contract. Additionally, the court noted that the agreement required unanimous decisions by the joint venture’s supervisory board. Since UK had not agreed to the claim, the court concluded that the claim was invalid, and the ASBCA lacked jurisdiction to hear the appeal.

Citation: Contrack Watts-Uejo Kogyo v. Secretary of the Army, No. 2023-1373, 2024 WL 4198456 (Fed. Cir. Sept. 16, 2024).

Court of Federal Claims Tackles Bid Protest Regarding SAM Registration Deviations

Issues Considered: This case revolves around a bid protest filed by Zolon PCS II, LLC (“Zolon”) against the National Geospatial-Intelligence Agency’s (“NGA”) decision to take corrective action on its solicitation for management support services. Specifically, the NGA allowed for a deviation from the System for Award Management (“SAM”) registration requirements, which Zolon contended was arbitrary, capricious, and, therefore, improper. The protest also focused on the fairness of the solicitation amendments and whether the corrective action violated Federal Acquisition Regulation (“FAR”) regulations.

Overview: The NGA issued a solicitation for management support services and awarded contracts to five offerors. Zolon, an unsuccessful bidder, filed a protest with the GAO, arguing that some awardees were ineligible due to lapses in their SAM registration, which is mandatory under FAR 52.204-7(b)(1). In response, the NGA took corrective action, including a deviation from the SAM registration requirement, which altered the solicitation by removing the obligation of continuous registration between proposal submission and award. Zolon subsequently challenged the NGA’s deviation in the Court of Federal Claims.

Allegations: Zolon argued that the NGA’s decision to issue a deviation from SAM requirements, along with the related amendments to the solicitation, was unlawful and violated federal procurement regulations.

Key Findings – Court of Federal Claims:

• SAM Registration Requirement: The court held that under FAR 52.204-7(b)(1), offerors are required to maintain continuous SAM registration from the time of offer submission through the award. The NGA’s deviation from this requirement was found to be arbitrary and capricious, as it contradicted the plain language of the regulation.
• Deviation from FAR: The court ruled that the NGA’s decision to issue a deviation allowing offerors to bypass the continuous SAM registration requirement lacked a rational basis and improperly sought to favor certain awardees who had registration lapses.
• Prejudice to Zolon: The court determined that Zolon was prejudiced by having to compete against ineligible offerors whose proposals should have been disqualified for failing to meet the SAM registration requirement.
• Injunctive Relief: The court granted injunctive relief, preventing the NGA from proceeding with its corrective action and requiring that any future evaluations adhere to the original SAM registration rules.

Citation: Zolon PCS II, LLC v. United States, No. 23-1420, 2024 WL 4132156 (Fed. Cl. Aug. 29, 2024).

GAO Sustains Protest on Ambiguity in Labor Harmony Agreement Clause

Overview: In this bid protest matter before the Government Accountability Office (“GAO”), MAXIMUS Federal Services, Inc. (“MAXIMUS”) protested solicitation terms issued by the Centers for Medicare and Medicaid Services (“CMS”) for contact center operations. Specifically, the solicitation included a Labor Harmony Agreement (“LHA”) clause, which required contractors to negotiate agreements with labor organizations to ensure uninterrupted services.

Allegations: MAXIMUS, the incumbent contractor, raised several challenges, including the argument that the LHA clause was vague and ambiguous. The GAO sustained the protest in part, primarily focusing on MAXIMUS’s contention that the LHA clause was ambiguous in defining the time period for negotiating an agreement.

Key Findings – GAO: The GAO found that the CMS clause did not clearly specify the duration for the apparent successful offeror to negotiate and finalize a pre-award LHA with any labor organization seeking to represent its employees. This ambiguity created uncertainty for contractors like MAXIMUS, who could not adequately plan for potential labor negotiations. GAO noted that the RFP referenced a 120-day timeline for post-award LHA negotiations but did not clearly extend or explain how this timeline applied to pre-award agreements.

Impact: This lack of clarity could disadvantage contractors who need to understand their obligations during the bidding process, especially those without unionized workforces. Without clear guidelines, contractors could face significant challenges in preparing for and conducting LHA negotiations, impacting their ability to meet solicitation requirements and compete effectively.

Recommendation: GAO recommended that CMS revise the solicitation to clarify the timeline for negotiating and finalizing an LHA. Specifically, the agency should clearly define the deadline for an apparent successful offeror to negotiate a pre-award LHA if a labor organization has demonstrated intent to represent the contractor’s employees. This recommendation aims to ensure transparency and fairness in the procurement process.

Citation: MAXIMUS Federal Services, Inc., B-422676 (Sept. 16, 2024).

GAO Sustains Protest Concerning OCI Mitigation Issue

Overview: Kropp Holdings, Inc. (“KHI”) protested the Defense Logistics Agency’s (“DLA”) award of a contract to Associated Energy Group, LLC (“AEG”) for managing the AIR Card program. The program allows the DoD to purchase aviation fuel and related services at commercial airports.
Allegations: KHI, the incumbent contractor, raised concerns about an organizational conflict of interest (“OCI”) in AEG’s proposal due to AEG’s role as both a fuel supplier and AIR Card program administrator. KHI also challenged DLA’s evaluation of both KHI’s and AEG’s proposals, alleging unequal treatment and unreasonable evaluations.

AEG’s Proposed Solution: AEG’s proposal acknowledged a potential OCI, as the company would oversee a program where it also supplies fuel. To address this, AEG proposed creating a separate division that would be firewalled from its fuel supply operations.

Findings – GAO: GAO found that DLA reasonably accepted AEG’s mitigation plan but faulted the agency for not adequately considering how the OCI mitigation affected AEG’s technical approach, particularly regarding subcontractor duties in managing certain transactions.

Recommendation: GAO recommended that DLA reevaluate AEG’s proposal, particularly with respect to how the OCI mitigation plan aligns with the firm’s technical capabilities, and make a new award decision after the reevaluation. However, GAO denied other aspects of the protest, including KHI’s challenges to DLA’s evaluations of both proposals.

GRSM Government Contracts Practice Group

GRSM’s government contracts team has considerable experience defending and enforcing the rights of our contractor clients in disputes against government entities and private businesses. In addition to litigating claims in state and federal courts, we routinely handle matters before administrative tribunals, such as the Government Accountability Office, the Small Business Administration, and the Armed Services Board of Contract Appeals.

Our team of attorneys is located throughout the United States, which allows the firm to represent contractors, regardless of size, and in a wide variety of industries, including defense, information technology, construction, and aerospace, among others. Please contact the authors with any questions. GRSM would like to acknowledge the significant contributions to this update by Quyen Dang.

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