This week, the State of Hawai`i instituted some of the most sweeping emergency orders in the country in the response to the COVID-19 pandemic. For tourists, tourism, federal employees, federal contractors, and the millions of island residents, this means a very different kind of stay while in paradise.
As most government contractors are aware, progress payments are a form of contract financing in which the Government pays the contractor based on cost throughout performance of the contract, up to a cap dictated by the terms of the contract. On March 20, 2020 – “in response to the Coronavirus Disease” – the Department of Defense issued a Class Deviation to contract clauses DFARS 252.232-7004 and FAR 52.232-16, the effect of which is to increase the progress payment rates to 90% for large business concerns and 95% for small business concerns – an increase of 10% and 5%, respectively – from the customary progress payment rates established by DFARS 232.501-1. The Class Deviation provides that the change is to remain in effect until rescinded.
On Friday, March 20, 2020, the Office of Management and Budget (OMB) issued Memorandum No. M-20-18, titled “Managing Federal Contract Performance Issues Associated With The Novel Coronavirus (COVID-19).” The Memorandum, directed to the heads of all Executive Departments and constituent federal agencies, provides key guidance on maintaining continued contract performance while respecting the need to protect the safety of the contracting community during this unprecedented time. The critical aspects of the Memorandum, accompanied by a contractor “To Do” list, are as follows:
The spread of the COVID-19 virus and the unprecedented steps taken by federal, state and local authorities to contain it by shutting down or significantly altering normal business operations pose great challenges to government contractors in meeting the needs of their universal customer, the U.S. Government. Work spaces are closed. Supply chains are disrupted. Key employees may no longer be available to oversee critical operations – both on and off U.S. Government installations. Here are some proactive measures that contractors can take now to avoid loss and to maximize the potential of obtaining new business opportunities created by the expected exponential increase in government spending:
In the seminal holiday film A Christmas Story, nine-year-old Ralphie Parker uses his diligently earned Little Orphan Annie Secret Society decoder pin to decrypt the secret message from Annie to her fans, only to express disappointment and confusion when he realizes the “secret code” he decrypted is nothing more than a marketing ploy to sell more Ovaltine. Although neither drinking copious amounts of Ovaltine nor possessing a Little Orphan Annie decoder pin are requirements of a federal contractor’s cybersecurity program, the use of encryption—like that employed by Ovaltine and its plucky propagandist—cannot be avoided. The challenge, of course, is approaching encryption in a manner that avoids the same irritating bewilderment experienced by Ralphie Parker. Modern encryption, while inherently and necessarily enigmatic, need not be overcomplicated, and that’s a good thing, because federal contractors, namely Department of Defense contractors, now face specific standards of encryption necessary to meet and maintain certain federal cybersecurity standards or bear the significant risk commensurate with noncompliance. Whether a contractor falls under the auspices of Federal Acquisition Regulation 52.204-21, Defense FAR Supplement 252.204-7012, or the newly unveiled Cybersecurity Maturity Model Certification (CMMC), contractor use of encryption is poised to be a critical element of compliance for the Federal Government over the next decade. This means that contractors must have a working knowledge of federal encryption standards to understand not only how such standards apply to the storage and handling of data but also whether the contractor can truly comply with those standards or have the wherewithal to understand the type of information technology products they are permitted to provide the Government.
The Interagency Edison (“iEdison”) system is the principal mechanism for preserving rights to title in Government-funded inventions. Its use is now mandatory per 37 CFR 401.16, and we expect FAR 52.227-11, Patent Rights – Ownership by the Contractor, to see parallel amendments soon. Despite its use by multiple agencies to satisfy the reporting obligations imposed on funding recipients under the Bayh-Dole Act, most agree and recognize that the system is broken…badly broken.
Federal contractors can finally look forward to simplified small-business mentor-protege programs, but also must become keenly aware of wide-ranging changes affecting certain 8(a) business development and Native American-owned programs, new recertification requirements for certain multiple award contracts, or MACs, and small-business joint ventures.
For several years, we have witnessed the emergence of a statutory and regulatory framework to tighten controls on the export of emerging and critical technology, as well as the review of inward foreign investment into said technology. As was evident in the listing of Huawei and other Chinese technology giants, the United States has demonstrated a willingness to use alternative punitive measures against China. Whether the desired impact of this approach has been achieved is difficult to determine. We have, nevertheless, no reason to believe that the tide will ebb in 2020.
Earlier this month, the Government Accountability Office (“GAO”) issued its annual Bid Protest Report to Congress for Fiscal Year 2019. Mandated by the Competition in Contracting Act, the GAO’s yearly Bid Protest Report presents unique insight into the underlying GAO bid protest metrics over the course of a fiscal year, along with data on five-year trends in the GAO’s bid protest adjudication. The following chart provides a snapshot of the GAO’s statistics from FY 2019 through FY 2015:
One of the bedrock principles of federal contracting is the demand for “full and open competition through the use of competitive procedures.” In order to foster competition and reduce costs, the Competition in Contracting Act was passed into law in 1984 in an effort to enhance competition in procurements and thereby reduce costs, eliminate waste and abuse, and protect taxpayer dollars. The effort to root out corruption and promote competition continues with the recent announcement by the Department of Justice (DOJ) of the newly formed Procurement Collusion Strike Force (“Strike Force”), with additional details and training materials—and an imposing antitrust violation complaint form—available on its recently launched website.