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.

Tina D. Reynolds

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.

James Tucker

<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.

J. Alex Ward

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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.

Brad is a partner in Morrison Foerster’s Litigation Department, Managing Partner of the Austin office, and Chair of the firm’s Israel practice. He is the former Co-Chair of the firm’s Global Litigation Practice and the Government Contracts + Public Procurement Practice.

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The Tortured Regulations Department: SBA’s New Rule and Its Effect on Investments

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A recent defective pricing case, Alloy Surfaces Co., ASBCA No. 59625, 2020 WL 1896784, April 9, 2020, charmingly illustrates the Government’s doggedness in trying to reprice a contract using the Truth in Negotiations Act (TINA).  The Armed Services Board of Contracting Appeals did not buy into any of the Government’s arguments, finding that an undisclosed document reflecting fundamentally judgmental data did not constitute cost or pricing data and that disclosure of the document would not, in any event, have lowered the contract price.In Alloy, the Army ordered M211 infrared decoy flares in a series of production runs under a 1999 contract and six delivery orders under a new IDIQ.  Alloy performed the 1999 contract order and these six delivery orders at its “Plant 1.”  In performing the last of the six delivery orders (DO 13), Alloy introduced automation into its production processes.  Alloy was performing DO 13 when the Army requested Alloy’s proposal for DO 14, which would require Alloy to increase production rates to about three times its production rate under DO 13.  To meet this increased demand, Alloy proposed to hire over 250 employees and to expand its new, second plant and open a third plant.  Alloy planned to use automation in performing the new order.Alloy’s proposal was based on its actual labor and material usage factors from its two earliest delivery orders.  It also predicted that it would experience “negative 10%” learning because of the move to the two new plants and its newly expanded, inexperienced work force.  The Army generated its own, lower labor and material usage factors.  The Government acknowledged that “some inefficiency could occur due to additional production rate ramp-up.”  Further, the Army knew during negotiations that the Plant 1 automation had resulted in lower labor usage factors for its various production operations in performing DO 13 than Alloy had experienced in the first two production runs.  Indeed, the Army knew of the specific labor usage factors where Alloy had increased efficiency through automation, and it believed that material usage and labor usage under the new DO 14 would be lower than the “actuals” Alloy had disclosed for all but one of these many labor operations.The negotiation largely centered on whether Alloy would experience decreased efficiency because of its need to ramp up production in these new facilities.  The price for DO 14 eventually negotiated – around $57 M – was based on the early two production runs’ usage factors, which were higher than the Army’s independent estimates, with no “negative learning” applied to those factors.Years later, the Army alleged defective pricing based on Alloy’s failure to disclose “job cost reports” for DO 13.  The Contracting Officer’s Final Decision demanded a price reduction of almost $16 M, based on actuals for DO 13.  The defective pricing allegations reflected a large material-cost impact and a reduction of labor hour usage by almost two-thirds of the amount negotiated.ANALYSISThe Government’s position in Alloy illustrates almost every flaw a defective pricing allegation can possibly contain.  The Army’s allegation was based on judgmental rather than factual data and on data not available on the handshake date.  The Army negotiators knew, in general terms, that the actual costs for DO 13 would be lower than the ones used in negotiations, even if the specific costs of DO 13 had not been disclosed.  Finally, the Army’s decision simply repudiated the negotiators’ decision that, despite automation, the production ramp-up, new facilities, and new hiring would cause inefficiencies.(a) Were the DO 13 “job cost reports” cost or pricing data? The “job cost reports” that were actually available to Alloy before the conclusion of negotiations contained both factual and judgmental data.  They covered “work in process” (WIP) under a partially completed job.  While the reports included the costs incurred on the job to date, the job’s costs could not be understood or used without knowing the quantities they represented, and those quantities could not simply be counted.  Determining the quantities represented by a particular WIP report required significant judgment in developing estimates for the “equivalent units” represented in a particular production period in a given report.The Board agreed with the Government’s contention that the reports included both factual and judgmental information.  But the judgmental information, the “equivalent units,” was a fundamental part of the report, and the Board concluded that the WIP reports from the months prior to job completion were not cost or pricing data.(b) Was the September DO 13 job cost report reasonably available to Alloy before the certificate “as of” date? The Government argued that the DO 13 job cost report for September, when production on this order had been completed, contained final, accurate, equivalent units (because the job had, by then, been completed).  The cutoff established for completion of DO 13 was a few days before the DO 14 handshake.  After this cutoff, though, and before it could finalize the report, Alloy had to take a final physical inventory, review labor timesheets, and reconcile the WIP data with the actual number of units produced and hours logged.  This process was not completed until a few days after the DO 14 handshake.  Absent any evidence that Alloy had held up this process, the Board found that the September report did not possess the degree of certainty necessary for it to qualify as cost or pricing data.  In other words, the only version of the report accurate enough to be cost or pricing data was not available to Alloy until after the date of agreement on price.(c) Would the Government have relied on the WIP reports had they been produced?   The Board found the Army had not met its burden of showing “that having the final job cost report from DO 13 would have changed its decision to rely on the weighted average of the data” from the first two production runs.  The Army was aware of the effects of automation, and it knew that, as a result of automation, the actual costs of DO 13 would be lower than the actuals from the first two production runs.  The Board found that this knowledge of the effect of automation “undermines the causal connection between the allegedly undisclosed data and an overstated contract price.”  Further, while the DO 13 information would have told the Army a bit more about the benefits of automation, it would not have helped the Army estimate the inefficiencies of ramping up, which was the central point of the negotiations.  And finally, the Government offered no specifics as to how it would have used the information in negotiations.COMMENTThe decision in Alloy made interesting use of the CO’s testimony.  First, the Board pointed out that the contracting officer had never asked for the DO 13 actuals.  Of course, it is clear from decades of TINA jurisprudence that the statute imposes an affirmative obligation on the contractor to produce data and that the Government did not have to ask for cost or pricing data to trigger Alloy’s obligation.  But the Board used the CO’s failure to request information on DO 13 to bolster its conclusion that the CO would not have relied on that data had it been produced.  With knowledge that the DO 13 “actuals” would show the extent to which automation had affected Alloy’s production costs, the CO exhibited no interest in receiving them.Second, the Board also used this curious testimony by the Contracting Officer:Q:  You signed the Modification P00025 relying on upon the certificate current costs and pricing data, on the assumption that you would be able to recover any defective pricing cost later, correct?A:  Correct.The Board concluded that the CO believed she could reprice the contract later to recoup any difference the DO 13 data would have made.   But the Price Adjustment clause does not provide a vehicle the Government can use to simply reprice a contract after award.The decision also showed that the Board felt it had to distinguish the decision in Texas Instruments, Inc., ASBCA No. 23678, 87-3 BCA ¶ 20,195.  The Army cited Texas Instruments for the proposition that the reports involved in that case, which including both factual and judgmental data, constituted “cost or pricing data” pursuant to TINA.  But the Texas Instruments case was fundamentally different.  The “Rolled Up Run Cost” report involved in that case had been fully disclosed.  The run cost report was an estimating tool in which the appellant selected a single job order for each piece part or assembly that its estimators believed were predictive of future performance in making those parts/assemblies, and it used those selected job orders’ costs to “roll up” the costs of every piece part/assembly to obtain the cost of a complete unit.  The only “factual” part of the report was the cost of the single, selected job order for each parts, and appellant had produced the costs of all its job orders in its separate “Detail Job Order Cost Report.”  The Government was not complaining about non-disclosure; rather it complained that Texas Instruments’ estimating methodology in the Rolled Up Run Cost – fully disclosed to and understood by the Government – was not “accurate” or complete.  But only data, not estimating methodologies, are required to be “accurate” and “complete.”  In fact, estimates, by their very nature, cannot logically be either accurate or complete, and TINA imposes no such requirement.Lastly, the Alloy decision appears to show the lengths to which the Government may go to reprice a contract when it later becomes dissatisfied with its negotiator’s decisions.  Any one of the flaws described in the decision should have been sufficient to convince the CO and DCAA that there had been no defective pricing.  But scenting an opportunity to recoup almost $16 M, the Government gamely hung in there and forced the appellant to litigate to restore over a quarter of the contract price.

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Kathy Weinberg’s practice focuses on government contracts. She handles bid protests, contract claims by and against contractors, and representation of clients in government investigations. Her practic

Kathy C. Weinberg

Kathy Weinberg

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Try, Try Again

SBA Issues Final Rule on Appeals Process for PPP Loan Review Decisions

A recent defective pricing case, Alloy Surfaces Co., ASBCA No. 59625, 2020 WL 1896784, April 9, 2020, charmingly illustrates the Government’s doggedness in tryi

Try, Try Again

The federal contracting process is famous for its exacting approach to competitive procurement, which safeguards taxpayer funds and principles of fairness.  This emphasis on process, however, can slow the wheels of the acquisition machine.  The rapid spread of COVID-19, however, has required the government to use available tools to accelerate cash flow to contractors and the procurement of supplies and services.  Notably, both the <a rel="noopener noreferrer" target="_blank" href="https://assets.documentcloud.org/documents/6818341/INTENT-and-DIRECTION-WITHHOLDS-and-RETENTIONS.pdf">U.S. Navy</a> and the U.S. Air Force expressed renewed interest in accelerating contract awards and in the use of Undefinitized Contractual Actions (UCAs) when appropriate.What Are UCAs?UCAs, sometimes called “letter contracts” (see FAR 16.603-1), are used to create contracts with the government when one or more elements of a contract cannot be agreed upon, and there is an urgent need to begin production.  These elements can includes terms, conditions, or even price; however, the UCA must include a schedule that sets forth when any open terms of the UCA are to be definitized.  FAR 16.603-2; DFARS 217.7401, 217.7404-3.  Aspirationally, the parties will mutually agree to all contract terms within the time set by the definitization schedule; if, however, the parties fail to agree, the may unilaterally definitize the contract’s terms—including whatever price the Government deems reasonable—subject to the schedule and internal Government approvals set forth in regulation.  This can pose significant risks to the contractor because the government retains substantial leverage and can unilaterally definitize if negotiations fail.  And because UCAs are created due to urgent needs, the pace of the contract can shorten the timeline for negotiation.  Although a UCA is required to include a schedule for definitization, that schedule may in practice be merely aspirational; the <a href="https://www.gao.gov/assets/680/670257.pdf">GAO</a> and the Department of Defense (DoD) have been critical of some agencies for allowing UCAs to exceed established definitization timeframes.UCAs are meant to be rare, and the DFARS permits the use of UCAs “only when (1) the negotiation of a definitive contract action is not possible in sufficient time to meet the Government’s requirements; and (2) the Government’s interest demands that the contractor be given a binding commitment so that contract performance can begin immediately.”  DFARS 217.7403 (emphasis added).  In litigation, UCAs are treated as any other contract award and can be challenged at the GAO on the same grounds.  See, e.g., Fisher Sand & Gravel Co., B-417496, July 26, 2019, 2019 CPD ¶ 280 (challenging the award of an undefinitized fixed-price design-build contract).Updated Definitization RequirementsLast year, MoFo published an <a href="https://govcon.mofo.com/defense/undefinitized-contract-action-proposed-rule/">article</a> about <a href="https://www.federalregister.gov/documents/2019/02/15/2019-02530/defense-federal-acquisition-regulation-supplement-undefinitized-contract-actions-dfars-case">upcoming regulatory changes</a> to UCAs.  On August 9, 2019, <a href="https://www.federalregister.gov/documents/2019/08/09/2019-16766/defense-federal-acquisition-regulation-supplement-undefinitized-contract-actions-dfars-case">these changes went into effect</a>.  The deadline for definitization is now no later than 180 days after the contractor submits a qualifying proposal.  Previously, the deadline was 180 days from the issuance of the action.  This “deadline” continues to be subject to extensions, but DoD contracting officers can no longer extend this 180‑day deadline by more than 90 days without a written determination from high-level authorities.  10 U.S.C. § 2326(g); DFARS 217.7404-3.  The requirement remains unchanged that definitization occur by the date that the amount of funds obligated under the contract exceeds 50 percent of the “do not exceed” price.  UCAs involving foreign military sales ordinarily now require authorization from the head of the contracting activity and definitization within 180 days of submission of a qualifying proposal.  The definition of “qualifying proposals,” however, remains subjective.  According to the DFARS, a qualifying proposal is a proposal that contains sufficient information for the DoD to meaningfully analyze and audit it.  DFARS 217.7401.  More conditions have been imposed on unilateral definitization of contracts over $50 million: a unilateral definitization cannot be made prior to the end of the 180-day period described above or the date that the amount of funds expended is over 50 percent of the overall not-to-exceed price.  48 C.F.R. § 217.7404(b).Regardless of contract price, if price is undefinitized and the final price is negotiated after a “substantial portion” of performance, the agency head must ensure that the profit allowed on the UCA reflects the possible reduced cost risk as to costs during performance and reduced cost risk during the remainder of the contract.  However, if the contracting officer (CO) definitizes more than 180 days after a contractor submits a qualifying proposal, the agency head must ensure that the profit reflects the cost risk of the contractor that existed on the date that the contractor submitted the proposal.  48 C.F.R. § 217.7404–6.  To unilaterally definitize a contract, the head of the contracting activity, without delegation, must approve the definitization in writing, a copy of the approval must be delivered to the contractor, and 30 days must elapse before the CO may, despite contractor objections, unilaterally definitize terms, specifications, or price.The regulatory landscape of UCAs continues to evolve in response to COVID-19.  On April 3, 2020, the Undersecretary of Defense for Acquisition and Sustainment <a href="https://www.acq.osd.mil/dpap/policy/policyvault/Class_Deviation_2020-O0012.pdf">issued a class deviation</a> for UCAs in response to the epidemic.  The class deviation provides two exemptions to UCAs that are determined by the head of the contracting agency (HCA) to be related to the COVID-19 national emergency.  First, the HCA may waive the rule that limits obligations to 75 percent of the “not to exceed” price before definitization for these UCAs.  Second, the HCA is allowed to waive the requirement that these UCAs include a definitization schedule providing for agreement on terms, specifications, and price within 180 days after a qualifying proposal is received.  These limitations are found in DFARS 217.7404(a)(1)(i) (foreign military sales contracts), 27.7404-3(a) (definitization schedules), and 217.7404-4(a) (providing that no more than 50 percent of the NTE may be obligated prior to definitization).  This guidance is effective until rescinded.As the federal government tackles COVID-19, contractors should review the opportunities and potential pitfalls of rapid procurement vehicles like UCAs.  Because price is often an undefinitized term, contractors must be certain of their risk tolerance and have a good understanding of how far apart the parties are on price before entering into a UCA.  Contractors should fully consider the risk that undefinitized elements of a UCA could be resolved unfavorably, and litigation may become necessary.  Contractors must also contemplate life under an undefinitized contract.  For example, how might performance and schedule be affected by undefinitized terms?  Regulatory changes advantage contractors who promptly deliver qualifying proposals before substantial performance, and help curb the profit concerns that UCAs have <a href="https://govcon.mofo.com/defense/undefinitized-contract-action-proposed-rule/">sometimes raised</a>.  These changes should give heart to contractors willing to step forward in a crisis.

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The Basics of Undefinitized Contractual Actions (UCAs)

Updated Coronavirus (COVID-19) Guidelines For Employers

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The federal contracting process is famous for its exacting approach to competitive procurement, which safeguards taxpayer funds and principles of fairness.  Thi

The Basics of Undefinitized Contractual Actions (UCAs)

The President has issued the third in a series of executive orders (EOs) directed at tightening domestic-preference restrictions in Government procurements covered by the Buy American Act (BAA).  <a href="https://www.govinfo.gov/content/pkg/FR-2019-07-18/pdf/2019-15449.pdf">EO 13881</a> orders the Federal Acquisition Regulatory Council (FAR Council) within 180 days to “consider proposing” a rule with the following features:(i) an amendment to the applicable provisions in the FAR that would provide that materials shall be considered to be of foreign origin if:(A) for iron and steel end products, the cost of foreign iron and steel used in such iron and steel end products constitutes 5 percent or more of the cost of all the products used in such iron and steel end products; or(B) for all other end products, the cost of the foreign products used in such end products constitutes 45 percent or more of the cost of all the products used in such end products; and(ii) an amendment to the applicable provisions in the FAR that would provide that the executive agency concerned shall in each instance conduct the reasonableness and public interest determination referred to in sections 8302 and 8303 of title 41, United States Code, on the basis of the following described differential formula, subject to the terms thereof:  the sum determined by computing 20 percent (for other than small businesses), or 30 percent (for small businesses), of the offer or offered price of materials of foreign origin.The EO directs the FAR Council to consider public comments on the proposed rule and “promptly” promulgate a final rule “if appropriate.”The EO also calls upon the Secretary of Commerce and the Office of Management and Budget to recommend “any other changes to the FAR that the FAR Council should consider in order to better enforce the Buy American Act and to otherwise act consistent with the policy described in section 1 of this order, including whether and when to further decrease, including incrementally, the threshold percentage in subsection 2(a)(i)(B) of this order from the proposed 45 percent to 25 percent.”We will provide further analysis when the FAR Council promulgates a proposed rule.  In the meantime, check out our infographic on the Buy American and Trade Agreements Acts.Takeways:  (1) the EO has no immediate effect on contractors; (2) even if the FAR Council eventually adopts all of the provisions the President has ordered the Council to “consider,” the changes are mainly incremental adjustments to the currently-applicable rules for those procurements covered by the BAA; (3) there potentially will be a significant new 95 percent domestic content requirement specifically for iron and steel end products; and (4) the EO does not appear to contemplate any changes to procurements not covered by the BAA, such as acquisitions subject to the Trade Agreements Act and similar regimes that function as a BAA waiver.

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

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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President Issues New Domestic Preference Executive Order

Five Peculiarities of Protests of Federal Supply Schedule Orders

The President has issued the third in a series of executive orders (EOs) directed at tightening domestic-preference restrictions in Government procurements cove

President Issues New Domestic Preference Executive Order

The most common question we hear from clients about the recent boom in the Department of Defense’s spending on other transactions, or OTs, is a simple one:  How can I get in on the action?  Understandably, OTs – essentially contracts not subject to procurement laws or regulations like the Federal Acquisition Regulation (“FAR”) – are very enticing to traditional and nontraditional contractors alike.  And opportunities for OTs abound, particularly since Congress, in 2015, codified the DoD’s authority to award OTs for “prototype projects” (previously just a pilot program) and expanded that authority to include OTs for follow-on production efforts.  But there are limits to DoD’s authority, foremost being that, in general, DoD may acquire only “prototypes” through OTs, and must buy all other goods and services through traditional, FAR-based procurement contracts.<a href="#_ftn1" name="_ftnref1">[1]</a>  So the question of how to access DoD’s surge in OT funding hinges, among other things, on more specific questions:  What exactly is a “prototype,” and do my offerings fit the bill?The answers, it seems, are quite a lot and probably yes.  Congress provided very little legislative direction, instead leaving to DoD the decision over just how broad its authority might reach.<a href="#_ftn2" name="_ftnref2">[2]</a>  Unsurprisingly, it took a broadminded approach to the term “prototype,” and so far the Government Accountability Office (“GAO”), as legislative oversight, has upheld the DoD’s expanding interpretation.<a href="#_ftn3" name="_ftnref3">[3]</a>  This continued in <a href="https://www.gao.gov/assets/700/696592.pdf">ACI Technologies, Inc., B-417011, Jan. 17, 2019, 2019 CPD ¶ 24</a>, where the GAO found the DoD properly awarded a prototype OT for, among other things, training programs, skills development outreach, and the drafting of best practices for fostering commercial development of secure electronic parts.Specifically at issue in ACI Technologies was a solicitation by the Naval Surface Warfare Center seeking a firm to manage a consortium of contractors in support of the agency’s Strategic & Spectrum Missions Advanced Resilient Trusted Systems (“S2MARTS”) initiative.  This initiative’s stated goal is to obtain “innovative technological solutions to address current and future security threats in the electromagnetic spectrum (EMS), trusted microelectronics, and strategic missions hardware environments,” which includes “developing a relationship with industry and academia to establish streamlined processes for obtaining innovative, State-of-the-Art (SOTA) technologies” and “establishing an agile and collaborative working relationship amongst the Government and academia/industry.”  The solicitation sought a consortium manager to oversee the consortiums’ members as they submit white papers and proposals for OT prototype projects in a number of technology areas, including the following:Technology Area No. 8:  Outreach and Standards – Develop standards and practices to foster commercial development of secure, trusted and assured parts. Document and promulgate security-enhancing design practices across government, industry, and academia in the areas of standard program outreach material; standard training material; Government and industry standards and best practices; and self-service libraries of standards and best practices.Technology Area No. 18:  Microelectronics and Electronic Warfare focused Workforce Development – Develop access to training and skill development for university, DoD, and small businesses. This includes SOTA processes for test articles and training; promoting design challenges and hacks around hardware intellectual property (IP) development/assurance.ACI Technologies, which currently supports the Navy Electronics Manufacturing Center of Excellence (“NEMCOE”) under a long-term contract to improve the quality and practices of firms supplying advanced electronics technologies to the DoD, protested the S2MARTS solicitation arguing that, not only were the services described duplicative of ACI Technologies’ efforts with the NEMCOE,<a href="#_ftn4" name="_ftnref4">[4]</a> but they also could not reasonably be described as a “prototype project” as contemplated in DoD’s OT authority.  The GAO disagreed.Recognizing Congress did not define the term “prototype” in 10 U.S.C. § 2371b, the GAO turned to DoD’s internal guidance, which at the time the solicitation was issued defined a prototype as: [A] preliminary pilot, test, evaluation, demonstration, or agile development activity used to evaluate the technical or manufacturing feasibility or military utility of a particular technology, process, concept, end item, effect, or other discrete feature.  Prototype projects may include systems, subsystems, components, materials, methodology, technology, or processes.  By way of illustration, a prototype project may involve: a proof of concept; a pilot; a novel application of commercial technologies for defense purposes; a creation, design, development, demonstration of technical or operational utility; or combinations of the foregoing, related to a prototype. See 2017 Department of Defense Other Transactions Guide for Prototype Projects (Jan. 2017).  This definition has since been replaced, in December 2018, with an even broader definition of “prototype project”:[A] prototype project addresses a proof of concept, model, reverse engineering to address obsolescence, pilot, novel application of commercial technologies for defense purposes, agile development activity, creation, design, development, demonstration of technical or operational utility, or combinations of the foregoing. A process, including a business process, may be the subject of a prototype project.Although assistance terms are generally not appropriate in OT agreements, ancillary work efforts that are necessary for completion of the prototype project, such as test site training or limited logistics support, may be included in prototype projects. A prototype may be physical, virtual, or conceptual in nature.See DoD Other Transaction Guide (Nov. 2018).Before the GAO, the Navy argued that both technology areas at issue fell within these definitions because they “establish a beginning and not an end state” in DoD’s assessment of rapidly developing technologies, pointing out that the guidance expressly included “processes” and any “preliminary pilot, test, evaluation, demonstration, or agile development activity used to evaluate the technical or manufacturing feasibility or military utility of a particular . . . process.”  The GAO found the agency’s explanation to be reasonable.More precisely, the GAO found ACI Technologies failed to “demonstrate that the relevant statutes or the 2017 DoD Guide expressly define developing standards and practices, developing of training materials, or training of military personnel as activities outside the scope of a prototype project,” and had failed to “explain why the solicitation anticipates work that goes beyond a ‘preliminary’ stage.”  Given the breadth of the definitions provided in statute and the DoD Guide, and that neither expressly identifies any activities outside the scope of a prototype project, the GAO has set a seemingly insurmountable bar for showing the DoD is overstepping its prototyping bounds.As DoD continues to test the limits of its OT authority, we expect the GAO to play a critical role in defining just how far that authority extends.  It appears, from ACI Technologies and other recent cases, the Office has little intent to pull on DoD’s reins without further direction from Congress, as least regarding the types of prototype projects eligible for OT awards.  Until Congress provides such direction, procuring officials and industry participants should hop on for the ride.<a href="#_ftnref1" name="_ftn1">[1] </a>This statement is a bit oversimplified.  The DoD also has two other OT authorities:  First, under 10 U.S.C. § 2371, DoD may enter into OTs for basic, applied, and advanced research projects, although, unlike prototype OTs, these research OTs are not to acquire goods to services, but to support industry research.  Second, pursuant to 10 U.S.C. § 2373, DoD may use OTs to buy “ordinance, signal, chemical activity, transportation, energy, medical, space-flight, telecommunications, and aeronautical supplies, including parts and accessories, and designs thereof” that are “necessary for experimental or test purposes.”  See 10 U.S.C. § 2373(b) (stating such purchase may be “by contract or otherwise” and that general procurement statutes will apply “only when such purchases are made in quantities greater than necessary for experimentation, technical evaluation, assessment of operation utility, or safety or to provide a residual operational capability”).<a href="#_ftnref2" name="_ftn2">[2]</a> In drafting 10 U.S.C. § 2371b, Congress offered only that the prototype projects must be “directly relevant to enhancing the mission effectiveness of military personnel and the supporting platforms, systems, components, or materials proposed to be acquired or developed by the Department of Defense, or to improvement of platforms, systems, components, or materials in use by the armed forces.”  Although DoD’s mission is diverse, one hopes most everything it does will “enhance the effectiveness” of our armed forces and the platforms they use in some way or another.<a href="#_ftnref3" name="_ftn3">[3] </a>As we have previously discussed on this blog, although the GAO will not review the award of an OT or the terms of a solicitation for OT awards, it will review a timely protest that an agency is improperly using an OT where a procurement contract is required.  See 4 C.F.R. § 21.5(m); Blade Strategies, LLC, B-416752, Sept. 24, 2018, 2018 CPD ¶ 327 at 2.<a href="#_ftnref4" name="_ftn4">[4] </a>The GAO dismissed ACI Technologies’ allegations of duplicative research for failing to state a sufficient factual or legal basis for protest.*Victoria Dalcourt Angle is a member of the firm’s Government Contracts practice and not yet admitted to the bar.<div class="textwidget"><div class="gray-sidebar"></div></div>not admitted to the bar.

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Locke Bell is a partner in the firm’s Government Contracts & Public Procurement practice.

Locke Bell

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Associate

Tori Dalcourt Angle is an associate in the Government Contracts practice in Morrison Foerster’s Washington, D.C. office.
Tori advises clients on various government contract matters, including both pre

Victoria Dalcourt Angle

Victoria Angle

GAO Continues to Expand the Scope of “Prototypes” DoD May Buy Through OTs