United States: Government Contracts Legal Round-Up | 2022 Issue 22

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.

DFARS Cost and Pricing Rule Amendments

• DoD recently issued two final rules that amend the DFARS requirements related to contract cost and pricing.
• The first rule prohibits the contracting officer from determining that the price of a contract or subcontract is fair and reasonable based solely on the historical prices paid by the Government. Furthermore, an offeror is ineligible for award unless the head of the contracting activity determines it is in the best interest of the government if: 1) the contracting officer cannot determine whether proposed prices are fair and reasonable by any other means, and 2) the offeror does not make a good faith effort to comply with a reasonable request to submit data other than certified cost and pricing data. If a contractor received award, but denied multiple requests for submission of data over the preceding three-year period, the CPARS evaluations must note this fact, unless exempted by the head of the contracting activity.
• The second rule repeals preferences for the use of fixed-price contracts, including fixed-price incentive contracts, and also removes the requirement that cost-reimbursement contracts greater than $25 million be approved by the head of the contracting activity.

Contractors should be aware of the new obligation under the first rule to cooperate in good faith with "reasonable requests" for data other than certified cost and pricing data. Contractors who fail to do so may be ineligible for award or marked accordingly in CPARS evaluations. Under the second rule, contractors may see an increase in the use of cost-reimbursement contracts, although whether contracting activities make use of this newfound flexibility remains to be seen.

Protest Cases

1. Securitas Critical Infrastructure Services, Inc.--dba Paragon Investigations, B-420908 et al., (October 26, 2022) (Published November 7, 2022)

• GAO denied a protest from an offeror excluded from the competitive range alleging that the agency failed to conduct meaningful discussions where the agency had in fact not conducted any discussions.
• Under the solicitation, offerors rated as acceptable under the first two pass/fail factors would be invited to provide oral presentations and address three technical capability subfactors.
• After each prepared presentation, the agency would conduct an interview during which the offeror would respond to questions for which it had not received advance notice.
• The agency evaluated the putative protester as unacceptable under the technical capability factor, assigning one deficiency and four significant weaknesses.
• GAO denied the protest alleging that the agency had failed to engage in meaningful discussions with the protester because the agency had not afforded the opportunity to address the deficiency and significant weaknesses.
• GAO explained that the interviews were not discussions because the standard questions posed were not reflective of the contents of the oral presentation that was just delivered. Moreover, the interviews were conducted prior to evaluation of proposals, which would have made it impossible to require offerors to address adverse evaluation findings.

As a general matter, where there is a dispute regarding whether an exchange between an agency and an offeror constitutes discussions, the acid test of whether discussions have occurred is whether the offeror has been afforded an opportunity to revise or modify its proposal.

2. Orlans PC, B-420905 (October 25, 2022) (Published November 2, 2022)

• GAO sustained a bid protest challenging the terms of a solicitation for commercial services where the record did not show that the agency performed adequate market research to demonstrate that the terms were consistent with customary commercial practice.
• Here, the Department of Agriculture sought to acquire nationwide default management services. Relying upon a sworn affidavit, Orlans contended that certain pricing and payment terms were inconsistent with customary commercial practice and unduly restrictive of competition. In response, the agency claimed that their market research did not identify any customary commercial practices, and that the solicitation provisions were standard with their prior contracts.
• GAO agreed with Orlans, first finding that the company's protest provided enough detail to be legally and factually sufficient to meet GAO's jurisdictional standards. On the substance, GAO concluded that the agency's market research did not demonstrate either what customary commercial practices are or that no customary commercial practices exist, because the questions asked to potential vendors could not be fairly read to seek—and the responses could not be fairly read to supply—information regarding standard industry practices with respect to the pricing methodology for these services. Moreover, the agency could not rely upon its other government contracts as a basis for establishing customary commercial practice.

3. Cellco Partnership dba Verizon Wireless, B-420911 (November 1, 2022) (Published November 4, 2022)

• GAO denied a bid protest challenging the terms of a solicitation for commercial services where the record showed that the agency performed adequate market research to demonstrate that the terms were consistent with customary commercial practice.
• Here, the Department of Veterans Affairs (VA) sought to acquire enterprise-wide mobile communications devices and services. Verizon alleged that certain of the agency's requirements were inconsistent with customary commercial practice, and that the VA's market research indicating otherwise was flawed.
• GAO found that the record showed that the agency exercised due diligence in seeking to establish the commerciality of its solicited requirements through multiple rounds of inquiries to the major commercial communications carriers capable of performing this work. GAO also concluded that the record demonstrated that the solicited products and services were commercially available, as the definition of the terms "commercial product" and "commercial service" do not stipulate any particular market share thresholds for establishing commerciality but provide generally only that the product be sold, leased, licensed, or provided to the general public and that the service is offered and sold competitively in substantial quantities in the commercial marketplace.

When protests challenge solicitations for commercial services, GAO will carefully scrutinize both the industry information set forth by the protester and the validity of an agency's market research. Protesters are well-served to provide as much detail as possible regarding industry standards to support its contentions.

Claims Cases

1. The Centech Group, Inc. v. United States, COFC No. 19-1752 (November 8, 2022)

• In this case, the US Court of Federal Claims (COFC) issued another decision reminding contractors about the importance of satisfying the basic requirements of the Contract Disputes Act (CDA).
• Following the United States Air Force's (USAF) decision to cancel a contract for installation of communications infrastructure and delivery of related materials, the Centech Group filed suit at COFC on behalf of its subcontractor which was scheduled to do the installation and delivery work.
• Crucially, however, although Centech filed its certified claim with the USAF contracting officer (CO), which the CO denied, and Centech properly filed its complaint in a timely manner, Centech amended its complaint during the course of the COFC litigation and added claims which never had been properly presented to the CO.
• The Government moved to dismiss on that basis for lack of subject-matter jurisdiction due to Centech's failure to satisfy the CDA's jurisdictional prerequisites and COFC granted the Government's motion.
• Notably, in granting the Government's motion to dismiss, COFC expressly rejected Centech's argument that "an action brought pursuant to the CDA need only be 'based' on the claim presented to the CO and the language of the complaint need not mirror that of the claim" and similarly dismissed the argument that Centech's additional claims were simply an "enlargement" of its existing claim.
• Instead, Judge Dietz held that although a complaint filed with COFC or the Boards of Contract Appeals need not be identical to the certified claim, it still must be the same claim that was presented to the CO and cannot be a "new claim . . . based on different factual grounds and seek[ing] different categories of relief based on a different set of operative facts," as it was in that case.

This decision serves as another reminder that contractors should pay close attention to the basic CDA requirements when submitting a claim. Although experienced contractors are well-versed in claims basics, recent cases at COFC and the Boards demonstrate that even sophisticated contractors can lose out on substantial recovery efforts due to procedural or other requirements. Jenner & Block's government contracts attorneys possess deep experience with all aspects of claims and can aid contractors in avoiding procedural and jurisdictional CDA pitfalls.

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.