Government Contracts Legal Round-Up – 2024 Issue 10

Federal Circuit Docket

Percipient.ai, Inc. v. United States, Fed. Cir. No. 2023-1970 (Jun. 7, 2024)

• In a highly anticipated bid protest opinion, a divided merits panel of Federal Circuit judges reversed the Court of Federal Claims' decision that had dismissed claims brought by Percipient.ai challenging an agency's compliance with its obligation to prioritize the use of commercial software solutions during performance of a task order.
• To reach the result, the majority opinion appears to recognize previously unidentified exceptions to the task order protest bar and bid protest standing requirements; the dissenting opinion criticizes the majority for departing from prior precedent.
• Given the significance of the issues and the divided opinion, it is likely that at least one party will seek en banc review from the full Federal Circuit.

Stay tuned for more news and analysis relating to this important bid protest litigation. While this case is sure to have a significant impact on bid protest procedure, if not the procurement system as a whole, the Federal Circuit's latest opinion is unlikely to be the final decision on these issues.

Claims Updates

Avant Assessment, LLC v. United States, No. 20-1185, Fed. Cl. (May 7, 2024)

• The Court of Federal Claims dismissed Avant's United Commercial Code (UCC) claims for failure to satisfy the presentment requirements of the Contract Dispute Act (CDA).
• After the Army terminated Avant's contract for default, Avant successfully challenged that termination before the board, who ordered the termination for default be converted to a termination for convenience.
• In seeking damages before the board however, "Avant sought relief different than it sought from the contracting officer," and the board dismissed much of Avant's claims for lack of jurisdiction. Avant submitted new claims to the contracting officer and appealed their denial to the court.
• Judge Meyers dismissed most of Avant's claims on res judicata grounds, save for two claims based on UCC violations.
• The government moved to dismiss those two claims on the basis that Avant never presented those arguments to the contracting officer in the form of a CDA claim, and the court agreed.
• The court highlighted that while the Federal Circuit has taken a "fresh look at a number of its prior jurisdictional holdings," the CDA's claim presentment requirement remains a jurisdictional question," noting that, in any event, Avant's case would also be "ripe for dismissal" under Rule 12(b)(6).

Avant is a good reminder that new theories of relief that become apparent during discovery must be carefully assessed to determine whether those arguments must be presented to a contracting officer in the form of a new claim. While there is some debate as to whether the CDA claim presentment rules are jurisdictional or not, the rule is nevertheless mandatory, and failure to properly present a claim will often result in dismissal.

FedResults, Inc. v. Department of the Interior, CBCA 7966 (May 6, 2024)

• FedResults, Inc. (FRI) had two task orders with the Department of the Interior (DOI) to provide software services to the Small Business Administration (SBA) through a subcontractor.
• FRI filed a notice of appeal with the CBCA to recover amounts due for the SBA's use of the software that exceeded what was authorized under the contract. The notice of appeal did not specify the dollar amount that FRI was seeking and stated that FRI had submitted a certified claim to the contracting officer that was denied; however, FRI attached the wrong contracting officer's final decision—denying a different claim—to the notice of appeal.
• Before realizing its mistake, FRI requested that the board designate its notice of appeal as the complaint. FRI later amended the complaint to remedy the error. DOI moved to dismiss the appeal on the basis that FRI had failed to state a sum certain.
• The board denied DOI's motion to dismiss. The CBCA noted that to the extent that FRI's initial mistake in attaching the wrong contracting officer's final decision created confusion about the claim or amount at issue, FRI had amended the complaint to fix the problem and. in any event, the defect was not jurisdictional.
• The CBCA also recognized that while the notice of appeal to the board did not specify the exact dollar value of the claim, the FAR only imposed a requirement to include a sum certain in the contractor's claim to the contracting officer, not in the notice of appeal to the boards. Because FRI had provided a specific dollar amount in the certified claim to the contracting officer, the sum certain requirement was satisfied.

Contractors should ensure that their submissions to the boards are error free to avoid unnecessary jurisdictional disputes with the government. Nonetheless, it is important to remember that not all defects in a notice of appeal are fatal.

Small Business Regulatory Update

SBA Proposed Rule Would Change WOSB Program Regulations (May 16, 2024)

On May 16, 2024, the SBA proposed a rule that would make several changes to the SBA's Women-Owned Small Business Federal Contract (WOSB) Program regulations. These changes include:

Altering several definitions included in the regulations:

• "Applicant"
  • A firm applying for certification in the WOSB Certification Program.
• "Interested party"
  • A concern certified as, or pending certification as, a WOSB or Economically Disadvantaged Women-owned Small Business (EDWOSB) that submits an offer for a specific EDWOSB or WOSB requirement (including multiple award contracts), any concern that submitted an offer in a full and open competition and its opportunity for award will be affected by a reserve of an award given to a WOSB or EDWOSB, the contracting activity's contracting officer, or SBA.
• "System for Award Management (SAM) (or any successor system)"
  • The primary government repository for prospective federal awardee and federal awardee information and the centralized government system for certain contracting, grants, and other assistance-related processes.
  • "Removing the definition for "WOSB Program Repository"
• Conforming the regulations to current statutes that have not yet been integrated.
• Adopting similar language to that used in SBA's other government contracting program regulations regarding the length of time that a firm that has been declined three times must wait before reapplying to the WOSB Program, and limits on outside employment.

The agency requests comment on all aspects of this proposed rule. Comments must be received on or before July 15, 2024. You may submit comments, identified by RIN 3245-AI04 or Docket No. 2024-0004, by any of the following methods:

• Federal eRulemaking Portal: https://www.regulations.gov and follow the instructions for submitting comments.
• Mail (for paper, disk, or CD-ROM submissions): Harry T. Alexander Jr., Business Opportunity Specialist, Office of Contracting Assistance, US Small Business Administration, 409 Third Street SW, Washington, DC 20416.

SBA Proposes a Direct Final Rule Eliminating Self-Certification for Service-Disabled Veteran-Owned Small Businesses (Jun. 6, 2024)

• On June 6, 2024, the Small Business Administration (SBA) proposed a direct final rule amending the regulations governing the SBA's Veteran Small Business Certification (VetCert) Program.
• This direct final rule revises SBA's regulations to implement a provision in the National Defense Authorization Act for Fiscal Year 2024 (NDAA 2024), which eliminates self-certification for service-disabled veteran-owned small businesses that are awarded federal government contracts or subcontracts that count towards agency or subcontracting goals.
• Any adverse comments must be received no later than July 8, 2024. If significant adverse comment is received, the SBA will publish a timely withdrawal of the rule in the Federal Register.
• If no adverse comments are received, this rule will become effective on August 5, 2024, without further action.

Protest Updates

Spatial Front, Inc., B-422058.2, B-422058.3 (May 21, 2024)

• GAO sustained a protest challenging the award of a federal supply schedule (FSS) order where the USDA did not analyze whether the labor categories (LCATs) in the awardee's schedule contract are within the scope of the RFQ's required services.
• When agencies place orders under an FSS contract, all goods or services quoted must be on a vendor's schedule contract as a precondition to it receiving an order.
• The protester argued that the awardee's quotation should have been deemed ineligible because the LCATs in the awardee's schedule contract did not encompass the required specialized geospatial IT services.
• USDA argued that it was not required to perform a labor category mapping, pointing out that the solicitation was amended to remove an express requirement to demonstrate LCAT alignment.
• GAO disagreed, explaining that "regardless of whether a solicitation requires vendors to submit labor category mapping, ordering agencies are obligated to make certain that all of the services included in a vendor's quotation are within the scope of the vendor's FSS contract." Because USDA failed to consider whether the awardee's proposed LCATs encompassed the required services, GAO could not find reasonable the agency's conclusion that the awardee was eligible for award.

When a concern arises that a vendor is quoting services outside the scope of its FSS contract, the relevant inquiry is not whether the vendor is willing to provide the services the agency is seeking, but whether the services are actually included on the vendor's FSS contract. The fact that a vendor may state in its quotation that it is willing, and in fact is able, to provide the solicited services does not obviate an ordering agency's obligation to make certain that all of those services are within the scope of the vendor's FSS contract.

Fox Logistics & Construction Company v. United States, No. 18-1395 (May 31, 2024)

• Fox Logistics & Construction Company performed as a subcontractor for prime contractor Lakeshore Engineering Inc. to build an Air Force base in Afghanistan. Fox performed most of the work; however, Lakeshore experienced cash flow issues and could not pay Fox.
• To resolve this issue, the government agreed to deposit future payments into a new bank account that allowed the Air Force to view the account and monitor transactions. Lakeshore would use the funds in this account to pay Fox.
• This payment arrangement worked for some time until Lakeshore declared bankruptcy and abandoned the project. Lakeshore owed Fox over $3 million. In September 2018, Fox filed a complaint against the government in the US Court of Federal Claims seeking the unpaid funds.
• Fox argued that it had an implied in fact contract with the government to ensure it received payments. The court rejected this argument, holding that there was no evidence that Fox and the government ever had a mutuality of intent to enter into a contract that the government would pay Fox directly when Lakeshore encountered financial difficulty. Rather, when Fox proposed that the government take certain actions to ensure payment during Lakeshore's financial difficulties (e.g., Fox's demand that it be paid before it returned to work), the government rejected these proposals. The court found that this indicated there was no meeting of the minds between Fox and the government.
• The court also rejected Fox's argument that it was a third-party beneficiary of the Lakeshore payment arrangement, holding that there was never any change to the contract that indicated an intent to make Fox a beneficiary. The court found that the government never agreed to pay Fox directly and the government's payment arrangement with Lakeshore was not a change to the contract, but rather a rational exercise of the contracting officer's authority under the terms of the existing contract to enforce Lakeshore's payment obligations. Moreover, Fox knowingly agreed to the payment arrangement under which Lakeshore, and not the Air Force, would continue to pay Fox.

For subcontractors, this case underscores the importance of creating a direct and legal liability with the government in the event that the prime contractor is unable to pay the subcontractor for its performed work on a contract.

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