Morrison Foerster’s Government Contracts Insights provides our in-depth analysis of developments and trends impacting government contracting. Through Insights, our attorneys offer a real-time assessment of the statutory, regulatory, legal, and business-related developments and trends that are shaping the industry. We also examine a full array of non-U.S. public procurement issues, mindful that our clients compete in a global marketplace.Morrison Foerster’s nationally recognized Government Contracts and Public Procurement practice represents the world’s leading companies in the aerospace and defense, intelligence, cybersecurity, information technology, financial and professional services, education, healthcare, infrastructure, and logistics support sectors. We are enlisted to address our clients’ most complex and important legal issues. Our work includes contract and subcontract negotiation and other transactional matters, business and regulatory compliance counseling, internal investigations, bid protests, and a wide array of enforcement and litigation matters. Our clients range from Fortune 50 companies to small and medium-sized companies just entering the public sector. We advise both U.S. and non-U.S. companies involved in municipal, state, federal, and non-U.S. procurement matters.<h2>ABOUT MORRISON FOERSTER</h2>Morrison Foerster is a leading global law firm that transforms complexity into advantage for its clients. Our clients include some of the largest financial institutions, banks, consulting and accounting firms, and Fortune 100, technology, and life sciences companies. Highlighting the firm’s commitment to client service, leadership in market-changing deals and impact litigation, and values-based culture, Morrison Foerster has been repeatedly recognized as one of the top 10 firms on The American Lawyer’s A-List. Year after year, the firm receives significant recognition from Chambers and The Legal 500 across their various guides, including Global, USA, Asia‑Pacific, Europe, UK, Latin America, and FinTech Legal. Our lawyers passionately care about delivering legal excellence while living our values. Morrison Foerster has a long-standing commitment to creating a culture that respects and celebrates differences, while providing an inclusive environment. The firm has achieved Mansfield Certification Plus since 2018 as a result of successfully reaching at least 30 percent women, communities of color, and LGBTQ+ lawyer representation in a notable number of current leadership roles and committees. The firm also has a long history of commitment to the community and society through providing pro bono legal services, including litigating for civil rights and civil liberties, improving public education and fostering the wellbeing of children, advocating for veterans, promoting international human rights, enforcing the right to asylum, and safeguarding the environment.

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Tina is Co-chair of Morrison Foerster’s Government Contracts & Public Procurement practice. She represents a wide variety of government contractors including information technology, defense, biotechnology, and pharmaceutical companies, with a focus on general contract counseling and compliance, particularly concerning intellectual property, and cybersecurity matters and federal grant funding.Tina counsels contractors on compliance with federal, state and local acquisition and ethics regulations and with the evolving myriad of requirements pertaining to data security and cybersecurity. She has been involved with numerous internal investigations and compliance reviews, and with mandatory and voluntary disclosures to agencies, and litigation of False Claims Act matters.Tina routinely advises clients concerning:<ul><li>Prime-subcontractor relationships</li><li>Sources of supply and country of origin requirements</li><li>Price reductions and price reporting issues</li><li>Organizational conflicts of interest</li><li>Safeguarding of intellectual property and other proprietary interests</li><li>Licensing and data rights issues</li><li>Handling of classified materials and controlled unclassified information</li><li>Agency suspension and debarment proceedings</li></ul>She also assists clients with due diligence and other activities related to the acquisition of government contracting concerns, and with the drafting and negotiation of teaming agreements, subcontracts, licensing agreements, and cooperative research and development agreements. She also assists clients applying for federal grants (including SBIR and STTR agreements), and those who seek to obtain other transactional authority agreements, as well as those competing for state and local government work.Tina’s litigation experience includes government contracts claims litigation in federal courts and before boards of contract appeals, bid protests before the Government Accountability Office and the Court of Federal Claims, and complex disputes in federal courts, including civil fraud and False Claims Act litigation and reverse Freedom of Information Act litigation.Prior to joining Morrison Foerster, Tina worked at another large national firm and as a trial attorney in the Office of the General Counsel of the Navy, Navy Litigation Office.<h4>Representative Experience</h4><ul><li>Negotiation of largest CHIPS Act federal funding agreement between multinational semiconductor corporation and U.S. Department of Commerce.</li><li>Negotiated prime contract and major subcontracts related to the Department of Energy’s next generation supercomputer program, including extensive IP rights negotiations and negotiation of associated patent rights waivers.</li><li>Negotiated series of other transaction authority agreements with DARPA and associated subcontracts with more than a dozen research universities on behalf of a firm biotech client, including complex IP rights allocations and material transfer agreements.</li><li>Assist clients with FedRAMP authorization process and with development of license agreements for software products sold to federal, state and local government agencies.</li><li>Cyber incident response counseling to some of the largest companies and organizations impacted by security incidents.</li><li>Advises clients on Bayh-Dole reporting of inventions and IP strategies for contracts and grants.</li><li>Conducts due diligence for major government contract mergers and acquisitions.</li></ul>

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Tina is co-chair of Morrison Foerster’s Government Contracts & Public Procurement practice. She counsels a wide variety of government contractors on compliance with federal acquisition and ethics regulations. She drafts and negotiates contracts on their behalf and has been involved with numerous internal investigations and compliance reviews, and with bid protest, contract claims, and False Claims Act litigation. She also advises on M&A transactions involving government contractors.

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Jim Tucker is of counsel in Morrison Foerster’s Government Contracts and Public Procurement Practice Group and is based in the firm’s Washington, D.C. office.Jim’s practice runs the gamut of litigation and counseling in federal procurement matters, with an emphasis on bid protests, Cost Accounting Standards disputes, and small business matters. He has represented both protesters and awardees in scores of protests before the Government Accountability Office, the Court of Federal Claims, and procuring agencies, in acquisitions ranging from small business procurements to multibillion-dollar contracts of global significance. His representative protest matters span the aerospace sector, the Intelligence Community, base operations and logistics, healthcare, nuclear and environmental work, and information technology and software acquisitions. His protests have included both classified and unclassified programs. In addition to prevailing in published decisions, Jim has also secured favorable corrective action on behalf of clients in a wide variety of protests that were resolved without a published decision.Jim’s work also focuses on disputes over cost allowability and compliance with the Cost Accounting Standards, and he has appeared before the Armed Services and Civilian Boards of Contract Appeals, in size and status protests before Small Business Administration (SBA) area offices, and appeals before the SBA Office of Hearings and Appeals. Jim regularly counsels clients on contract interpretation, organizational conflicts of interest, and small business compliance.Jim graduated with high honors from the George Washington University Law School, where he focused his studies on federal procurement law, was a member of the Law Review, and interned with the General Services Administration’s suspension and debarment office. Jim also holds a degree in theology magna cum laude from the Pontifical Gregorian University in Rome and a bachelor’s degree in classical languages and literature summa cum laude from the University of Kentucky, where he graduated Phi Beta Kappa.

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Jim maintains an active practice in bid protests before the Government Accountability Office and contracting agencies and counsels clients in contract disputes and compliance obligations.

Jim Tucker is of counsel in Morrison Foerster’s Government Contracts and Public Procurement Practice Group and is based in the firm’s Washington, D.C. office. Jim’s practice runs the gamut of litigation and counseling in federal procurement matters, with an emphasis on bid protests, Cost Accounting Standards disputes, and small business matters.

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<div style="margin-bottom: 15px;" class="videoWrapper"><iframe class="sticky-video" title="Meet Alex Ward, Government Contracts Practice Co-Chair" src="https://www.youtube-nocookie.com/embed/TkliwdSlTaQ?rel=0" frameborder="0" allow="autoplay; encrypted-media" allowfullscreen="1" title="iframe"></iframe></div>J. Alex Ward is co-chair of Morrison Foerster’s Government Contracts and Public Procurement group. His practice covers a full range of government contracts matters, including investigations, bid protests, claims, general litigation, corporate transactions, and counseling. Alex strives in all matters is to provide his clients the highest level of efficient and effective representation.Alex represents contractors in internal and external investigations, disclosures to the government, and qui tam litigation, with great success in reducing or eliminating his clients’ exposure through active engagement with the government. His work in this area includes obtaining numerous declinations and dismissals of False Claims Act cases in their earliest stages, sparing his clients the cost, risk, and exposure of litigation.He has also served as lead counsel in dozens of bid protests involving military and civilian agency procurements of a wide range of products and services, including all manner of pre- and post-award protests in the GAO, the U.S. Court of Federal Claims, and state tribunals, as well as appeals to the U.S. Court of Appeals for the Federal Circuit and size protest appeals before the SBA’s Office of Hearings and Appeals.Alex handles all aspects of the claims process, from the initial assessment and drafting of requests for equitable adjustment through litigation in the Boards of Contract Appeals and the Court of Federal Claims. Alex’s practice also covers the full gamut of other controversies confronting government contractors, including prime-sub, teaming partner, employer-employee, competitor, and indemnification disputes. His litigation work also includes a wide variety of pro bono engagements, in which he has represented both individual and institutional clients in matters ranging from immigration and criminal defense to sustainable procurement and protection of the environment.Prior to joining the firm, Alex served in the U.S. Army as a commissioned officer and an Assistant to the General Counsel of the Army responsible for civil works and international matters, and as a clerk for judges on the U.S. Courts of Appeals for the Armed Forces and the D.C. Circuit. He is a member of the Boards of the Morrison & Foerster Foundation and the Chesapeake Bay Foundation and of Law360’s Government Contracts Editorial Board.

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Alex is co-chair of Morrison Foerster’s Government Contracts and Public Procurement practice. His practice covers a full range of government contracts matters, including bid protests, claims, investigations, corporate transactions, and counseling.

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Morrison Foerster’s Government Contracts Insights blog provides an in-depth analysis of news, developments, and trends impacting government contracting and procurement. Through Insights, attorneys from our nationally recognized Government Contracts and Public Procurement practice will offer a real-time assessment of the statutory, regulatory, legal, and business-related developments that are shaping the industry. This blog will also examine a full array of U.S. and non-U.S. public procurement issues, mindful that our clients compete in a global marketplace.Read about our <a href="http://govcon.mofo.com/editors/">Authors</a>.Never miss a post. Subscribe to get real-time updates.

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Neither rain nor sleet nor quarantine restrictions stop bid protests or our monthly roundup.  Thus far the virus has not resulted in dramatic changes to GAO processes, as they have been almost completely electronic from the start.  It is possible, though, that contractors may see more written debriefings, debriefings conducted by phone, or delayed debriefings, all of which may have impacts on potential bid protests.This installment of our <a href="https://media2.mofo.com/v3/assets/blt5775cc69c999c255/blt857f4bc6fa40688b/627318db220ab5285f519155/200406-march-bid-protest-roundup.pdf" target="_blank" rel="noopener noreferrer">monthly Law360 bid protest spotlight</a> examines three protest decisions addressing challenges to unavailability of key personnel, disparate evaluations, and NAICS code designations.  In NCI Information Systems, Inc., the GAO found an awardee had no responsibility to inform the procuring agency of a key person’s alleged unavailability during the pendency of corrective action where the awardee lacked actual knowledge of the alleged unavailability before the re-affirmation of its award.  In Office Design Group, the Court of Appeals for the Federal Circuit adopted an existing Court of Federal Claims standard for deciding disparate-treatment allegations.  In Paradigm Engineers & Constructors, PLLC, the Court of Federal Claims established a “plausibly related” test in reviewing NAICS code designations.______________________<a href="https://www.gao.gov/assets/710/705402.pdf" target="_blank" rel="noopener noreferrer">NCI Information Systems, Inc.</a><a href="#_edn1" name="_ednref1">[i]</a> involved the unavailability of key personnel—a protest ground that has become increasingly common—and what happens when a key person becomes unavailable during post-protest corrective action, but the offeror learns that fact only after the agency has reaffirmed its initial award.AnalysisAmong various other protest grounds, the protester alleged that one of the awardee’s proposed key personnel became unavailable during voluntary corrective action taken in response to a prior protest.  The protester argued that, under the GAO’s precedents, the awardee should have notified the agency of the alleged unavailability.  Because the awardee did not do so, and because its key person allegedly was not available as of the agency’s decision to reaffirm the original contract award, the protester argued the awardee was ineligible for award.  The protester’s basis for alleging unavailability appears to have been an internet search that supposedly showed the key person changed jobs and moved to Arizona during the pendency of the prior protest.The agency countered that re-evaluation of key personnel was not within the scope of the corrective action and, in any event, the allegedly unavailable person had not given notice of unavailability.  As far as the agency and awardee were aware, the person (who was proposed as a contingent hire) remained available as proposed, in accordance with his signed commitment letter, which he had not revoked.The GAO found it unnecessary to resolve whether the proposed key person was actually unavailable, as the awardee provided a declaration that it had no actual knowledge of unavailability and the proposed key person, who was another company’s employee, had not rescinded his commitment letter.  The GAO found this lack of actual knowledge of unavailability was sufficient to deny the protest ground: “While an offeror generally is required to advise an agency where it knows that one or more key employees have become unavailable after the submission of proposals, there is no such obligation where the offeror does not have actual knowledge of the employee’s unavailability.”Because it resolved the protest ground on actual knowledge, the GAO did not address a much more interesting question.  The agency argued there is no legal basis for protesting the unavailability of key personnel in the context of corrective action that does not include re-evaluating key personnel.  One also might question, regardless of the scope of corrective action, whether the GAO’s rule for reporting key personnel unavailability that occurs before award even applies when the key personnel (allegedly) become unavailable only after the initial award decision (but prior to the conclusion of corrective action).  The GAO left those questions for another day.TakeawaysLong drawn-out procurements can present a number of challenges, including how to keep proposed key personnel available for an indefinite period of time.  The time required for protests and potential corrective action to play out only exacerbates that difficulty.  If the COVID-19 pandemic ends up delaying procurements (which seems like a reasonable possibility), more of these issues may be seen.  As long as the GAO maintains its current requirement to self-report any discovered unavailability of key personnel—sometimes long after the proposal was submitted—offerors will remain in the difficult position of trying to remain reasonably assured of continuing availability of their proposed candidates while simultaneously not putting themselves in the position of unnecessarily gaining actual knowledge of a disqualifying problem they will have to report.______________________In <a href="https://www.cafc.uscourts.gov/sites/default/files/opinions-orders/19-1337.Opinion.3-6-2020_1546225.pdf" target="_blank" rel="noopener noreferrer">Office Design Group</a>,<a href="#_edn2" name="_ednref2">[ii]</a> the Federal Circuit adopted COFC’s “substantially indistinguishable” test in assessing a protester’s allegations of disparate treatment in the evaluation of proposals. The protester alleged the Department of Veterans Affairs (VA) unfairly downgraded its proposal to supply healthcare furniture and related services, alleging that its proposal was “sufficiently similar” to the awardees’ proposals to merit the same ratings. Unfortunately for the protester, all three tribunals that heard the protest found the argument unconvincing.The VA issued five nearly identical solicitations to supply goods and services across five geographic regions, intending to award four or five contracts per region.  The protester submitted an offer for all five regions.  The VA found all of the protester’s proposals technically unacceptable.  Under one of the solicitation’s evaluation subfactors, offerors had to answer 33 yes-or-no questions, which the agency would convert into points.  A passing score for the subfactor was 40 points.  The protester received 12 points.After failing to convince the GAO or COFC that it was the victim of disparate treatment, the protester appealed to the Federal Circuit on the same grounds, alleging seven examples of disparate treatment.AnalysisThe protester had no better luck on appeal.  The Federal Circuit observed that it had not previously articulated a standard for assessing disparate evaluation protest grounds.  The court noted that to prevail at the Claims Court, a protester must show the agency unreasonably downgraded the protester’s proposal for deficiencies which were “substantially indistinguishable” or “nearly identical” to those contained in proposals that were rated differently.  The Federal Circuit adopted the lower court’s precedents and held that, unless a protester makes such a showing, a reviewing court should dismiss the protest.  Doing otherwise would give a court “free reign [sic] to second guess the agency’s discretionary determinations,” exceeding its mandate.The court then identified four ways in which the protester’s proposal was “substantially distinguishable” from the winning proposals, including its failure to address hardware and software requirements, staff experience with applicable codes and standards, and whether its staff would use AutoCad or PDFs to produce the requisite drawings.  For these reasons, the court determined the protester could not prevail on the majority of its disparate treatment claims.The Federal Circuit found the protester did succeed in establishing disparate treatment in two instances, entitling it to six additional points. However, the resulting additional six points were insufficient for the protester’s proposal to be found acceptable under the stated evaluation criteria.The errors being de minimis, the court found the protester was unable to show prejudicial error from the two evaluation errors, and affirmed the lower court’s dismissal.TakeawaysThe Federal Circuit’s adoption of the “substantially indistinguishable” or “nearly identical” standard now provides binding precedent for disparate treatment arguments brought to COFC.  The Federal Circuit’s citation of five COFC cases invoking the same standard of review provides further guidance to would-be litigants in determining just what counts as substantially indistinguishable.<a href="#_edn3" name="_ednref3">[iii]</a>______________________<a href="https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2019cv2014-38-0" target="_blank" rel="noopener noreferrer">Paradigm Engineers and Constructors</a><a href="#_edn4" name="_ednref4">[iv]</a> involved an allegation that the VA assigned an incorrect NAICS code to small-business set-aside procurement and that the Small Business Administration (SBA) Office of Hearings and Appeals (OHA) wrongly upheld the assignment of that code.  The VA sought to renovate a Medical Center building and issued a pre-solicitation notice for design services, setting the solicitation aside for Service-Disabled Veteran-Owned Small Businesses. The Statement of Work called for renovation designs and the replacement of second-story windows and the heating, ventilation, and air-conditioning (HVAC) systems in the building.  What was the proper NAICS code to characterize that work?In the pre-solicitation notice, the contracting officer initially referenced NAICS codes for both Engineering Services and Architectural Services, despite a regulatory requirement to select a single code.  The VA, realizing its error, issued the formal solicitation with the NAICS code Engineering Services only, and a corresponding size standard of $16.5 million.  In response to the solicitation, the VA received five proposals, including that of the protester, Paradigm. After the receipt of proposals, the VA changed its mind again and amended the solicitation to replace the Engineering Services NAICS code with the Architectural Services NAICS code, and that code’s corresponding size standard of $8 million.The change in NAICS codes—and thus in size standards—prejudiced Paradigm, as it qualified as a small business under the $16.5 million standard but not under the much smaller $8 million standard.  Paradigm first appealed the changed designation to OHA, which affirmed the solicitation’s designation as proper, finding the VA had properly considered the primary purpose of the procurement.  Unsatisfied with the result, Paradigm then took the case to the Court of Federal Claims (COFC), appealing both the VA’s assignment of the final NAICS code and OHA’s decision upholding that assignment.AnalysisCOFC, after finding jurisdiction to review OHA’s decision under the Tucker Act, found the plaintiff a “prospective bidder” who “diligently pursued its rights” in alleging a “non-trivial competitive injury,” as so had standing as an interested party.  The court noted, however, its own “highly deferential” posture on review of any agency’s procurement decisions, and that decisions of OHA judges warrant “special deference” given the judges’ “administrative expertise and . . . familiarity” with the SBA regulatory scheme.  The court summarily dismissed the direct challenge of the VA’s decision for lack of jurisdiction, leaving only the OHA decision before the court.The protester argued that OHA’s decision was arbitrary, capricious, and an abuse of discretion because engineering-related salary costs were the largest cost component of the Independent Government Cost Estimate (IGCE).  The government countered that OHA’s decision, based on the actual description of the work required, was rational and that Paradigm failed to meet its burden in surmounting the “special deference” afforded to OHA decisions.  The court found the government’s argument more persuasive.The record showed that OHA compared the scope of the work as described in the solicitation with the descriptions found in the NAICS Manual.  OHA found the work did not “involve applying physical laws and principles of engineering,” as designing the HVAC system did not qualify as “cutting-edge engineering.”  Rather the work mostly entailed designing the renovations, which fit “squarely within the definition” of the Architectural Services NAICS code.The court found unpersuasive the protester’s allegation that OHA ignored the IGCE in making its determination, because each of the labor categories Paradigm pointed to as engineering-related also related to architectural services: Supervisors, Designers, Drafters, Specification Writers, and Typists.  The protester sought to buttress its defense at oral argument by analogizing to RLB Contracting Inc.,<a href="#_edn5" name="_ednref5">[v]</a> a case in which both the contracting officer’s and OHA’s determinations were found arbitrary and capricious.  The court distinguished the earlier precedent, in which both the contracting officer and OHA failed to quantitatively analyze the extent of dredging work the contract contained, on the basis that here OHA properly “looked behind the tasks in the Statement of Work” in determining that “design[ing] the HVAC, window replacement, bid plans, and construction plans” properly constituted “design services.”  Thus, the principal purpose of the solicitation was to procure Architectural Services.The court found that OHA’s application of the “principal purpose” test accorded with the FAR and the SBA’s regulations.<a href="#_edn6" name="_ednref6">[vi]</a>  Although the regulations provide that procurements are “usually” classified according to their greatest cost component, an agency retains discretion to conduct its own principal purpose analysis.  The court announced that, “when two NAICS Codes may be plausibly related and the Agency’s choice is upheld by the OHA with reasoned explanation for that choice, this Court has nothing further to do.”The court did do more, however, and considered the protester’s alternative challenge that OHA erred by ignoring the VA’s use of the Engineering Services NAICS codes in allegedly similar procurements in the past.  The court noted that, in 2011, the FAR Council removed the requirement to consider previous procurements as a basis for NAICS code determinations.  The amended SBA and FAR regulations give “primary consideration” to the NAICS Manual, the product or service description, the relative value of components, and the function of the goods or services.<a href="#_edn7" name="_ednref7">[vii]</a>  The court determined that OHA’s interpretations of the regulations were consistent with the regulatory text, which was specifically amended to remove the prior language requiring comparison to previous procurements, and were reasonable.TakeawaysIn Paradigm, the Court of Federal Claims drew a bright-line rule that where two NAICS codes are “plausibly related” to a procurement, OHA need only to provide a “reasoned explanation” supporting its decision to uphold the agency’s choice.  Would-be protesters should bear in mind the high bar to overcome the court’s “special deference” to OHA’s administrative expertise in matters pertaining to size standards and associated NAICS codes.<a href="#_ednref1" name="_edn1">[i]</a> NCI Information Sys., Inc., B-417805.5 et al., Mar. 12, 2020.<a href="#_ednref2" name="_edn2">[ii]</a> Office Design Grp. v. United States, 2019-1337 (Fed. Cir. Mar. 6, 2020).<a href="#_ednref3" name="_edn3">[iii]</a> See Enhanced Veterans Solutions, Inc. v. United States, 131 Fed. Cl. 565, 588 (2017); Red River Comput. Co. v. United States, 120 Fed. Cl. 227, 238 (2015); Sci. Applications Int’l Corp. v. United States, 108 Fed. Cl. 235, 272; Chenega Mgmt., LLC v. United States, 96 Fed. Cl. 556, 585 (2010); Hamilton Sundstrand Power Sys. v. United States, 75 Fed. Cl. 512, 516 (2007).<a href="#_ednref4" name="_edn4">[iv]</a> Paradigm Engineers and Constructors, PLLC v. United States, No. 19-2014C (Fed. Cl., Mar. 25, 2020).<a href="#_ednref5" name="_edn5">[v]</a> RLB Contracting, Inc. v. United States, 118 Fed. Cl. 750 (2014).<a href="#_ednref6" name="_edn6">[vi]</a> FAR 19.303(a)(2) and 13 C.F.R. § 121.402(b).<a href="#_ednref7" name="_edn7">[vii]</a> 13 C.F.R. § 121.402(b)(1) and FAR 19.303(a)(2). *Markus Speidel is a Law Clerk in the Washington, D.C. office and is not admitted to the bar.

March Bid Protest Roundup (Law360 Spotlight)

Jim Tucker is of counsel in Morrison & Foerster’s Government Contracts and Public Procurement Practice Group and is based in the firm’s Washington, D.C. office.
Jim’s practice runs the gamut of litiga

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March Bid Protest Roundup (Law360 Spotlight)

GAO Finds CIO-SP4 Solicitation Is Unduly Restrictive of Competition

Neither rain nor sleet nor quarantine restrictions stop bid protests or our monthly roundup.  Thus far the virus has not resulted in dramatic changes to GAO pro

March Bid Protest Roundup (Law360 Spotlight)

<ol><li>Contractors who are unable to perform or complete work under a contract as a result of the pandemic should be able to get schedule relief and avoid termination as a result of the FAR’s <a rel="noopener noreferrer" target="_blank" href="https://govcon.mofo.com/defense/keep-calm-wash-your-hands-and-know-your-rights/">excusable delay provisions</a>. These provisions also provide protection where a subcontractor has failed to deliver so long as the prime contractor is not directed to get the goods or services from another available source.</li><li><a rel="noopener noreferrer" target="_blank" href="https://govcon.mofo.com/coronavirus/covid-19-getting-compensated-for-delays-and-disruptions/">Recovery of costs </a>associated with delay may be more difficult. Costs should be recoverable where the government issues a stop work order, requires a change to the contract, constructively accelerates the contract, or causes the delay.</li><li>However, where delay is merely a result of facility closures, the closure in response to the pandemic may be considered a <a rel="noopener noreferrer" target="_blank" href="https://govcon.mofo.com/coronavirus/the-sovereign-acts-doctrine-understanding-covid-19-implications-for-your-government-contract/">sovereign act</a>. In that case, the contractor may not be entitled to recovery of costs absent additional facts, such as a customer order to perform despite the closure.</li><li>Section 3610 of the <a rel="noopener noreferrer" target="_blank" href="https://govcon.mofo.com/coronavirus/contractor-relief-unclear-under-the-cares-act/">CARES Act</a> may help contractors recover costs of keeping personnel who cannot perform due to facility closures in a “ready state,” but questions remain, including the discretionary nature of the language (reimbursement is up to the contracting officer) and what constitutes a government approved facility.</li><li>Most defense contractors have, so far, been considered <a rel="noopener noreferrer" target="_blank" href="https://govcon.mofo.com/coronavirus/covid-19-update-new-california-order-and-dhs-critical-infrastructure-guidance/">essential government services </a>for purposes of state and local shelter-in-place orders. These restrictions may change or may be dependent on specific contracts, however, so contractors are advised to reach out to their programs for guidance. Non-defense contractors may not be considered essential unless their government customer makes that determination.</li><li>The Defense Production Act alone <a rel="noopener noreferrer" target="_blank" href="https://govcon.mofo.com/coronavirus/coronavirus-update-the-defense-production-act-is-not-a-contractors-shield-against-local-shutdown-orders/">will not shield contractor</a>s from local shutdown orders as a result of federal preemption law, but it may serve as evidence that the work being done is essential, which may persuade state and local officials.</li><li>Use of the Defense Production Act may require contractors, especially those with both government and commercial business, to <a rel="noopener noreferrer" target="_blank" href="https://govcon.mofo.com/coronavirus/the-defense-production-act-a-little-known-statute-that-may-soon-be-running-your-company/">prioritize federal government orders</a> for supplies and services over any other orders, even if such orders were placed prior to the government order.</li><li>The Defense Production Act also <a rel="noopener noreferrer" target="_blank" href="https://govcon.mofo.com/defense/keep-calm-wash-your-hands-and-know-your-rights/">extends to subcontractors</a> and may be used by prime contractors to ensure production of goods or services that are in limited supply.</li><li>Government guidance memos suggest the government is doing what it can to increase cash flow to contractors, including increasing the percentage paid to contractors for progress payments, accelerating contract awards where possible, and using undefinitized contract actions if necessary to allow work to begin even where details are not finalized.</li><li>Early and transparent discussions with contracting officers concerning the effects the pandemic and government actions or inactions are having on contract performance are of paramount importance. In addition, contractors should document internally any such effects as well as the costs and delays associated with any effects.</li></ol>

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Top Ten Things Government Contractors Should Know Regarding the Coronavirus (as of April 2, 2020)

Updated Coronavirus (COVID-19) Guidelines For Employers

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Contractors who are unable to perform or complete work under a contract as a result of the pandemic should be able to get schedule relief and avoid termination 

Top Ten Things Government Contractors Should Know Regarding the Coronavirus (as of April 2, 2020)

On Tuesday afternoon, the Treasury Department released its <a href="https://home.treasury.gov/policy-issues/top-priorities/cares-act/assistance-for-small-businesses">guidance</a> concerning the Paycheck Protection Program (PPP), which was authorized by Congress under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.  Under the PPP, qualified small businesses, eligible non‑profits, self-employed individuals, and independent contractors may apply for loans to cover payroll costs, rent, and utilities.  Some or all of the loan amounts may be forgiven as long as designated criteria are fulfilled.Our prior overviews of the PPP and unique considerations related thereto are available <a rel="noopener noreferrer" target="_blank" href="https://www.mofo.com/resources/insights/200327-faq-coronavirus-economic-stabilization-act-cesa.html">here</a> and <a rel="noopener noreferrer" target="_blank" href="https://www.mofo.com/resources/insights/200327-cares-sba-loan-eligibility-process.html">here</a>.The Treasury guidance consists of an <a rel="noopener noreferrer" target="_blank" href="https://home.treasury.gov/system/files/136/PPP%20--%20Overview.pdf">overview</a>, specific guidance for <a rel="noopener noreferrer" target="_blank" href="https://home.treasury.gov/system/files/136/PPP%20Lender%20Information%20Fact%20Sheet.pdf">lenders</a> and <a rel="noopener noreferrer" target="_blank" href="https://home.treasury.gov/system/files/136/PPP--Fact-Sheet.pdf">borrowers</a>, and a copy of the application with associated instructions.Below we highlight a few key takeaways from the Treasury guidance and application form.<ol><li>Small businesses and sole proprietorships can apply for loans beginning this Friday, April 3. The Treasury recommends that applications be filed as soon as possible, given that the amount of money authorized for the loans, while large (nearly $350 billion), is fixed. Independent contractors and self-employed individuals must wait until April 10 to file their applications.  No date is given for when non-profit entities should file, although in the absence of instruction, we would recommend that non-profits use the earlier filing date.</li><li>Borrowers do not have to show that they have sought other sources of credit, but they do have to certify that the funds are “necessary” to support their businesses. Borrowers need not first try to obtain loans elsewhere as with a typical SBA loan program (known as the “Credit Elsewhere” requirement). To obtain a PPP loan, however, borrowers must certify in good faith that the “current economic uncertainty makes the loan necessary to support [ ] ongoing operations.”  This amorphous standard is not further described in the guidance.</li><li>Full amounts of the loans may be forgiven, as long as at least 75% of the loan amount is used for payroll costs (salaries, vacation or sick leave, qualified health plan contributions and other benefits, etc.). In other words, not more than 25% of the forgiven amount may be for non‑payroll costs (rent, utilities, mortgage interest). This concept was not explicitly described in the CARES Act, but has been included in the Treasury guidance “due to likely high subscription” for the loans.  Further, borrowers must either maintain their current staffing or rehire employees prior to June 30, 2020, in order to be eligible for loan forgiveness.  Various formulas will be applied to reduce forgiven amounts if the borrower decreases employee headcount, salaries, or wages.</li><li>There are inconsistencies between the borrower guidance and the application form concerning how the eligible loan amount will be calculated. The application form requests information about the borrower’s average monthly payroll amount for 2019, which the CARES Act itself says will be multiplied by 2.5 to determine the amount of the loan. If this amount is higher than $10 million, the loan will be capped at $10 million.  However, in the borrower guidance, Treasury states that “the lender will calculate the eligible loan amount using the tax documents [the borrower] submitted.”  It is not clear how tax information could be used to calculate 2019 payroll costs, particularly if the business has not yet filed its 2019 tax returns.</li><li>Although the CARES Act allowed up to 4% interest, the rate of interest for PPP loans will be 0.5%.  Repayment is deferred for six months, although interest will accrue during this period.  Borrowers will have up to two years to repay any non-forgiven amount, with no penalty for pre-payment.</li></ol>As thousands of eligible small businesses across the country begin the process of completing their applications and submitting them to lenders for review, it is certain that dozens more questions will be uncovered.  Nonetheless, the speed at which Treasury issued this guidance—within only a few days after passage of the legislation—is remarkable.

Tina is a partner in Morrison & Foerster’s Government Contracts practice. She represents a wide variety of government contractors including information technology, defense, biotechnology, and pharmace

Tina Reynolds

Anser Advisory

ARKA

Arlington Capital

Battle Investment Group

Behrman Capital

Cadmus

Chainalysis

CollabraLink

Definitive Logic

Emmes

Enlightenment Capital

Grant Thornton

Griffon Corporation

eTelligent

L3Harris

Jacobs

LinQuest Corporation

Micross

Sagewind

Sedgwick

Sigma Defense

teKnoluxion

The Building People

VariQ

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Damien is a partner in the firm’s Government Contracts & Public Procurement practice. He represents clients in all facets of government contracts transactions, as well as regulatory counseling, subcon

Damien Specht

Damien C. Specht

Treasury Department Issues Guidance (and Application) for Paycheck Protection Program Loans

On Tuesday afternoon, the Treasury Department released its guidance concerning the Paycheck Protection Program (PPP), which was authorized by Congress under the

Treasury Department Issues Guidance (and Application) for Paycheck Protection Program Loans

The COVID-19 pandemic has introduced significant uncertainty for government contractors as agencies prepare for substantial disruptions, including the potential closure of military installations.  See e.g., <a rel="noopener noreferrer" target="_blank" href="https://media2.mofo.com/v3/assets/blt5775cc69c999c255/blt9731ca39d8ba797c/627318dc0cffdf1eb1369e65/200318-ess-ct-section-chief-letter-contractors.pdf">Department of the Army COVID-19 Response Letter</a>; <a rel="noopener noreferrer" target="_blank" href="https://www.whs.mil/Portals/75/Coronavirus/Planning%20for%20Potential%20Novel%20Coronavirus%20Contract%20Impacts_DPC%20Signed%20and%20Dated%20Memorandum.pdf?ver=2020-03-11-114544-157">Department of Defense COVID-19 Planning Memo (Mar. 10, 2020)</a>.  Given the potential impacts the pandemic may have on ongoing contracting activities, we have identified a few best practices for contractors to bear in mind as the ongoing crisis persists.<ol><li>Get smart on the Sovereign Acts Doctrine. When the government acts as a contracting party, the law applicable to private entities governs the government’s contractual rights and duties.  Contractors doing business with the United States, therefore, can rely on the terms of a government contract to determine the legal remedy for government actions affecting performance.  The law also recognizes, however, that the actions of the United States, in its capacity as the sovereign, can affect a contractor’s performance of a government contract.  In such instances, the United States is absolved from liability for damages resulting from its sovereign acts, so long as those acts are “public and general” and not taken merely to avoid contractual obligations.  This common law defense to breach of contract is known as the Sovereign Acts Doctrine.  For a more detailed analysis of the ins and outs of the Doctrine, we encourage you to read our May 2019 article in Pratt’s Government Contracting Law Report.</li><li>Get smart on the excusable delay clause in your contract. Your contracts likely contain a FAR clause covering excusable delay.  For fixed-price contracts, that clause is <a rel="noopener noreferrer" target="_blank" href="https://www.law.cornell.edu/cfr/text/48/52.249-8">FAR 52.249-8, Default (Fixed Price Supply and Service)</a>, which provides that a contractor is not liable for excess costs for a failure to perform a contract arising from causes beyond its control and without its fault or negligence.  For cost-reimbursement contracts, the relevant clause is <a rel="noopener noreferrer" target="_blank" href="https://www.law.cornell.edu/cfr/text/48/52.249-14">FAR 52.249-14, Excusable Delays</a>, which similarly absolves contractors for such costs.  Contractors should promptly request schedule extensions to avoid any finding of a failure to perform.  If the government denies such requests for extensions, then contractors should be prepared to either submit a request for an equitable adjustment (REA) once damages are reasonably certain, or file a claim under the Contracts Disputes Act (CDA).</li><li>Get prepared for an REA or CDA claim. Given the rapid and continued progression of the COVID-19 pandemic, significant disruptions such as those contemplated by the Sovereign Acts Doctrine may soon become inevitable.  Contractors therefore should consider assembling their teams in anticipation of submitting an REA or claim once business operations return to normal.  Developing the underlying facts for an REA or claim is time-consuming, arduous work.  It therefore may be prudent to convene your potential REA/claim team in advance to allow the Company to collect relevant data in real-time for inclusion in the eventual REA or claim.</li></ol>If you have any questions regarding COVID-19 disruptions to your contracts, please reach out to one of the authors, or your standard MoFo contact.  Stay safe.Morrison & Foerster has mobilized a team of legal advisors across our firm’s global practices and disciplines to offer you timely legal and business advice as this global health crisis continues to quickly evolve.

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Kevin is former Co-chair of Morrison Foerster’s Government Contracts & Public Procurement practice. 

Kevin Mullen

Kevin is former co-chair of Morrison Foerster’s Government Contracts & Public Procurement practice. He has broad experience in numerous facets of government contracts matters including agency procurements, subcontracting, teaming and joint venture relationships, contract performance issues, intellectual property, compliance matters, due diligence for mergers and acquisitions, and procurement fraud matters.

Kevin P. Mullen

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Sandeep Nandivada is a partner in the Litigation Department of Morrison Foerster’s Washington, D.C. office.

Sandeep N. Nandivada

Sandeep Nandivada

The Sovereign Acts Doctrine: Understanding COVID-19 Implications For Your Government Contract

The Sovereign Acts Doctrine:   Understanding COVID-19 Implications For Your Government Contract