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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

Federal Circuit Decision Reins In COFC’s Ability To Decide Task Order-Related Protests

Last week, the Federal Circuit issued an opinion that may curtail the Court of Federal Claims’ jurisdiction to decide task order-related bid protests under the Federal Acquisition Streamlining Act of 1994 (“FASA”).  FASA is generally regarded as permitting only two types of task order bid protests: (1) protests alleging that a task order award is “out-of-scope;” and (2) protests of task order awards exceeding $10 million at the Government Accountability Office.  See 41 U.S.C. § 4106(f).  Despite this limitation, several Court of Federal Claims decisions in recent years have asserted jurisdiction over bid protests challenging agency actions taken before or after the issuance of a task order.  The decision in SRA Int’l v. United States, No. 2014-5050, 2014 WL 4494775 (Fed. Cir. Sept. 15, 2014), however, signals the Federal Circuit’s skepticism towards the view that FASA does not bar such protests, finding instead that the timing of an agency action does not, in itself, affect whether FASA’s restriction applies, and that the statute “effectively eliminates all judicial review for protests made in connection with a procurement designated as a task order.”  Id. at *4.

Federal Circuit Decision Reins In COFC’s Ability To Decide Task Order-Related Protests

Federal Circuit Clarifies That Contractors Do Not Have to Show “Specific Targeting” to Establish a Government Breach of the Implied Duty of Good Faith and Fair Dealing

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.

Federal Circuit Clarifies That Contractors Do Not Have to Show “Specific Targeting” to Establish a Government Breach of the Implied Duty of Good Faith and Fair Dealing

GAO Annual Report Shows Process-Related Protest Grounds Most Successful, Among Other Trends

GAO’s most recent Bid Protest Annual Report to Congress, for FY 2013, shows protesters are achieving the most success not by attacking an agency’s evaluation judgments as unreasonable, but by challenging evaluation process-related issues.  That result is not surprising, given the strong deference GAO affords agencies’ judgments regarding the comparative merit or risk of proposals.  The report also shows two other important trends.  First, GAO is receiving more task order protests than ever before.  GAO closed 259 task order protests during FY 2013 — 50 more than in any prior year.  Second, GAO continues to hold fewer hearings to resolve protests.  In FY 2013 GAO conducted just 31 hearings (just 3.4% of all fully developed cases during the year).  This follows a trend of steady, consistent decline in the number of GAO has conducted:  12% of fully developed cases in FY 2009; 10% of cases in FY 2010; 8% in FY 2011, and 6.2% in FY 2012.

GAO Annual Report Shows Process-Related Protest Grounds Most Successful, Among Other Trends

Government Shutdown May Impact A Contractor’s Ability to Obtain an Automatic CICA Stay When Filing a Bid Protest at GAO

As we discussed last week, GAO issued a notice providing important guidance about its bid protest filing deadlines and procedures during the Government shutdown.  However, this notice was silent about one important issue: its impact on the CICA stay.  When filing a protest before the GAO during the shutdown, contractors should be aware that these interim limitations at GAO may impact a contractor’s ability to obtain an automatic CICA stay.  GAO is not providing the notices to agencies that trigger the stay (otherwise required within one calendar day).  The effect of the furlough on the statutory stay  has not been tested and is therefore uncertain.  As a result, contractors may desire to file their protests before the COFC to improve their chances to stay performance of the contract pending the resolution of the protest.

Government Shutdown May Impact A Contractor’s Ability to Obtain an Automatic CICA Stay When Filing a Bid Protest at GAO

The Government Shutdown’s Impact on the Federal Circuit, Court of Federal Claims and Boards of Contract Appeals

Yesterday we posted about the impact of the Government shutdown on GAO bid protests.  Today we focus on the impact to the Boards of Contract Appeals, the Court of Federal Claims and the Federal Circuit:

 

  • The CBCA will remain open for the purpose of accepting filings from parties during the Government shutdown.  Importantly, any statutory limitations on the time within which a filing may be made will not be waived or tolled during this period.
  • The ASBCA Recorder’s Office will remain open to accept filings.
  • The Court of Federal Claims will continue to hear and decide cases without interruption, and does not expect to issue continuances based on the lapse or anticipated lapse of appropriated funds and will adhere to schedules currently in effect.
  • The Federal Circuit will remain open and provide all normal judicial business functions through October 11, 2013.
The Government Shutdown’s Impact on the Federal Circuit, Court of Federal Claims and Boards of Contract Appeals

GAO Issues Important Notice About Bid Protest Filings and Procedures During Government Shutdown

As you may know, the GAO bid protest office is closed during the Government shutdown.  As a result, GAO immediately issued a notice discussing the impact of the Government shutdown on bid protest filing deadlines and procedures.  Contractors should familiarize themselves with this notice to ensure that all filing deadlines are met and all filing procedures are satisfied.  To summarize:

  • Any deadline for a protest filing from a private party that falls on a day that GAO is closed is extended to the first day that GAO resumes operations.
  • Any deadline for an agency filing may, upon request, be extended by up to one day for each day that GAO is closed.
  • Any new protest received by GAO during the time that GAO is closed will be treated as filed on the day that GAO resumes operations.
  • All filings must be made by email through protests@gao.gov.
GAO Issues Important Notice About Bid Protest Filings and Procedures During Government Shutdown