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Federal Contracting Implications of President Trump’s National Emergency Declaration In Response to the Coronavirus (COVID-19) Pandemic

March 16, 2020

Dentons has formed a COVID-19 Client Special Situations Team and Client Resources Hub that stands ready to assist contractors in addressing the full range of issues, both in the US and globally, that may arise in connection with the COVID-19 outbreak. This advisory is the latest update in a series of alerts that address various aspects in which the contracting community may be affected. This advisory focuses on the implications of President Trump’s emergency declaration under the Stafford Act and the government’s use of the Defense Production Act and similar authorities to acquire goods and services that may be necessary to combat COVID-19.

On Friday, March 13, 2020, President Trump declared a national emergency relating to the coronavirus (COVID-19) pandemic. This emergency declaration makes available billions of dollars in federal disaster relief funds to state and local governments pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act), 42 U.S.C. ch. 68. Federal Emergency Management Agency (FEMA) administers the funds, pursuant to specific federal regulations, and generally makes them available to state and local governments in the form of grants. The state and local governments will further administer the funds for specific programs through subgrants and procurement contracts to support the COVID-19 response and relief effort. 

In addition to the funds made available under the Stafford Act, contractors also should be cognizant of the fact that the federal government might exercise its authority under the Defense Production Act of 1950, 50 U.S.C. §§ 4501 et seq., which is implemented by the Defense Priorities and Allocations System (DPAS), 15 C.F.R. § Pt. 700, to rapidly respond to the COVID-19 pandemic. Under DPAS, the government has the authority to prioritize government contracts for goods and services over competing customers, to allocate or control the general distribution of materials, and to offer incentives within the domestic market to enhance the production and supply of critical materials and technologies when necessary to respond to a national emergency. Contractors that have prime contracts, subcontracts or purchase orders subject to DPAS generally must quickly accept DPAS-rated orders within a short timeframe (10 to 15 days), and may only reject a rated-order in very limited circumstances. Additionally, prime contractors and subcontractors are required to flowdown these rating requirements to suppliers, as necessary to meet delivery requirements.  It is therefore important for contractors to be aware of which of their prime contracts, subcontracts and purchase orders are rated.

While it is unlikely that the government would exercise the more extreme authority granted under DPAS and effectively commandeer manufacturing and other types of facilities in order to produce critical medical supplies or to support other emergency relief efforts, contractors should further be mindful that the government could also authorize companies to use certain goods and technology that is patented by other companies without the consent of the patent holder. Specifically, pursuant to the Bayh-Dole Act, 35 U.S.C. ch. 18, or 28 U.S.C. § 1498, the federal government may authorize a company to produce, for example, critical pharmaceutical products, testing equipment or other essential items that are patented by another company to combat CoVID-19. Together, these authorities essentially authorize the US government to license and authorize the practice of patented inventions by industry competitors without regard to whether the patented technology was developed with government funding or exclusively at private expense. While patent holders are not without recourse, a patent holder’s recourse is typically limited to relief from the federal government in the form of royalty payments or damages—not from the companies who have received appropriate authorization and consent to use the patented items. Notably, however, in cases involving subject inventions funded by it, the government, pursuant to the Bayh-Dole Act, may exercise its “march-in” rights that permit the government to require the patent holder to license the invention to third parties. If the patent holder fails to do so, the Bayh-Dole Act permits the government to directly license the patented technology to non-patent holders upon terms that are reasonable under the circumstances. This may presumably include the payment of reasonable royalties to the patent holder, but the relevant provision of the Bayh-Dole Act (35 U.S.C. § 203) does not specifically require the payment of such royalties, creating risk that the patent holder may not receive the compensation that might normally be due. While the Bayh-Dole Act and its implementing regulations in the Federal Acquisition Regulation (FAR) apply to small businesses and non-profit organizations, the Act authorizes the government to extend the Act’s requirements to all contractors. See 35 U.S.C. § 210(c); FAR Subpart 27.3. In this regard, the Department of Defense has extended these requirements, among others, to large contractors through a specific clause, Defense Federal Acquisition Regulation Supplement (DFARS) 252.227-7038, which includes the government’s march-in rights. See DFARS 252.227-7038(h). Therefore, contractors of all sizes should be aware of the government’s ability to exercise these rights.

The national emergency surrounding COVID-19 creates a situation in which the government may utilize its vast national security powers and emergency resources to combat the virus. Contractors must be aware of the unique issues that may arise under these circumstances as the consequences of noncompliance may be drastic.

Please contact any of the authors if you require additional guidance on specific issues.

Federal Contracting Implications of President Trump’s National Emergency Declaration In Response to the Coronavirus (COVID-19) Pandemic

The Most Important Contract Disputes Decisions of 2019

In the attached article, we summarize and discuss the impacts of disputes decisions that are likely to have sustained impacts on contractors and the Government alike into the foreseeable future in connection with our “Feature Comment: The Most Important Contract Disputes Decisions of 2019,” in The Government Contractor (Vol. 62, No. 5).

The Most Important Contract Disputes Decisions of 2019

CBCA further limits the Federal Circuit’s decision in Maropakis

On January 5, 2016, the Civilian Board of Contract Appeals (CBCA) issued a decision that is another in a line of decisions that erodes the Federal Circuit’s holding in M. Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323 (Fed. Cir. 2010). In Maropakis, the Federal Circuit held that certain contractor defenses to government claims are actually contractor claims under the Contract Disputes Act’s (CDA), meaning they must first be submitted to the contracting officer for decision and cannot be raised for the first time in litigation. Since that decision, both the Court of Federal Claims (COFC) and the boards of contract appeals have narrowed the scope of the Federal Circuit’s decision in Maropakis. See, e.g., Total Eng’g, Inc. v. United States, 120 Fed. Cl. 10 (2015) (The CDA does not require the contractor to jump through such an extra hoop and refile its defense to a government claim as a so-called contractor’s ‘claim’ where it is not seeking any separate monetary relief or contract adjustment.). For more information on the Total Engineering case, see our previous post here.

Most recently, in Jane Mobley Assoc., Inc., v. Gen. Serv. Admin., CBCA 2878, 2016 WL 73878, the CBCA explained the difference between an affirmative CDA claim and a defense to a government claim:

An affirmative CDA claim is an attempt to modify or adjust the contract to counter the liquidated damages assessment (e.g., compensable time extensions as a result of government delays). A factual defense to a liquidated damages assessment merely serves to attack the assessment itself (e.g., the government’s assessment was incorrect because the delay was excused as a result of government delays). Plainly stated, a CDA claim seeks affirmative relief under the contract through a contract adjustment; a factual defense only attempts to reduce or eliminate the liquidated damages assessment.
Id. (emphasis original) (citations omitted).

In distinguishing (and limiting) Maropakis, the CBCA stated:

In the CDA context, if we were to apply the rule of Maropakis to any defense raised by a contractor in response to a government claim that is not in the nature of an adjustment of contract terms or not seeking separate monetary relief, the “drastic consequence” could well be that the contractor’s appeal is never able to be heard on the merits. This is contrary to the intent and purpose of the CDA.
Id. (emphasis original).

This holding, and the steady departure from Maropakis, is beneficial for contractors because it promotes efficient adjudication in defending against government claims. Nevertheless, contractors should remain cognizant of the Federal Circuit’s holding in Maropakis and assess, on a case-by-case basis, whether their defense qualifies as a “claim” under the CDA.

CBCA further limits the Federal Circuit’s decision in Maropakis

DOD signals pivot away from proposed DFARS rule on evaluating price reasonableness for commercial items

The Department of Defense (DOD) published a report on the Open DFARS Cases as of December 7, 2015, which indicates that the controversial proposed rule on evaluating price reasonableness for commercial items (DFARS Case 2013-D034) was closed. As we previously reported, the proposed rule would have made significant substantive changes to what qualified as a commercial item under DOD-funded contracts and would have imposed significant data gathering burdens on prime contractors. In its place the DOD opened a new case, DFARS Case 2016-D006, Procurement of Commercial Items. The purpose of the new DFARS case is to implement the requirements of six sections of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2016, in addition to the requirements of section 831 of the NDAA for FY 2013. See National Defense Authorization Act for Fiscal Year 2016, Pub. L. No. 114-92; National Defense Authorization Act for Fiscal Year 2013, Pub. L. No. 112-239. A brief overview of some key requirements within the applicable sections of the NDAA for FY 2016 is provided below.

The DOD opened DFARS Case 2016-D006 on December 7, 2015, and has proposed a rule within the agency, which its staff is processing. We will continue to monitor the progress and will report back here with updates.

Section 851, “Procurement of Commercial Items.” This section requires the Secretary of Defense to establish a centralized capability to oversee the making of commercial item determinations for DOD procurements and to provide public access to these determinations. The section also permits contracting officers (CO) to rely on prior determinations made by a military department, Defense Agency or other component of the DOD. Notably, the section permits a CO to require a contractor to supply additional information to support the reasonableness of a price, irrespective of whether a contractor was required to provide such information in connection to a prior procurement.

Section 852, “Modification to Information Required to be Submitted by Offeror in Procurement of Major Weapon System as Commercial Item.” Under this section, an offeror must submit: (a) prices paid for the same or similar commercial items under comparable terms and conditions by both the government and commercial customers; and (b), if the information for (a) is not available, (i) prices for the same or similar items sold under different terms and conditions; (ii) prices for similar levels of work or effort on related products or services; (iii) prices for alternative solutions or approaches and (iv) other relevant information. The section also permits the CO to request additional information, such as labor costs, material costs and overhead rates.

Section 853, “Use of Recent Prices Paid by the Government in the Determination of Price Reasonableness.” This section provides that a CO, in determining whether a price is reasonable, must consider prior prices paid by the government for the same or similar commercial item if these prices are provided by an offeror and represent reasonable prices based upon the totality of the circumstances (i.e., the time elapsed, the quantities and the terms and conditions).

Section 855, “Market Research and Preference for Commercial Items.” This section requires the Under Secretary of Defense for Acquisition, Technology, and Logistics to issue guidance that: (a) prohibits an agency from contracting for noncommercial information technology products or services in excess of the simplified acquisition threshold, unless the agency determines in writing that commercial items cannot meet the agency’s needs; and (b) mandates that agencies conduct market research, where appropriate, prior to making a price reasonableness determination.

Section 856, “Limitation on Conversion of Procurements from Commercial Acquisition Procedures.” Under this section, for a CO to convert a procurement of commercial items or services valued over $1,000,000 from commercial acquisition procedures to noncommercial acquisition procedures, the CO must make a written determination that: (a) the commercial acquisition procedures were erroneously utilized or were utilized because of inadequate information; and (b) the conversion will result in cost savings. In making such a determination the CO must consider: (a) estimated research and development costs for improving future products or services; (b) transaction costs for both the DOD and contractor; (c) changes in purchase quantities and (d) potential delay costs resulting from the conversion. If the procurement is valued over $100,000,000, the head of the contracting authority must also approve the determination. The requirements in this section terminate in five years.

Section 857, “Treatment of Goods and Services Provided by Nontraditional Defense Contractors as Commercial Items.” This section permits the head of an agency to treat the items and services provided by nontraditional defense contractors as commercial items.

As previously stated, DFARS Case 2015-D006 will also implement section 831 of NDAA for FY 2013, which directed DOD to, among other things, issue guidance including “standards for determining whether information on the prices at which the same or similar items have previously been sold is adequate for evaluating the reasonableness of prices.” National Defense Authorization Act for Fiscal Year 2013, Pub. L. No. 112-239.

DOD signals pivot away from proposed DFARS rule on evaluating price reasonableness for commercial items