Gordon Rees Scully Mansukhani announces the latest update from the firm's Government Contracts practice group, bringing you an overview of recent notable decisions, rule updates, and other critical information related to contracting with federal and state governments. Our team compiled the most pertinent legal developments in the ever-evolving landscape of government contracts to keep you informed. Please contact Patrick Burns or Meredith Thielbahr for further information regarding the cases and administrative actions highlighted below.
Recent Cases/Decisions:
Federal Circuit: Lessons from MPG West v. Secretary of Defense
- In this Contract Disputes Act (“CDA”) matter on appeal, the Federal Circuit reviewed several claimed errors raised by the plaintiff-contractor concerning a firm-fixed price contract for supplying fresh fruits and vegetables to the Defense Commissary Agency (“DeCA”) commissaries in Japan and South Korea. While the court ruled in favor of the contractor on one issue, resulting in a remand to the Armed Services Board of Contract Appeals (“ASBCA”), it noted several missteps attributable to the contractor that complicated contractual performance.
- The focus of the contractor’s argument concerned the “extremely high” produce prices during contractual performance. The high prices, in combination with the firm-fixed pricing structure, forced the contractor to sell below cost, thereby incurring a loss. However, the contractor never implemented a local sourcing plan as required by the contract. Instead, it relied heavily on importing produce from the U.S. and Mexico, which led to high transportation costs and inflated prices. The court found that the contractor made a business decision to import items at greater costs and never addressed the feasibility of such a plan before the ASBCA.
- The contractor also claimed that DeCA had an affirmative duty to determine the feasibility of performance prior to issuing the solicitation. Generally, firm-fixed price contracts shift the burden of performance costs to the contractor. As such, the court found no authority for the proposition that an agency must perform pre-solicitation market research concerning anticipated costs incurred by a contractor.
- Despite the court’s disagreement with the contractor on most issues, it held that the ASBCA failed to address whether the contract mandated the import of a certain produce item due to a vendor listed as a sole source supplier.
Citation: MPG W., LLC v. Sec'y of Def., No. 2023-1430, 2024 WL 2239021 (Fed. Cir. May 17, 2024).
Government Accountability Office: Protest Sustained Due To DHS Trade-Off Analysis Errors
In a recent protest decision, the Government Accountability Office (“GAO”) sustained a protest concerning the Department of Homeland Security's (“DHS”) unreasonable task order award. The solicitation concerned financial and program management support services for DHS’s countering weapons of mass destruction (“CWMD”) office. The case highlights critical errors made by DHS in evaluating proposals and conducting a best-value tradeoff analysis, resulting in prejudice to the protestor, as set forth below.
- Unreasonable Assignment of a Positive Rating: DHS erred by assigning a positive rating to the awardee’s proposal for its proposed audit tool regarding a certain program not set forth in the solicitation. The agency apparently confused references in the awardee’s proposal with solicitation requirements due to the use of an identical acronym that applied to two separate programs. The protestor argued, and GAO agreed, that DHS's evaluation misunderstood the protestor’s proposal, rendering the assignment of the positive rating unreasonable.
- Failure to Recognize Discriminators Between Proposals: The GAO found that DHS also failed to reasonably identify key discriminators between the proposals. For example, the protestor’s staffing plan provided for two senior certified public accountants (as mandated by the solicitation), while the awardee proposed only one. Despite these differences, DHS evaluated both proposals as merely meeting requirements without qualitatively assessing—and documenting—these significant factors.
- Flawed Tradeoff Analysis: The flaws in DHS’s proposal evaluations directly impacted the best-value tradeoff analysis. DHS justified awarding the contract, despite the awardee’s higher price, based on perceived additional benefits in the awardee's proposal. However, the GAO found that DHS's analysis was flawed due to the unreasonable assignment of a positive rating and the failure to consider critical discriminators.
Citation: ITility, LLC, B-421871.3; B-421871.4 (May 3, 2024).
Proposed Agency Regulations:
Proposed DoD Rule on Semiconductor Procurement
- The Department of Defense (“DoD”), along with the General Services Administration (“GSA”) and the National Aeronautics and Space Administration (“NASA”), is taking steps to address significant national security risks associated with the procurement of semiconductors. Semiconductors are critical to both America's economy and national security, powering everything from consumer electronics and automobiles to military systems and critical infrastructure. Recognizing their importance, Congress included a prohibition on certain covered semiconductors in the National Defense Authorization Act (“NDAA”) for Fiscal Year 2023.
- This prohibition prevents agencies from procuring or renewing contracts for electronic parts, products, or services that include covered semiconductor products or services. Covered semiconductors, as defined in the NDAA, include those designed, produced, or provided by entities like Semiconductor Manufacturing International Corporation, ChangXin Memory Technologies, and Yangtze Memory Technologies Corp, among others connected to governments of concern such as China, Russia, North Korea, and Iran.
- The new rule mandates that contractors must ensure their products do not include these prohibited semiconductors, requiring thorough supply chain verification. To implement this, DoD, GSA, and NASA plan to incorporate specific certification and compliance clauses into all federal contracts, with the goal of ensuring adherence to these new standards to protect U.S. national security interests.
- Comments are due by July 2, 2024. Contact the GRSM Government Contracts practice group for additional details of the proposed rule and comment submission.
DoD Seeks Public Input on AI Integration in Defense Systems
- The DoD Office of Industrial Base Resilience understands the critical role of integrating artificial intelligence (“AI”) into defense systems for national security. The government recognizes that the Defense Industrial Base (“DIB”) is key to developing, manufacturing, and maintaining the systems used by the U.S. military. The DoD collaborates with the DIB with the goal of swiftly adopting AI technologies, ensuring the U.S. maintains its tactical advantage.
- Recognizing the need for investment in AI capabilities, the DoD supports initiatives outlined in two recent Executive Orders (14017 and 14110). In conjunction with the Executive Orders, the 2024 inaugural National Defense Industrial Strategy (“NDIS”) further emphasizes the modernization of the DIB and the importance of robust supply chains in the context of AI. Additionally, the DoD’s Data, Analytics, and AI Adoption Strategy advocates for a comprehensive AI approach that includes data, analytics, rapid R&D, and integration with allies.
- The DoD seeks public comments to better understand the resources needed by the DIB for AI integration and to aid in developing a trusted AI DIB roadmap. This roadmap will address short-, mid-, and long-term considerations for AI-enabled defense systems. Public input is specifically requested on policy goals from the Executive Orders, the NDIS, and the AI Adoption Strategy, which directly impact the DIB's ability to incorporate AI into defense applications. The Department invites written comments with the goal of ensuring a well-rounded perspective on these crucial policy directives.
- Comments are due by July 22, 2024. Contact the GRSM Government Contracts practice group for additional details of the proposed rule and comment submission.
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.
Contacts:
Patrick Burns - pburns@grsm.com
Meredith Thielbahr - mthielbahr@grsm.com
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