Blackford Forum

Amendment of CDA Certified Claims and the “Sum Certain” Requirement

By Jonathan DeMella on Posted in Claims

A properly certified Contract Disputes Act claim requires that the contractor making the claim demand a “sum certain.”  Last week, the Armed Services Board of Contract Appeals issued a decision in Zafer Taahhut Insaat ve Ticaret A.S., in which Judge Page held that a the Board is not divested of jurisdiction if a contractor qualifies the sum claimed.  In that case, the contractor’s claim was for a precise dollar amount, but also included the following “unambiguous qualification” at the end of its claim:

The above Total Entitlement to Additional Payment in respect of increased costs incurred by Zafer as a result of the Events described in this Request is believed to be correct as at the date of this Request, but Zafer reserves the right to revisit these and other matters until a release of claim is executed.

In denying the Government’s motion to dismiss for lack of CDA jurisdiction, the Board stated that such reservations do not jeopardize the “clearly stated sum certain,” and that a reservation indicating that a monetary claim may be modified or amended is permissible.   The Board also clarified that “a party’s willingness to continue settlement attempts” does not destroy jurisdiction over a cognizable claim:  “Continued offers to negotiate a settlement do not impair an existing CDA claim, because there is no inconsistency between a valid claim and an expressed desire to resolve a dispute.”

What practical guidance can we take from this?  First, when submitting a CDA certified claim, state a precise monetary amount.  Second, advise the Contracting Officer through a reservation or qualification that the claim may be amended, (or even that a related but new claim based on different operative facts may arise), if appropriate under the circumstances.  Third, there is nothing wrong with continuing negotiations with the Government toward an amount different or less than stated in the certified claim, while also pressing forward with CDA litigation. 

This should give contractors some comfort that, although the CDA certification and sum certain requirements must be carefully observed, a certified claim once submitted need not be cast in stone.

I welcome  any questions and comments –    

 

SBA’s Women-Owned Small Business Program Update: SBA Approves Third-Party Certifiers

By Meredith L. Thielbahr on Posted in Small Business Contracting

In February 2011, the Small Business Administration (SBA) implemented its women-owned small business (WOSB) program in hopes of providing greater access to federal contracting opportunities for WOSBs and economically disadvantaged WOSBs (EDWOSBs).  Under the program, contracting officers are permitted to set aside specific contracts for certified WOSBs and EDWOSBs.  The set-aside preferences apply to federal contracts where the anticipated contract price does not exceed $5 million in the case of manufacturing and $3 million in the case of other contracts.  Contracts with values in excess of these thresholds are not subject to the rule. 

To be eligible, the program requires that the small business be 51 percent owned and operated by one or more women, and the owners must be U.S. citizens.  A woman must hold the highest officer position in the company; for example, a 51 percent female-owned and -operated company cannot be led by a male president or CEO.  Eligibility has no minimum requirement for the amount of time the business has been operational.

The company must also be classified as “small” within its primary industry according to SBA standards for that particular industry.  The rule allows the company to be certified by a third-party certifier, or to self-certify.  Recently, the SBA named four organizations to act as third-party certifiers under the program.  They include:

At this time, SBA will only accept third-party certification from these four entities.  Note, at the request of WBENC, SBA has approved WBENC only for the certification of WOSBs and not for the certification of EDWOSBs.

WOSBs/EDWOSBs may still opt to self-certify under the program.  For those that self-certify, the rule requires the WOSB/EDWOSB to submit a certification verification, to register their status in the Central Contractor Registration (CCR) and Online Representation and Certification (ORCA) website, and also to submit a set of eligibility-related documents to the SBA’s WOSB online document repository (www.sba.gov/wosb).  Additional information on the program can also be obtained by visiting this site.

Cost implications should be factored when considering whether to self-certify or use an approved third-party certifier.  For example, certification through the National Women Business Owners Corporation includes a fee covering the organization’s conduction of an in-depth review, site visit, and completion of reporting materials to achieve SBA certification.  WOSBs and EDWOSBs that chose to certify on their own do so directly through the SBA at no cost.  However, resources used on a third-party certify could save time and money in the long run—perhaps the SBA will more closely review self-submitted verifications as opposed to those certified by one of the approved four entities in determining adequate grounds for a potential protest?  You can visit the above websites to learn more about each organization’s certification process and associated costs.

An earlier article written by Ms. Thielbahr, outlining the SBA’s WOSB program in greater detail, can be found at: http://www.oles.com/news/event/meredith-thielbahr-for-nawic-image-magazine-sba-gives-women-a-helping-hand.  Ms. Thielbahr welcomes questions or comments directly at (206) 467-7490 or via email at thielbahr@oles.com.

Using the Lanham Act to Protect Your Business Interests

By Kate H. Kennedy on Posted in Claims, Compliance and False Claims

In the competitive world of government contracting, false and misleading promotional statements can materially impact contract awards.  The Lanham Act is a powerful tool that you can use to protect your business’ interests and prevent the loss of a contract due to a competitor’s false statements.  Though traditionally thought of in the realm of intellectual property disputes, the Lanham Act prohibits companies from making false and/or misleading promotional claims and is equally relevant to government contractors. 

Under the Lanham Act, businesses are granted a private cause of action against competitors who make false or misleading promotional statements.  Specifically, the Lanham Act provides contractors with the ability to secure a temporary restraining order or preliminary injunction and preclude competitors from making a false or misleading statement in their advertising or promotional activities.  By encompassing promotional activities as well as commercial advertising, the Act enables contractors to prevent misrepresentations in bid proposals, presentations, and even written correspondence to the extent that the correspondence is related to the promotion of a commercial transaction. 

To use the Lanham Act to its full potential, contractors should monitor their competitor’s public statements, seek documents through FOIA requests as necessary, and generally maintain a watchful eye for competitors’ misrepresentations and false statements.  However, contractors should bear in mind that not all misrepresentations are actionable.  The false or misleading statement must be made in a promotional context, i.e., to induce the award of a contract or the sale of products or services.  Accordingly, statements made by a contractor after having been awarded the contract may not be actionable under the Lanham Act because the “promotion” period has concluded.  Additionally, if the statement is made to a sophisticated consumer, it may be difficult to establish that the consumer was misled or that the statement had the ability to mislead the consumer.  Therefore, misrepresentations made to a senior contract administrator with a high-degree of technical knowledge will be treated differently than misrepresentations made to a contracting officer with no specialized knowledge.

Though the Lanham Act can be a powerful sword by which to attack false statements of your competitors, the rise of these claims also should lead contractors to look to their own business practices.  In order to ensure that your business practices are not the subject of a Lanham Act claim, we recommend contractors review their advertising and promotional materials to ensure that they are factually accurate.  Even minor, perhaps unintentional, misstatements can give rise to a Lanham Act claim.  For example, a bid proposal that misidentifies the former job titles of a key staff member is actionable under the Lanham Act.  Thus, it is prudent to take this opportunity to ensure that the line separating promotion and misstatement is not crossed.

The use of the Lanham Act in government contracting is a relatively new phenomenon.  Though its use appears to be gaining momentum, the nature of the public procurement process may preclude the Act from becoming as prevalent here as it has become in the intellectual property arena.  Misrepresentations will often be found in a proposal and therefore will be unknown to competitors.  Unless there is another ground to protest the award, it will be a rare occasion in which businesses will have knowledge of the misrepresentation in time for the Lanham Act claim to be relevant to the award. 

I welcome your thoughts and comments.

Oles Morrison 2012 Alaska Construction and Government Contract Seminar

By Jonathan DeMella on Posted in Uncategorized

On February 9-10, 2012, Oles Morrison will be hosting its annual Construction Law and Government Contract Seminar at the Captain Cook in Anchorage.  This year’s seminar covers a host of interesting and timely topics including:

  • Alaska Construction Law Year in Review: Important developments Alaska contractors need to know
  • Dangers of Improper Claim Pricing – Private, State and Federal
  • Privacy Issues in the Workplace: What An Employer Can & Cannot Do In the Age of Social Media, Text Messaging and Smart Phones
  • Killer Contract Clauses: A concise review of clauses/language that is often inserted into contracts and the unexpected consequences that can follow.
  • Business Succession Planning for Contractors
  • Alternative Dispute Resolution:  Is it a good “Alternate” or not
  • Financial Statement Analysis for the Risk Averse
  • Federal Contracts: The Year in Review: A review of major statutory, regulatory, case law and other developments in Federal Contracts in the past twelve months
  • LEED and Federal Contracting: An overview of LEED and how various Federal agencies are using LEED to meet the federal sustainability requirements.
  • Small Business Contracting – Best Practices: A discussion on dos and don’ts for small business contracting, including 8(a), HUBZone, Veteran-owned, and Women-owned businesses in light of regulatory and case law developments in the past year.
  • Bid Protests- Discussion of the bid protest process before the GAO and the Court of Federal Claims, and review current trends and caselaw

Attorneys from our Anchorage and Seattle offices will be presenting.  The Thursday afternoon session will cover issues focusing on Construction Law, and the Friday afternoon session will focus on Government Contracting issues, which will be followed by a cocktail networking event.

This seminar is a great way to stay on top of emerging legal issues and trends affecting construction and Government contractors.  We always have a great turnout and, with this year’s speakers and list of topics, I’m sure 2012 will be the same.  Details regarding the event can be found on our website, or by contacting Jessica Blanche at 206.623.3427.   Please be sure to mention the Blackford Forum for a waiver of the registration fee.

We hope to see you there!

“Unintentional” False Claims Act Liability

By Jonathan DeMella on Posted in Compliance and False Claims

This week, the Department of Justice reported a $702,000 settlement with Engineering Systems Solutions, Inc. for False Claims Act violations.  The report serves as a stark reminder that:  (i) enforcement of the FCA against subcontractors is alive and well and (ii) intent to defraud the Government is not required for liability under the False Claims Act.   Here, ESS served as a subcontractor to provide the U.S. Army with mobile communications systems that it designed, integrated and assembled.  Employees with certain qualifications were paid at a higher rate.  The Government claimed that, during the performance of the contract, ESS and its employees falsely billed the Government for labor performed by ESS employees who lacked the qualifications specified by the contract for the rates billed to the Government.  

I have not seen the settlement agreement (which may be confidential) and, based on the press release, it is difficult to discern whether ESS’s managment intended to, or even knew, that certain individuals performing the work did not have qualifications necessary to support the rates at which they were being billed.  Also, there is no indication that the Government did not get what it bargained for, i.e., that the mobile communications systems that ESS designed, integrated and assembled for Army did not satisfy contractual standards.   

One can imagine circumstances in which a subcontractor focused upon quality control and satisfaction of contractual performance requirements may not know or be focused upon whether a certain employee lacks a degree, certificate, years of experience, title or other qualification identified to a particular billing rate in a subcontract or prime contract, particularly if that employee is performing well and ably.  The takeaway point here is that, after the 2009 revisions to the False Claims Act and the Fraud Enforcement Recovery Act, a contractor – and this includes a subcontractor whose bills are presented to their prime contractor and not to the Government directly – need not intend to defraud the Government for False Claims Act liability to attach.  Rather, a contractor’s (or here, subcontrctor’s) alleged false record or statement must simply be “material” to the Government’s decision to pay the claim.  This means the false record or statement must “have a natural tendency to influence” or be “capable of influencing” the payment decision.

The False Claims Act, the Fraud Enforcement Recovery Act, and related statutes. regulations and contract clauses are designed to combat contractor fraud.  Fraud, by definition, carries with it an element of intent.  In the absence of such intent, the Government may have legitimate grounds for breach of contract or other causes of action, but should not have the means to pursue recovery of the extraordinary damages and penalties permitted by the FCA for intentional, fraudulent conduct.  Nevertheless, the current state of the law permits this and contractors and subcontractors are being prosecuted accordingly.

In circumstances involving a, shall we say, irresponsible but not fraudulent contractor that results in an overbilling or departure from contractual requirements, other remedies, such as the specter of a negative past performance rating, would be more appropriate, and certainly incentivize that contractor to maintain a robust compliance system that ensures all contractual requirements and standards are satisfied.

I welcome your thoughts and comments.

False Claims Act Recovery Expected to Rise in 2012

By Jonathan DeMella on Posted in Compliance and False Claims

The “Amazing 2012 Prediction” by Taxpayers Against Fraud — the non-profit organization devoted to assisting whistleblowers prosecute False Claims Act cases – is that $9 billion will be “returned to the American people” in FY 2012 thanks to cases filed under the False Claims Act.  TAF believes this is possible, in part, due to several large anticipated settlements involving health care fraud, including a $3 billion settlement with GlaxoSmighKline and  a $950 million settlement with Merck.

To put this in perspective, the Department of Justice reports that the U.S. Government recovered just over $3 billion in FCA cases in 2010, which is the second largest annual recovery since 1987.  Although this amount does not include criminal fines in False Claims Act cases and portions of federal settlements allocated to the states in Medicaid cases, a $9 billion recovery would be a considerable increase from years past.

I tend to view such predictions with suspicion, and I do here, particularly given the fact that it is in TAF’s best interest to encourage whistleblowers to come forward with anything and everything that suggests impropriety, regardless of whether it constitutes fraud.  Nevertheless, I continue to see press releases with increasing frequency issued by the Department of Justice celebrating FCA victories against Government contractors.  Among the latest, the Maersk Line agreed to pay the Government $31.9 million to resolve allegations that it submitted false claims to the United States in connection with contracts to transport cargo in shipping containers to support U.S. troops in Afghanistan and Iraq.  This release was  accompanied by a warning — now commonplace in such releases — from DoJ’s Tony West, Assistant Attorney General for the Civil Division that:  “As the Justice Department’s continuing efforts to fight procurement fraud demonstrate, those who put profits over the welfare of members of our military will pay a hefty price.”

The False Claims Act — including its qui tam and treble damages provisions — is designed to uncover and punish companies and individuals engaged in intentional fraud against the Government.  It should not be used as a tool to facilitate recoveries based upon actions absent such intent, even if those actions may justify recovery on other grounds, such as breach of contract.   Nevertheless, with more vigorous enforcement by Government agencies, assisted by the likes of TAF, we can and should expect conduct considered actionable under the FCA to be expanding; consequently, this will require Government contractors to more intensely focus upon internal compliance policies and procedures. 

This is an issue I intend to address in subsequent posts, including what constitutes “credible evidence” under the mandatory disclosure provisions in the Federal Acquisition Regulation.

The Business Partner Network Makes Way for SAM

By Jonathan DeMella on Posted in Contractor Reporting

On August 30, 2011, we discussed the Government’s plans for the rollout of SAM, or the “System for Award Management,” which is intended to integrate and simplify the various federal procurement databases as part of the new “Integrated Acquisition Environment.”  Today, the FAR Council issued a Final Rule implementing the first phase of this rollout.  Effective February 2, 2012, the  Central Contractor Registration database, the Excluded Party List System and the Online Representation and Certifications Application shall be accessed at https://www.acquisition.gov.  The Rule amends various parts of the FAR to strike references to the soon-to-be legacy databases (i.e., www.ccr.gov, www.orca.gov, www.epls.gov), as well as references to the “Business Partner Network,” which is the name of the present electronic infrastructure used by the Government to manage information needed to transact business with contractors.

The latest information at www.acquisition.gov/SAM  indicates that the Electronic Subcontractor Reporting System and the Catalog of Federal Domestic Assistance will be among the next databases to be integrated within SAM, although at a date “TBD.”  FedBizOpps and the various past performance repositories (e.g., PPIRS, CPARS) shall also be integrated, but as part of subsequent phases.

Department of Defense – Ban on LEED Gold and Platinum Certifications

By Meghan A. Douris on Posted in LEED

It appears that, despite media coverage to the contrary, Congress can agree on something.  That something is the ban on federal defense spending for the highest LEED certifications.   As we initially discussed here in our August 23, 2011 post, the House of Representatives passed the National Defense Authorization Act for FY 2012, which included a ban on LEED gold and platinum certifications.  Now, the Senate has confirmed the ban as part of the spending bill passed on December 15, 2011.

Buried deep within the spending bill (in Section 2830, on pages 398-399 of the 565 page bill) is a clause stating: “PROHIBITION: No funds authorized to be appropriated by this Act or otherwise made available for the Department of Defense for fiscal year 2012 may be obligated or expended for achieving any LEED gold or platinum certification.”  The bill, however, does permit waiver of the prohibition, if the Secretary of Defense submits a notification to the congressional defense committees setting forth the “cost-benefit analysis of the decision to obligate funds toward achieving the LEED gold or platinum certification.”  The notification must also detail the demonstrated payback for the energy improvements and sustainable design features.  Significantly, according to the bill, only if achieving LEED gold or platinum certification imposes no additional cost to the Department of Defense is the ban/waiver process avoided.  Practically speaking, demonstrating to Congress that there is no additional cost without undertaking the analysis set forth in the waiver process seems unlikely.

On the upside, the bill does set forth a pragmatic attempt to undertake an evaluation of the expenditures associated with LEED before devoting further funding to certification. The law requires that no later than June 30, 2012 the Department of Defense must submit a report, to the congressional defense committees on the energy-efficiency and sustainability standards utilized by the Department of Defense for military construction and repair.  This report must include a “cost benefit analysis, return on investment, and long-term payback for LEED silver, gold, and platinum certification, as well as the LEED volume certification.”  Its report to Congress also must include a strategy for its continued use of design and building standards.

However, unfortunately, by “banning” higher LEED certifications, this bill is essentially undermining years of green building efforts undertaken by the Department of Defense, which – to date – has been the agency at the forefront of the federal green building trend.  The ban also ignores the mission behind the LEED certification program which was that LEED was intended to serve as a benchmark for evaluating whole buildings and to be a “definitive standard for what constitutes a green building in design, construction, and operation.”  The certification process ensures that the government gets confirmation that the “green” building it contracted for to comply with various executive orders, is in fact the “green” building that is built.

Practically speaking, what this new bill means for the future of DoD sustainability goals as set forth in its Strategic Sustainability Performance Plan is now in question.  For example, in May 2011, the Secretary of the Navy, Ray Mabus, stated that all Navy construction projects for FY 2012 and 2013 will be built to achieve sustainable design and construction equivalent to at least LEED Gold standards, with a few exceptions.   However, unless Mabus can show it will do so at no additional cost, the Navy will now have to submit waivers for each and every project that sought LEED Gold certification.   Whether the LEED Silver “or higher” requirements of the Air Force and Army will also be questioned or banned after the report is submitted in June 2012 also remains to be seen.  What is certain is that, while Congress may have waged war on LEED via the Department of Defense, it is unlikely that DoD will be the only agency to suffer the LEED ban and we will continue to monitor the federal government’s treatment of LEED.

DoD Reviewing Sole-Source Awards to ANCs

By Jonathan DeMella on Posted in Small Business Contracting

Last week, the Director of Defense Procurement and Acquisition Policy for DoD issued a memorandumdirecting all departments to conduct a “top down review of all active sole-source contracts awarded to Alaska Native Corporations (ANCs) prior to the March 16, 2011 implementation of section 811 of the National Defense Authorization Act.”  Among other things, this review will include the number of sole source contracts greater than $20 million that have been awarded to each category of 8(a) participants, the dollar amounts associated with these contracts, justifications and approvals supporting these sole-source awards, the percentage of work that was subcontracted and performed by entities other than the awardee, the dollar amounts paid to subs, and the measures taken or that will be taken to ensure there is not abuse of these types of contracts.

In addition, with respect to “small value low profile contracts,” DoD departments (this includes SOCOM, Transportation Command, Army, Navy, Air Force, the Defense Agencies and DoD Field Activities) were directed to identify what controls are in place to ensure that source selection boards cannot be manipulated to favor any particular bidder. 

Also worthy of note, this memorandum follows a September 16, 2011 letter from Senator Claire McCaskill to the NASA Office of Inspector General, which identified “issues of concern” regarding a noncompetitive letter contract awarded to Arctic Slope Regional Corporation Research and Technial Solutions, and requesting a formal review into the award of this contract.

What does this mean?  At the very least, DoD is examining the extent to which its contracting officers have complied with Section 811′s restrictions on sole-source awards and the various measures that have been recently implemented to prevent abuse in sole-source contracting.   It also means that McCaskill’s political sights remain trained upon the reform of ANC federal contracting preferences.   

I welcome your thoughts on these issues, and look forward to a continuing discussion when the results of the DoD review, as well as the NASA OIG investigation, are released.

SBA Implements the Small Business Jobs Act of 2010

By Jonathan DeMella on Posted in Compliance and False Claims, Contractor Reporting, Small Business Contracting

The SBA certainly appears to have been busy these last few weeks.  You may recall that the Small Business Jobs Act of 2010 directed the SBA to issue a variety of new rules on such topics as subcontracting integrity, payment to subcontractors, and small business size and status integrity.  The SBA was required to amend the FAR within one year of the Act’s enactment, which was September 27, 2010, and, albeit a bit late, it looks as though that the SBA is on its way to complying with Congress’ directive.   Among the recent highlights:

  • On October 5, the SBA issued a proposed rule indicating that, on contracts for which the prime must submit a small business subcontracting plan (that is, a contract valued at $1.5 million for construction or $650,000 for all other contracts), the prime must notify the contracting officer in writing whenever the prime does not utilize a subcontractor used in preparing its bid or proposal during contract performance.  In the same proposed rule, the SBA proposed to amend its regulations to require a prime contractor to notify a contracting officer in writing whenever the prime reduces payments to a subcontractor or when payments to a subcontractor are 90 days or more past due.
  • On October 7, the SBA issued a proposed rule establishing that there shall be an “irrefutable” presumption of loss equal to the value of the contract or other instrument when a small business concern willfully seeks and receives an award by misrepresentation.  What is deemed affirmative, willful or intentional certification of small business size or status?   It presently includes submission of a bid or proposal for a small business set aside contract, submission of a proposal for a contract that in any way “encourages a Federal agency to classify the bid or proposal, if awarded as an award to a small business concern,” or registration on any Federal electronic database for the purpose of being considered for award of a small business set aside contract.  Thankfully, there is a safe harbor for “unintentional errors or technical malfunctions.”
  • On October 13, the SBA published a direct final rule that, among other things, requires federal agencies to publish on their websites “a list and rationale for any bundled contract for which the Federal agency solicited bids or that was awarded by the Federal agency.”

These changes are significant and are worthy of a close read.  For instance, if the Contracting Officer determines that a prime is not making a good faith effort toward implementing its subcontracting plan, the proposed regulation encourages the CO to record the identity of the prime in FAPIIS, which would certainly bear upon that prime’s ability to secure future Government work.    Likewise, the proposed presumption of loss rule could have disastrous consequences for the contractor found to have willfully misrepresented its size and/or status.  

Comments on the presumption of loss proposed rule may be submitted through November 7, and comments on the proposed small business subcontracting rules may be submitted through December 5, 2011.  Given the significance of these changes and the consequences they carry, interested parties should not hesitate to comment.