Last week the Federal Circuit delivered an early valentine to contractors through its decision in Metcalf Construction Co., Inc. v. United States, 2013-5041 (Fed. Cir. Feb. 11, 2014). This decision provides much-needed clarity regarding the standard a contractor must satisfy to prove that the Government has violated its implied duty of good faith and fair dealing. As we previously reported, the Federal Circuit’s 2010 Precision Pine and 2012 Scott Timber II decisions utilized a “specifically targeted” test – instead of the previously well-established “reasonableness test” – to determine whether a breach of this duty occurred. This arguably added a scienter requirement for determining breach of the implied duty, making it significantly more difficult for contractors to prevail on this type of claim. Although the Scott Timber II decision provided hope to contractors, this hope hung on the balance of a single footnote in that decision, which suggested that the “specifically targeted” test might apply only in narrow circumstances. Now in Metcalf, the Federal has confirmed this is the case, expressly holding: (1) that a contractor did not need to show that it was the victim of “specific targeting,” except in very limited circumstances; and (2) that the Government can breach the implied duty even if its action did not violate an express term of the parties’ contract. This decision should help resolve the inconsistent treatment this issue has received in recent decisions by the U.S. Court of Federal Claims and the boards of contract appeals, as well as the very heated debate within the Government contracting community on this issue over the last several years. Although this decision is a major boost to contractors, because Precision Pine has not been overruled, we believe that the Justice Department still may continue to assert that the Precision Pine standard should apply. Thus, there will remain a need for careful and skilled analysis and briefing of the implied duty issue in future cases before the Court of Federal Claims, the boards, and the Federal Circuit. Click here for a more substantive discussion of this decision and its impact.
The National Institute of Standards and Technology (“NIST”) has issued the Framework for Improving Critical Infrastructure Cybersecurity, Version 1.0 (“Framework”), providing guidance to the nation’s critical infrastructure on best managing and protecting against cyber threats. Developed in accordance with Executive Order 13636, “Improving Critical Infrastructure Cybersecurity,” the Framework provides organizations with a crucial tool kit to utilize in reducing cybersecurity risks using existing standards, guidance, and best practices.
During the recent State of the Union Address, President Obama announced that he is preparing to sign an Executive Order raising the minimum wage to $10.10 per hour for those working on future federal contracts for services. According to a “Fact Sheet” posted online by the White House, the Order would cover “workers who are performing services or construction and are getting paid less than $10.10 an hour.” It would apply only to new contracts after the effective date of the Order.
A recent U.S. Government Accountability Office (GAO) decision serves as an important reminder that federal agencies violate the Antideficiency Act, 31 U.S.C. § 1341 et seq., whenever they accept unpaid “voluntary services” from contractors without first obtaining written agreement that: (1) the services are offered without expectation of pay; and (2) expressly waives any future pay claims against the government. Dep’t. of the Treasury—Acceptance of Voluntary Servs., B-324214, Jan. 27, 2014.
On January 23, 2014, the Department of Defense (“DoD”) and General Services Administration (“GSA”) Joint Working Group on Improving Cybersecurity and Resilience through Acquisition submitted its much-anticipated final report to the President on the use of security standards in federal acquisitions. See Improving Cybersecurity and Resilience through Acquisition – Final Report of the Department of Defense and General Services Administration. This report is the culmination of a lengthy joint effort between DoD and GSA to respond to Section 8(e) of Executive Order 13636, which required DoD and GSA to make recommendations to the President regarding “the feasibility, security benefits, and relative merits of incorporating security standards into acquisition planning and contract administration,” previously discussed here.
The final report contains six recommendations related to the use of cybersecurity standards in federal acquisitions.
The National Institute of Standards and Technology (“NIST”) recently published an update on its development of the much-anticipated Cybersecurity Framework (“Framework”), a roadmap for managing cyber risks using current best practices, guidelines, and standards.
The update comes about a month after the closing of the formal comment period on the preliminary version of the Framework released in October 2013. More on that preliminary framework can be found here. During the comment period, NIST received over 200 submissions, containing nearly 2,500 individual comments. NIST has published those submissions here.
In the update, NIST highlighted recurring comments and themes it identified in the submissions received, including:
- concerns about the methodology to protect privacy and civil liberties;
- the need to reinforce the voluntary nature of the Framework and “state clearly that its focus is on the nation’s critical infrastructure, while acknowledging that the document has broader utility and can be helpful to many parts of the economy”;
- clarification on the nature and use of the Framework’s profiles and Implementation Tiers; and
- the recommendation to broaden the Framework to cover specific types of data to aid in establishing an effective cybersecurity program.
Certain submissions also suggested that criteria to measure a company’s implementation of the Framework and implementation examples be incorporated into the Framework.
NIST plans to issue the final version of the Framework on February 13, 2014. MLA will provide insight into and analysis of that final version upon release.
The U.S. Department of Justice (“DOJ”) recently reported that the Government recovered $3.8 billion in FY 2013 in settlements and judgments from civil cases brought under the federal False Claims Act (“FCA”), the second largest amount in the history of the FCA. The recent upward trend in “whistleblower”—or qui tam—actions continued, with filings increasing by over 15% from 2012, to a total of 752 lawsuits. Indeed, in FY 2013, the Government paid out more than $345 million to FCA relators. Furthermore, recoveries relating to alleged procurement fraud reached a record high of $887 million (including a single judgment for $664 million—the largest in FCA history).
Combined with the continued expansion in the scope of the FCA, these substantial increases in both filed cases and recoveries underscore the need for companies doing business with the Government to be vigilant in monitoring potential sources of fraudulent conduct and maintaining strict internal controls aimed at preventing and detecting fraud and other improper conduct.
For more details, read our recent advisory on this issue.
As of January 22, 2014, the SBA changed the size standards for renewable energy and other utility contracts to employee-based standards. Under the final rule, renewable energy contractors will qualify as a small business if the company has less than 250 employees, including the employees of their affiliates. The SBA now will also use an employee-based size standards for the Hydroelectric, Fossil Fuel and Nuclear Power Electrical Generation, as well as Electrical Power Distribution industries.
Previously, to qualify as a small business concern, a renewable energy company needed to: (1) generate, transmit or distribute less than 4 million megawatt hours of electric energy for sale annually; and (2) be primarily engaged in the generation, transmission or distribution of electrical energy for sale. Many contractors failed to qualify as a small business because the SBA’s Office of Hearings and Appeals has interpreted this “primarily engaged” standard to require that a majority of the combined revenues of the entity and its affiliates must come from the generation, transmission or distribution of electrical energy for sale. More contractors will now be eligible for small business status, because the final rule eliminates this “primarily engaged” requirement.
The Defense Contract Audit Agency recently issued guidance clarifying the agency’s view on the types of evidence necessary to substantiate consultant costs. The guidance explains DCAA’s position that Federal Acquisition Regulation 31.205-33, which addresses the allowability of consultant costs, does not require the existence of specific types of documents in order for consultant costs to be allowable. Instead, the guidance explains that the FAR only requires evidence of the nature and scope of the consultant effort and that such evidence can be supplied in a variety of ways, including through non-contemporaneous documentation. This guidance will assist contractors in resisting the common auditor position that FAR 31.205-33 requires contractors to provide specific types of documents, such as invoices, contracts, and work product, as a precondition of consultant cost allowability.
Learn more about the new DCAA guidance and its implications for contractors by reading our client alert on this issue.
On Tuesday, the General Services Administration (GSA) posted a notice entitled “Modernizing the Federal Supply Schedule Program: Order-Level Materials.” In its notice, GSA seeks public comments to assist with the development of better processes for ordering agencies to procure items at the order level that are not listed on a contractor’s Schedule. The notice refers to these items as “order-level materials.” Notably, although there are well-developed processes for procuring order-level materials under other multiple award IDIQ contracts, there is currently no clear mechanism for the procurement of these items under the Federal Supply Schedule (FSS) program. This effort comes as part of GSA’s effort to modernize the FSS program as a whole. We believe this is a step in the right direction for the FSS program and should promote the effectiveness and efficiency of the program.