The Office of Management and Budget (OMB) has directed agencies to leverage the government’s buying power by applying strategic sourcing principles to acquisitions. Strategic sourcing is the collaborative and structured process of analyzing an organization’s spending and using the information to develop strategies that reduce the purchase price for goods. The federal government spends approximately $300 billion on goods and services each year, and federal agencies are responsible for maximizing the value of each dollar spent. OMB believes that agencies need to leverage spending to the maximum extent possible. Strategic sourcing will help agencies optimize performance, minimize price, increase achievement of socio-economic acquisition goals, evaluate a total life cycle management cost, improve vendor access to business opportunities, and otherwise increase the value of each dollar spent. Each agency’s Chief Acquisition Officer (CAO), Chief Financial Officer (CFO), and Chief Information Officer (CIO) are responsible for overall development and implementation of the agency’s strategic sourcing effort, which begins with a spend analysis and the identification of commodities for which strategic sourcing should be implemented. The CAO shall lead the CAO-CFO-CIO development team and will take the following actions: 1. Not later than October 1, 2005, the CAO shall identify no fewer than three (3) commodities that could be purchased more effectively and efficiently through the application of strategic sourcing, excluding software that could be purchased under the SmartBuy program. Agencies may include existing strategic sourcing efforts for this purpose. 2. The CAO shall lead the collaborative development of an agency-wide strategic sourcing plan in coordination with the agency’s CFO, CIO, representative of the agency’s Office of Small and Disadvantaged Business Utilization, and other key stake holders, as appropriate. The plan should reflect the application of sound program and project management principles. At a minimum, the plan should include the following elements: Strategic Sourcing Governance – A charter should be developed outlining the members, roles, responsibilities, and operations of an agency-wide Strategic Sourcing Council and any commodity councils to be formed. Strategic Sourcing Goals and Objectives – The Strategic Sourcing Council should establish annual strategic sourcing goals and objectives by fiscal year. These goals and objectives should include existing strategic sourcing efforts, as well as prioritizing new initiatives. In addition to cost and performance goals, any strategic sourcing plan must be balanced with socio-economic goals for small businesses, small disadvantaged businesses, woman-owned small businesses, veteran-owned small businesses, service-disabled veterans-owned businesses, HUB-Zone and preference programs, (e.g., Javits-Wagner-O’Day) and others, as appropriate. Performance Measures – The agency Strategic Sourcing Council should establish agency-wide performance measures and reporting requirements in order to monitor and continuously improve the strategic sourcing program. Communications Strategy – The Strategic Sourcing Plan should also include a communications strategy that clearly conveys senior management’s commitment to the effort, describes the scope of the effort and identifies any organizational changes. The communications strategy should also include steps to make agency employees aware of awarded strategic sourcing contracts and how they are to be used. Training Strategy – The plan should identify actions necessary to educate agency personnel to support effective and efficient strategic sourcing implementation and management. 3. Beginning in January 2006, the CAO shall report annually to the Office of Federal Procurement Policy (OFPP) regarding, at a minimum, reductions in the prices of goods and services, reductions in the cost of doing business, improvement in performance, and changes in achievement of socio-economic acquisition goals at the prime contract and, if possible, the subcontract level. Agencies shall develop methodologies for establishing baseline data and subsequent changes to this baseline and shall consistently apply this methodology throughout the strategic sourcing process. Using information for the agency reports and other data sources, OFPP may identify several commodities that could be strategically sourced government-wide and will establish an inner agency structure for managing the acquisition of these commodities. OMB’s efforts are commendable and it will be interesting to observe whether or not agencies enthusiastically support the strategic sourcing initiative. For those who would like to discuss the issues in this Update, please contact Robert G. Fryling at 215-569-5534.

High-speed aluminum vessels are well-recognized and established as providing excellent service in a number of capacities by both private and public operators. These uses include leisure travel and tours and mass transportation of passengers and vehicles. In recent years, the U.S. military has joined the ranks of high-speed vessel users by introducing U.S.-built aluminum twin-hull high-speed vessels for use as Theater Support Vessels (TSVs) and for training exercises. Despite a somewhat uncertain funding climate for these types of vessels in the military, they have performed exceptionally well with demonstrated benefits. The U.S. military has begun using (typically through charter arrangements) high-speed vessels (1) to transport troops and equipment to combat zones and (2) for military exercises. The increasing interest in high-speed vessels from the military has resulted in recent funding by the Congress of the Navy's Littoral Combat Ship program and the chartering of two TSVs described below. Despite this trend and the successful service of these vessels, the future of the TSV program remains uncertain at this time, as Congress has not appropriated funds for the design and construction of additional TSVs. High-speed vessels provide the military with a less expensive means of transporting large quantities of equipment and troops in a single voyage to combat areas and for training exercises. The use of such vessels in place of aircraft, where appropriate, allows the U.S. military to reserve its airlift capabilities for longer range missions. Moreover, high-speed vessels chartered to the MSC in particular may obtain a waiver from compliance with U.S. Coast Guard navigation and inspection requirements upon a finding that such waiver is in the interest of national defense. For example, the 98 m Westpac Express, constructed as a passenger vessel by Austal Ships Pty Ltd. of Western Australia, is presently operating under a time charter to the MSC for use by the Marine Corps' Third Marine Expeditionary Force. Unlike a bareboat charter (also known as a demise charter), a time charterer does not assume the responsibility for managing and operating the vessel; that responsibility remains with the vessel owner or its designated operator. The Westpac Express is based in Okinawa, Japan and, unlike other high-speed vessels used by the U.S. military, operated by an all-civilian crew. In addition to the pure military benefits, as recent events show, high-speed vessels may be used to provide humanitarian relief in remote corners of the world. In January 2005, the Westpac Express traveled 2,300 miles from its base in Okinawa to ferry over 600 tons of needed communications equipment to tsunami-ravaged Southeast Asia. In contrast, providing the humanitarian assistance by air would have required constant flights over a five or six-day period. In addition, the U.S. Army's Southern Command currently operates the TSV named Spearhead, or TSV-1X, which provides troop movement capabilities similar to those of the Westpac Express. This vessel is operated under a charter between the U.S. Army Tank Automotive and Armament Command and the vessel's builder and owner, Bollinger-Incat USA, LLC, a joint venture between Bollinger Shipyards of Lockport, Louisiana, and Incat Tasmania Pty, Ltd. of Tasmania. Bollinger-Incat also has constructed high-speed vessels chartered to the U.S. Navy. The most recent, named the Swift or HSV 2, is an enhanced version of its predecessor, the Joint Venture or HSV X-1. The Swift is chartered to the MSC and serves as a mine warfare command and support ship and experimental vessel for the Navy and Marine Corps. It is one of two high-speed vessels (the other being the Westpac Express) that are part of the 24 ships in the MSC's Special Mission Ships Program, and also has been used to provide humanitarian assistance to those countries affected by the tsunami in Southeast Asia. In 2003, the Department of Commerce, Bureau of Industry and Security (BIS), at the request of the Army, conducted an assessment of the economic benefits of a TSV building program for U.S. shipyards. At that time, the Army was committed to acquiring seven TSVs by 2008. The BIS study concluded that such a building program would add more than $1.3 billion to the U.S. economy and provide almost 3,000 new jobs at competitive wage rates. However, unlike the LCS program, the federal government has not specifically appropriated funds for further development and construction of non-combat high-speed vessels by the U.S. military for fiscal year 2006. One benefit available to existing and future high-speed ferry builders is a Department of Defense program that finances, among other things, the installation and maintenance of "national defense features" (e.g., reinforced decks, cranes and roll-on-roll-off ramps) on vessels through the National Defense Sealift Fund (NDSF). In fiscal year 2005, Congress appropriated over $1.2 billion to finance such activities. Fiscal year 2006 appropriations could reach $1.6 billion or more. The NDSF is used, in part, to install and maintain defense features on privately owned and operated U.S.-flag vessels. In order to qualify for such funds, vessel owners must submit offers to have defense features installed and maintained on their vessels. Once a determination is made that the offer is economically sound, the federal government will approve the expenditure of the funds. The funds are designed to compensate the vessel owner at a fair and reasonable rate for the following: The costs to build, procure, and install defense features on the vessel. The costs to periodically maintain and test the defense features. Increased costs of operation or any lost revenue attributable to the installation or maintenance of the defense features on the vessel. Any additional costs associated with the defense features as determined by the contract. Payments under the contract may be made either in advance in a lump sum, in which case a security interest in the vessel by way of a preferred mortgage is required, or annually. As consideration for such financing, the vessel owner agrees to make the vessel available to the Secretary of Defense, fully crewed and ready for sea, at any time and at any point determined by the Secretary of Defense. Despite the public funding constraints, incentives are available, including the NDSF, for private builders and operators interested in chartering high-speed vessels to the military. The success of the Westpac Express and the Spearhead have set the stage for future use of these vessels for both theater support and training.

On August 28, 2007, the Department of Defense published an interim rule implementing Section 1017 of the National Defense Authorization Act for Fiscal Year 2007.  72 Fed. Reg. 49204.  Section 1017 requires the Secretary of Defense to issue an acquisition policy that establishes, as a criterion to be considered in awarding vessel transportation contracts, the extent to which the offeror had overhaul, repair, and maintenance work for “Covered Vessels” performed in shipyards located in the United States and Guam.  Covered Vessels are defined as those vessels owned, operated, or controlled by the offeror and qualified to engage in the coastwise and non-contiguous (between the United States mainland and Puerto Rico, Alaska, Hawaii, and other U.S. Pacific Islands) trade.  The House Report accompanying Section 1017 states that the provision is intended as an interim measure while Congress conducts hearings into the Coast Guard standard governing the amount of work that may be done to a vessel before it is considered rebuilt.  The Report states: the committee includes an interim provision to address concerns that vessels engaged in the coastwise trades, including the domestic offshore trades, are undergoing repairs and modifications in shipyards located outside the United States. H.R. Rpt. 109-452, at 375 (2007).  The genesis of Congress’ concern is stated to be that: the Coast Guard has one test for when a vessel is initially considered to be ‘‘built’’ in the United States for the purposes of engaging in the coastwise trades, and another test for when a vessel is deemed ‘‘rebuilt’’ outside the United States, and thus losing its right to engage in the coastwise trades. Id.  The Report concludes that: To resolve this issue, and to be fair to proponents and opponents of the practice of repairing and overhauling coastwise eligible vessels in foreign shipyards, the committee intends to conduct a hearing or series of hearings in the near-term. The committee recognizes this is a very complicated issue with significant policy ramifications, and thus chose to address this issue through an interim legislative provision in this Act.  Id.  Given the significance of the rebuilt vessel standards, which have many vocal proponents and opponents, the U.S. maritime industry should monitor these hearings closely.  As it is, Section 1017 favors opponents of current standards as the section applies to any repairs to Jones Act vessels even if such repairs would have no effect on Jones Act qualification.     Irrespective of the magnitude of Congress’ concern or the need to address the concern through an interim measure, Section 1017 is hardly a model for clarity in legislative drafting.  The provision does not describe any specific evaluation preference to be given to offerors meeting the established criterion (i.e., having had their Jones Act vessels repaired in U.S. shipyards), nor does the provision provide any guidance as on how achieving the criterion is to be evaluated, if at all.  Moreover, the criterion is not limited to the vessels being offered to the military, but applies generally to all vessel(s) owned, controlled, or operated by the offeror.  Finally, the section provides no time frame to which the criterion is to be applied, be it repair work performed during the last 12 weeks, months, or years.   Details were left to the Department of Defense, which was to implement Section 1017 through the interim rule to be published by no later than June 1, 2007.  Given Section 1017’s lack of clarity, it is not surprising that it took until August 28, 2007, for the interim rule to be published. While DoD was able to apply some nominal clarity to Section 1017, the interim rule is almost as vague as is Section 1017, and in some respects may be inconsistent with the legislation.  The term “overhaul, repair, and maintenance,” is defined as work requiring a pierside shipyard period greater than or equal to 15 calendar days. 72 Fed. Reg. 49206, DFARS § 252.247.7026; and the term “shipyard” is defined as “fixed facilities with drydocks and fabrication equipment capable of building a ship, defined as watercraft typically suitable or intended for other than personal or recreational use.” Id. at 49207, DFARS § 252.247.7026.    To qualify for the preference, it appears the work must have been done in a qualifying shipyard, as opposed to being done by a qualifying shipyard, as offerors must submit a description of the “qualifying shipyard work performed, as opposed to repair work “performed by a qualifying shipyard.”  Nothing in the legislation appears to so limit the work, as its stated purpose is to protect and preserve the industrial base.  That purpose is served if the shipyard performed the work at a state pier or in a facility without a drydock.  Ship owners do not fair much better in terms of clarity.  According to the interim rule, offerors must include with their offers specific information on all Jones Act qualifying vessels for which overhaul, repair, and maintenance work has been performed during the current calendar year, up to the date of proposal submission, and the preceding four calendar years.  The fact that the evaluation period goes at least four years should be of some concern to ship owners.  The Coast Guard has not ruled that individual repairs to Jones Act vessels should be aggregated for purposes of applying the rebuilt vessel rule. Ship now face the prospect of now possibly being penalized if they had repairs made in foreign yards, although their vessels remained fully Jones Act qualified.  Also, a Covered Vessel is defined to mean a vessel “owned, operated or controlled by the offeror,” raising the question of whether the offeror may claim credit for – or be penalized for – repairs done to a vessel it has sold prior to the date of the offer.  Similarly, nothing in the interim rule requires the offeror to disclose if it had the repair work performed, itself, or whether the work was performed by a previous owner.  Section 1017 strongly suggests that the evaluation criterion is to apply only to qualifying work performed by the offeror, itself, and not a previous owner or charterer.  The solicitation clause effecting the interim rule is designated “Evaluation Preference For Use Of Domestic Shipyards.”  However, the clause provides no preference at all.  Rather, it requires offerors to submit a significant amount of information on repair work performed on Covered Vessels.  Offerors must submit the following information: (1) the name of vessel; (2) a description of qualifying shipyard work performed; (3) the name of shipyard that performed the work; (4) the inclusive dates when the work was performed; and (5) the cost of the work performed. No guidance is provided on how the information will be evaluated.  The interim rule states only that the Contracting Officer will “use the information to evaluate offers in accordance with the criteria specified in the solicitation.”  This suggests either that no evaluation preference will be given or that the criteria against which the information will be evaluated will vary from solicitation to solicitation.  Shipyards may view the former result as meaningless and ship owners may view the latter result as ominous, as they have no way of predicting what protective measures should be taken.  Comments on the interim rule are due on or before October 29, 2007, to be considered in the formation of the final rule.  Comments may be submitted by email at dfars@osd.mil citing DFARS Case 2007–D001. 

President Obama’s March 4, 2009, Memorandum to Agency Heads on Government Contracts plows little new ground; however the Memorandum contains some blanket generalizations that could harm some small business interests and could trigger a wave of audits. The Memorandum harkens back to the first Clinton Administration re-inventing government initiatives, which criticized cost reimbursement contracting in favor of fixed price formats.  The Memorandum targets three contracting practices: sole source contracting, A-76 Competitions, and cost reimbursement contracting. The Memorandum also directs a broad contract review process, calling on agencies to identify, and then change or cancel certain wasteful or abusive contracts. Non-Competitive ContractingThe Memorandum conditions the use of non-competitive contracting on situations in which the format can be fully justified, with adequate safeguards. This does little but restate existing law. The Competition in Contracting Act, on the books since 1982, and 27 years of interpretative decisions have already well defined these contours.  The Memorandum’s broad generalizations against sole source contracting could however sweep into its grasp established sole source preferences affecting smaller businesses in the 8(a) program and-or preferences to Native American groups. The Memorandum did not address whether the policies on non-competitive contracting are intended to apply to these established preference programs. While the Memorandum cannot change the statutory sole-source preference programs, it will affect the executive agencies’ exercise of discretion in choosing to resort to non-competitive contracts when that discretion exists. This could harm 8(a), Native American and other groups who are granted these preferences. Cost Reimbursement Contracting Like sole source contracting, the acquisition regulations have long contained extensive guidance of the use of different contracting formats and the circumstances when cost reimbursement contracting is appropriate. Many would agree that the Gulf and Iraq wars saw abuses in the use of the cost reimbursement format. The Memorandum restates the existing preferences for fixed price contracting. The restriction on the use of cost reimbursement contracting does not apply the lessons learned from Vice President Gore’s push toward fixed pricing: forcing a square peg into a round hole often increases costs by causing contractors to price risk into bids (protective inflation) and produces claims, disputes and delays when the wheels inevitably fall off.     A-76 and OutsourcingThe Memorandum is correct in citing the confusion in distinguishing between inherently governmental activities and those suitable for outsourcing or service contracting. Years have been spent trying to develop some coherent approach to this issue, with little success. The Memorandum directs that there be clarification of the circumstances when outsourced service contracts are or are not appropriate. For all practical purposes, the contracting community has largely given up on A-76, as recent changes to the OMB guidance and Bid Protest Rules have made the award process too uncertain to justify investing the huge resources necessary to produce a successful proposal. But, as long as the government lacks the staffing to fully perform inherently governmental and non-governmental activities, who else will do the work other than contractors?  Wasteful ContractsThe Memorandum’s greatest challenge will be in the implementation of the direction to identify and modify or terminate wasteful and inefficient contracts. This contemplates some form of top down audit, under guidelines to be developed. This part of the Memorandum has the potential to create disruption within government acquisition offices and between contractors.  One wonders if the Memorandum’s drafters appreciate that terminating a potentially “inefficient” fixed price contract for the government’s convenience may have the effect of converting the terminated fixed price contract into a cost reimbursement contract—exactly counter to the Memorandum’s mandate to avoid cost contracts. There is no dispute that there are inefficient contracts and billions could be saved. If this part of the Memorandum is implemented with a focus toward acknowledged areas of waste and inefficiency, this could be effective in saving costs. Those implementing the rule would be well served by examining the effects of the IDIQ system on competition and on costs, and whether the best value award criteria is really delivering the best value or not. Rather than searching for waste and efficiency on a contract by contract basis, the greatest dividends would be yielded by a 40,000 foot review of other contracting formats that have stifled competition and harmed small business in the name of reducing the acquisition workload. On the government side, developing the guidance in response to the Memorandum will be difficult and politically charged. Contractors need to start focusing on the return of investment they are providing their customer. Contractors will also have to look at how they will fare in response to a newly energized and funded IG, who will increase the number and scope of audits, looking for contractor non-compliance and cost allowability issues.  Both sides need to fasten their seat belts. Notice: The purpose of this newsletter is to review the latest developments which are of interest to clients of Blank Rome LLP. The information contained herein is abridged from legislation, court decisions, and administrative rulings and should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.

There is a new federal law in town that will bring Qui–Tam bounty hunters into the field of mis–certification of small business status. Without question, both large businesses contracting with small businesses and small businesses themselves need to take protective measures to limit this new exposure. The "Presumed Loss Rule" in the Small Business Jobs Act of 2010 ("Jobs Act") significantly raises the stakes for contractor misrepresentation of small business status. Now, a federal contractor that receives an award after incorrectly representing itself as a small business may face False Claims Act ("FCA") exposure for three times its total contract proceeds, plus other damages, even if the government received value for the contract work and the contractor fully performed the contract to the satisfaction of the government. Large companies bidding with small businesses, and small businesses, are on notice to carefully review their compliance status, or perhaps face business ending U.S. Department of Justice ("DOJ") or Qui-Tam whistleblower litigation. The Small Business Act ("SBA") has always contained sanctions for misrepresentation of small business status. A false certification can lead to a fine in excess of $500,000 and imprisonment. However, the SBA has lacked sufficient resources for vigorous enforcement of these laws, and prosecutors have not been active in bringing criminal prosecutions based on misrepresentation of small business status. Section 1341 of the Jobs Act, referred to as the Presumed Loss Rule, is a game changer in the enforcement of small business certification fraud because it incentivizes the use of the FCA as a remedial measure for status misrepresentation. This new provision not only will encourage more litigation by the DOJ, but also by whistleblowers with information that their employers are misrepresenting their company's small business status. Those whistleblowers can receive between 15% and 25% of the trebled damages, plus costs, fees, and interest. For example, assume that a contractor ineligible for small business status nonetheless represented that it was a small business and won a $5 million small business set aside contract to build a cardiology monitoring system for a VA hospital. The contract called for two payments of $2.5 million each, upon the contractor's invoicing after meeting two milestones. The contractor properly performed the contract to the government's satisfaction, issued its two invoices and timely received the $5 million in milestone payments. The contractor delivered the system on time and according to specifications. Before the Presumed Loss Rule, if the government or a Relator filed an FCA case against the contractor for the small business status misrepresentation, the FCA damages would not include the $5 million in contract earnings because the government received a conforming cardiology system. Instead, only the "invoice penalty" of $5,500 would be applied to the two invoices, making an FCA case worth only $11,000. This FCA action probably would never be brought. The game changes dramatically under the Presumed Loss Rule. Now, there is an irrebuttable presumption that the government sustained a $5 million loss irrespective of whether the contractor fully performed and irrespective of whether the government received value. An FCA case against the contractor now could be worth $15,011,000, based on a trebling of the $5 million presumed loss, plus the two penalties of $5,500 per invoice. In short, the exposure jumps from $11 million to $15,011,000. This FCA action probably would be brought! Impacts on Large Business The Presumed Loss Rule has significant implications for large contractors doing business with companies claiming they are small businesses: From an acquisitions perspective, a large business acquiring a small business government contractor must now be extra vigilant in verifying that the acquired company was truly eligible as a small business at the time it submitted its bid. Otherwise, where the acquisition is through a stock purchase, the acquiring large business could unwittingly inherit a very significant liability. If a large business is bidding as a major subcontractor to a small business prime on a set-aside contract, such as a construction project where the large business is performing more than 75% of the work, under a de facto joint venture theory, the large business could find itself as a named defendant if the small business prime misrepresented its status to win the contract. Large contractors who plan to team with small businesses for set aside work must, before bid, ascertain whether the teaming or subcontracting arrangement itself is likely to cause the subcontractor to lose its small business status. Among other factors, the government will look at the totality of the circumstances of the contracting arrangements between the large and small businesses, and between the companies' respective managers and owners, if any such agreements exist. If the contracting arrangements destroy the small businesses' eligibility, then under the Presumed Loss Rule, all the contract proceeds could be forfeited, and the companies could face treble FCA damages. A large business joint venture partner or a joint venture team member under a Mentor-Protégé agreement with an alleged small business could face liability if the small business partner or team member misrepresented its status in bidding a set-aside contract. Large businesses doing business with firms representing that they are eligible for small business status must be extra vigilant in verifying the small business contractor's eligibility, and because of these new catastrophic financial consequences, it would be reckless to enter into a relationship without undertaking the requisite diligence. Impact on Small Business Small businesses must review their employee levels and three-year revenue numbers against the applicable NAICS codes to be sure they are, or were compliant at the time of their proposal submissions. They should also examine whether they may have inadvertently become affiliated with another entity, or have otherwise run afoul of any of the other regulatory requirements, such as the ostensible subcontractor rule. The Board of Directors of every federal contractor representing itself as a small business has a fiduciary duty to ensure that the company is not willfully or negligently exposing itself to this catastrophic liability. An in–depth legal analysis of the Presumed Loss Rule can be found at http:--www.blankrome.com-index.cfm?contentID=37&itemID=2427. Notice: The purpose of this newsletter is to review the latest developments which are of interest to clients of Blank Rome LLP. The information contained herein is abridged from legislation, court decisions, and administrative rulings and should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.

By Albert B. Krachman1 A provision in the Small Business Jobs Act of 20102 significantly raises the stakes for contractor misrepresentation of small business status. Now, a federal contractor that receives an award after incorrectly representing itself as a small business may face False Claims Act ("FCA") exposure for three times its total contract proceeds, plus other damages, even if the contractor fully performed the contract to the satisfaction of the government. Companies bidding as small businesses are on notice to carefully review their compliance status, or perhaps face business ending U.S. Department of Justice ("DOJ") or whistleblower litigation. Background The Small Business Act ("SBA") has always contained sanctions for misrepresentation of small business status.3 A false certification can lead to a fine in excess of $500,000 and imprisonment.4 However, the SBA has lacked sufficient resources for vigorous enforcement of these laws, and prosecutors have not been active in bringing criminal prosecutions based on misrepresentation of small business status. Section 1341 of the Jobs Act, referred to as the Presumed Loss Rule, is a game changer in the enforcement of small business certification fraud because it incentivizes the use of the FCA as a remedial measure for status misrepresentation. This new provision not only will encourage more litigation by the DOJ, but also by whistleblowers with information that their employers are misrepresenting their company's small business status. Those whistleblowers can receive between 15% and 25% of the trebled damages, plus costs, fees, and interest. Prior Law on False Claims Act Damages Misrepresentation of small business status has long been recognized as actionable under the FCA. The Court of Federal Claims decision in Ab-Tech Construction v. United States5 made clear that misrepresenting small business eligibility is a form of contract fraud and is redressable under the FCA. But a corollary holding in Ab-Tech limited the damages recoverable under the FCA for misrepresentation of small business status when the misrepresenting contractor fully performed the contract to the government's satisfaction.6 The Ab-Tech court ruled that even if the business had misrepresented its status to win the contract, if the contractor fully performed, the government essentially received the full benefit of its bargain and thus was not damaged. Hence, the damages recoverable under an FCA case did not include all of the contract payments received by the misrepresenting contractor.7 Instead, the FCA plaintiff could only recover the stipulated penalty of $5,500 – $11,000 per contract invoice.8 By not requiring the misrepresenting contractor to disgorge all of its contract payments as FCA damages, a private claimant had less incentive to use the FCA to enforce small business status misrepresentation because the big damage dollars, represented by the total contract proceeds, were of questionable recovery. The DOJ has previously urged a more expansive damage recovery in these fraud-in-the inducement misrepresentation cases. The DOJ has argued that all contract proceeds received by the misrepresenting contractor should be FCA damages, and all payments disgorged regardless of whether the government received its contracted–for benefits.9 The new law comes close to codifying the DOJ position.10 The Presumed Loss Rule Title IV of the Small Business Jobs Act, "Small Business Size and Status Integrity," provides in relevant part: W. PRESUMPTION. IN GENERAL. In every contract, subcontract, cooperative agreement, cooperative research and development agreement, or grant which is set aside, reserved, or otherwise classified as intended for award to small business concerns, there shall be a presumption of loss to the United States based on the total amount expended on the contract, subcontract, cooperative agreement, cooperative research and development agreement, or grant whenever it is established that a business concern other than a small business concern willfully sought and received the award by misrepresentation. DEEMED CERTIFICATIONS. The following actions shall be deemed affirmative, willful, and intentional certifications of small business size and status: Submission of a bid or proposal for a Federal grant, contract, subcontract, cooperative agreement, or cooperative research and development agreement reserved, set aside, or otherwise classified as intended for award to small business concerns. Submission of a bid or proposal for a Federal grant, contract, subcontract, cooperative agreement, or cooperative research and development agreement which in any way encourages a Federal agency to classify the bid or proposal, if awarded, as an award to a small business concern. By presuming the government suffers a loss based on the total amount the government expends on the contract where small business status has been misrepresented, with no offset or credit for the value or benefit received by the government, the law increases contractor exposure. For example, assume that a contractor ineligible for small business status nonetheless represented that it was a small business and won a $5,000,000 small business set aside contract to build a government warehouse. The contract called for two payments of $2,500,000 each, upon the contractor's invoicing after meeting two milestones. The contractor properly performed the contract to the government's satisfaction, issued its two invoices and timely received the $5,000,000 in milestone payments. The contractor delivered the warehouse on time and according to specifications. Before the Presumed Loss Rule, if the government or a Relator filed an FCA case against the contractor for the small business status misrepresentation, the FCA damages might not include the $5,000,000 in contract earnings because the government received a conforming warehouse.11 If Ab-Tech was applied, the contractor might only be exposed to the per-invoice penalty of $5,500, making the total FCA damages $11,000 (assuming a penalty of $5,500 for each of the 2 invoices). This FCA action probably would never be brought. The game changes dramatically under the Presumed Loss Rule. Now, there is an irrebuttable presumption that the government sustained a $5,000,000 loss irrespective of whether the contractor fully performed and irrespective of whether the government received value.12 An FCA case against the contractor now could be worth $15,011,000, based on a trebling of the $5,000,000 presumed loss,13 plus the two penalties of $5,500 per invoice. In short, the exposure jumps from $11,000 to $15,011,000. This FCA action probably would be brought! Notably, the Committee Report states that the presumption is irrebuttable. The statute itself refers just to a presumption. The Report also states that it is intended to apply "in all manner of criminal civil administrative contractual or other actions which the United States government may take to redress such fraud and misrepresentation." The FCA fits this definition squarely.14 Impacts on Large Business The Presumed Loss Rule also has significant implications for large contractors doing business with companies claiming they are small businesses: From an acquisitions perspective, a large business acquiring a small business government contractor must now be extra vigilant in verifying that the acquired company was truly eligible as a small business at the time it submitted its bid. Otherwise, where the acquisition is through a stock purchase, the acquiring large business could unwittingly inherit a very significant liability. If a large business is bidding as a major subcontractor to a small business prime on a set-aside contract, such as a construction project where the large business is performing more than 75% of the work, under a de facto joint venture theory, the large business could find itself as a named defendant if the small business prime misrepresented its status to win the contract. Large contractors who plan to team with small businesses for set aside work must, before bid, ascertain whether the teaming or subcontracting arrangement itself is likely to cause the subcontractor to lose its small business status. Among other factors, the government will look at the totality of the circumstances of the contracting arrangements between the large and small businesses, and between the companies' respective managers and owners, if any such agreements exist. If the contracting arrangements destroy the small businesses' eligibility, then under the Presumed Loss Rule, all the contract proceeds could be forfeited, and the companies could face treble FCA damages. A large business joint venture partner or a joint venture team member under a Mentor-Protégé agreement with an alleged small business could face liability if the small business partner or team member misrepresented its status in bidding a set-aside contract. Plainly, large businesses doing business with firms representing that they are eligible for small business status must be extra vigilant in verifying the small business contractor's eligibility, and because of these new catastrophic financial consequences, it would be reckless to enter into a relationship without undertaking the requisite diligence. Limiting Risk-Safe Harbor The Act recognizes that there may be circumstances in which an innocent mistake or inadvertent error in representing small business status might be excusable and should not be the basis for application of the Presumed Loss Rule. The Act directs the SBA to promulgate regulations to provide guidance in this area.15 It is likely that the regulation will condition any "inadvertence defense" on the contractor's showing that it met a standard of care before making the certification. There are resources available for a contractor to meet this standard of care to self check the eligibility of itself or another. The contractor could consult the SBA size regulations, the decisions of the SBA Office of Hearings and Appeals, or could refer to the services offered at www.blankrome.com-GoCoSmallBusiness. By using these resources, contractors can protect themselves by showing that they exercised reasonable diligence and should not be subject to the Presumed Loss Rule. Conclusion The upshot of the law is clear. First, small business companies must proactively audit their eligibility to bid as a small business before submitting their proposals. Depending on the applicable size standards, they should review their employee levels and three–year revenue numbers. They should also examine whether they have become affiliated with another entity or have otherwise run afoul of any of the other regulatory requirements, such as the ostensible subcontractor rule. The Board of Directors of every federal contractor representing itself as a small business has a fiduciary duty to ensure that the company is not willfully or negligently exposing itself to this catastrophic liability. Second, a large company doing business or proposing to do business with a small business government contractor should take steps to verify the small business status of the small business before proceeding with any transaction, whether it be a subcontract, teaming arrangement or an acquisition. Large businesses also need to examine whether the proposed transaction itself could destroy the small business eligibility of their counterparty-or else both could be working for free, or worse. Third, companies incorrectly certifying their status are now much more likely to face FCA cases by insiders who have information that the company misrepresented its small business status. As the Longhi case illustrated, the incentives for filing these cases are now great. Finally, if an ineligible company bids, wins and fully performs a small business set aside contract, it may be exposed under the FCA to three times the amount of the contract proceeds received, plus other damages, irrespective of whether the government received value. The disincentives for using the FCA are gone, and very real high dollar cases will be possible against firms misrepresenting their size. "Game Changer: The Presumed Loss Rule and Mis-Certification of Small Business Status," by Albert B. Krachman will be published in the May 2011 edition of Contract Management magazine. Reprint permission provided by the National Contract Management Association. Al Krachman is a partner at Blank Rome, LLP, practicing in the Government Contracts area. The author expresses appreciation to Deepa Padmanabha, Esq., and Mr. Stephen C. Forget for their valuable contributions. Pub. L. No. 111-240 §1311-1347 (September 27, 2010) ("Jobs Act"). For purposes of this article, "misrepresentation" refers to a firm's representation of itself as a small business when the firm is actually ineligible for that status under regulatory eligibility standards. Representative areas of non-compliance include: exceeding annual receipts thresholds or numerical employee limits, violating affiliation limitations, the ostensible subcontractor rule, or other restrictions. Section 16(d) of the Small Business Act, 15 U.S.C. § 645(d), makes it a criminal offense to misrepresent in writing the "status of any concern as a 'small business concern', a 'qualified [Hub–zone] small business concern', a 'small business concern owned and controlled by socially and economically disadvantaged individuals', or a 'small business concern owned and controlled by women', in order to obtain for oneself or another" any prime contractor subcontract to be awarded pursuant to various contracting programs. Violations of Section 16(d) are punishable by a fine of not more than $500,000 or by imprisonment for not more than ten years or both. 31 Fed. Cl. 429 (Fed. Cl. 1994), aff'd., 57 F.3d 1084 (Fed. Cir. 1995). The theory is known as the benefit of the bargain approach, which has been adopted by other courts. See, e.g., United States ex. rel. Harrison v. Westinghouse Savannah River Co., 352 F.3d 908 (4th Cir. 2003); United States ex. rel. Stebner v. Steward & Stevenson, 305 F.Supp. 2d 694, 701 (S.D. Tex Jan. 30, 2004). But see United States ex rel. Longhi v. Lithium Power Techs., Inc., 530 F. Supp. 2d 888 (S.D. Tex. 2008); aff'd, 575 F.3d 458 (5th Cir. 2009) (assessing damages resulting from four contracts obtained by fraud in the inducement, and finding that the government received no "benefit of the bargain." The court analyzed the purpose of the Small Business Innovation Research Program (the program at issue in the case), and found that the value of the program was based on innovation by an "eligible small business." Since the defendant was not an eligible small business and instead obtained the contracts through fraud, the court found that the appropriate measure of actual damages was the amount paid out on the four contracts multiplied by three). It is important to note that on appeal, the court emphasized that procurement contracts, where the government ordered a specific product or good and did receive a tangible benefit, might not have the same total forfeiture result: the Longhi court thus preserved the rule set forth in Ab-Tech. United States ex rel. Longhi v. Lithium Power Techs., Inc., 575 F.3d 458, 473 (5th Cir. 2009). The Presumed Loss Rule thus reflects a critical change in the law because it presumes loss on procurement contracts where the government received a tangible benefit. 31 U.S.C. § 3729(a). In fraud or FCA cases not involving misrepresentation of small business status, courts have ruled that a party that provided a benefit to the government could not recover from the government in law or equity when that party fraudulently induced the government to enter into the contract in the first instance. In those cases, the government is not required to restore the defrauding party back to the status quo, and is not required to restore the purchase price or reimburse the claimant for expenditures incurred or for benefits conferred. See, e.g., American Heritage Bancorp. v. United States, 61 Fed. Cl. 376 (Fed. Cl. 2004), citing Pan American Petroleum & Trans Company v. United States, 273 U.S. 456 (1927). Yet, as recently as December 2010, in an appeal of an FCA case filed against Science Applications International Corp. ("SAIC"), the Circuit Court for the District of Columbia reversed a District Court's ruling that SAIC was liable under the FCA. United States v. Sci. Applications Int'l Corp., 626 F.3d 1257 (D.C. Cir. 2010). At issue in this case was SAIC's alleged failure to make required disclosures of organizational conflicts of interest ("OCIs") as was required under two contracts that SAIC entered into with the Nuclear Regulatory Commission. United States v. Sci. Applications Int'l Corp., 653 F. Supp. 2d 87, 92 (D.D.C. 2009). The district court found that "where the government alleges that it would not have accepted or paid for such advice from the defendant if it had known of the defendant's false or fraudulent claims, the government can properly contend and prove that its damages are all amounts paid because of the false claims that would not have been paid out if the defendant had not made the false claims." Id. at 108. The Circuit Court, however, found error in the District Court's instructions that the FCA damages did not have to take into account the value of the services provided by SAIC. Instead, according to the Circuit Court the measure of damages should have been "the amount of money the government paid due to SAIC's false claims over and above what the services the company actually delivered were worth to the government." Sci. Applications, 626 F.3d at 1279. On the damages issue, the DC Circuit ruled that SAIC was entitled to credit for the value of services it provided the government, similar to the Ab-Tech result. The Committee Report from the Senate Committee on Small Business and Entrepreneurship explained the background of the Presumed Loss Rule as follows: Senate Report No. 111-343, 111 Cong. 2d. Session. However, in this scenario, while the government received that tangible benefit of a warehouse, the work was done by an ineligible company. In the SAIC case, the government requested jury instructions on FCA damages that directed the jury not to account for the value of the services SAIC furnished to the government. The Appeals Court stated that this "automatic equation of the government's payments with its damages is mistaken." Sci. Applications, 626 F.3d at 1278. The Appeals Court added that it saw no basis for adopting an irrebuttable presumption that treats the services provided by SAIC as worthless. Id. at 1280. Notably, in the small business fraud area, the Presumed Loss Rule effectively does both: it automatically equates the dollar payments with government loss, and it creates an irrebuttable presumption that such amount is the government's loss. 31 U.S.C. § 3729(a)(1)(G). See generally> 31 U.S.C. § 3729(a)(1). To the extent wrongdoing occurred after the effective date of the Patient Protection and Affordable Care Act, or after May 20, 2009, the Federal False Claims Act's recent amendments apply. See g. 31 U.S.C. § 3729(a)(1)(A). 15 U.S.C. § 632(w)(4) (2011).

The National Defense Authorization Act of 2013 changed the way that limitations on subcontracting are calculated. This is applicable to Small Businesses who hold prime contracts with the U.S. Government and subcontract portions of the work under their contract to large businesses. The old rule required the prime contractor to perform “at least 50 percent of the cost of contract performance incurred for personnel” on services contracts or “at least 50 percent of the cost of manufacturing the supplies (not including the cost of materials)” on supply contracts. The new rule for service contracts says that the prime “may not expend on subcontractors more than 50 percent of the amount paid to the [prime] under the contract.” (emphasis added). For supply contracts, the prime “may not expend on subcontractors more than 50 percent of the amount, less the cost of materials, paid to the [prime] under the contract.” (emphasis added). This dramatically changes the way the limitation is calculated, and could result in an expansion or contraction of the subcontracting limit depending on the circumstances. For purposes of calculating whether the prime meets these new requirements, payments to “similarly situated entities” no longer need to be included as part of the amounts expended on subcontractors. The FY2013 NDAA also now imposes the greater of $500,000, or the amount expended in violation of the rules as a penalty for violations. These new rules are effective immediately. If you would like further information regarding the NDAA changes to the limitations on subcontracting, please contact a member of Blank Rome LLP’s Government Contracts Group. Notice: The purpose of this newsletter is to review the latest developments which are of interest to clients of Blank Rome LLP. The information contained herein is abridged from legislation, court decisions, and administrative rulings and should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.

The National Defense Authorization Act of 2013 requires the Comptroller General to report on the effect of reducing the allowable costs of contractor compensation to be equivalent to the compensation of the president or vice president of the United States. If the Comptroller General recommends this reduction, it could cause problems for Subchapter S Corporation owners and officers. Under current IRS rules, the owner of an S Corporation does not pay payroll taxes on distributions of earnings and profits. In the past, this allowed S Corporation owners to pay themselves very small salaries and instead pay their income in the form of distributions to avoid payroll taxes. To combat this, the IRS recently stepped up enforcement of this issue and audited thousands of S Corporations. The IRS has begun to aggressively assert that S Corporation owners must pay themselves higher salaries so that the earnings of the corporation are subject to the payroll taxes. However, this will place contractors in a bind if the Comptroller General recommends that allowable salaries be lowered—on one hand, the IRS is telling S Corporation owners that salaries have to be higher, while on the other hand the DOD is pushing the Comptroller General to recommend that S Corporation owners’ salaries above a certain threshold should not be allowed as costs. The Comptroller General’s report is due in early May, 2013. If you would like further information or advice regarding this issue, please contact a member of Blank Rome LLP’s Government Contracts Group. Notice: The purpose of this newsletter is to review the latest developments which are of interest to clients of Blank Rome LLP. The information contained herein is abridged from legislation, court decisions, and administrative rulings and should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.

The weekend’s disclosure that a U.S. Government contractor employee at Booz Allen Hamilton leaked top secret information to the press will have lasting repercussions for all government contractors working with sensitive information. The most immediate impact may take the form of super-enhanced scrutiny of contractor’s compliance programs, training and enforcement procedures. Contractors that can’t prove effective compliance programs and enforcement could face contract terminations, show cause notices and-or suspensions. Contractors can also expect the government to take a hard look at contractor’s project staffing decisions and their need-to know policies and procedures. Contractors should also expect tougher security related terms in solicitations. They should expect increased weight placed on security compliance in the evaluation criteria and in source selection. It would also not be surprising to see a renewed push for insourcing of sensitive work now that confidence in the contractor industry has been shaken. In light of recent events, it is critical that all government contractors handling classified information review its policies, training and compliance with all security-related obligations. Blank Rome attorneys can assist your organization in auditing current policies and procedures related to the handling and storing of classified data, identify open security loopholes and areas of risk exposure, recommend improvements, and conduct enhanced training of employees. In the current environment, increased due diligence is not only wise, but critical to fortify your organization from the increased scrutiny that is sure to come. For additional information on how Blank Rome can assist your organization, please contact Al Krachman, Brian Bannon or Brian Gocial.

On June 28, 2013, the Small Business Administration ("SBA") issued a final rule to implement the statutory requirements of the Small Business Jobs Act of 2010. The Final Rule will be effective August 27, 2013. While the presumed loss sanctions remain severe, to the relief of many in the industry, the final SBA rule softened and narrowed the liability scheme compared to the SBA's proposed rule issued in October 2011. The Final Rule clarifies that when a contractor or subcontractor willfully misrepresents its small business size status, there is a rebuttable presumption that a presumed loss to the government exists for every dollar expended on the contract. Certain acts are deemed willful certifications under the rule, including submission of a bid or proposal on any procurement set aside for small business, or registration on any federal electronic database such as SAM or ORCA for purposes of being considered for award as a small business concern. In addition to forfeiture of all contract payments, violations of the rule can subject contractors or subcontractors to severe penalties including suspension and debarment, civil penalties under the False Claims Act, and-or or criminal penalties under the Small Business Act. The Final Rule relaxed the exposure potential by removing the term "irrefutable" from the presumption of loss, clarifying that contractors have an opportunity to present defenses in the face of a miscertification challenge. The Final Rule also takes the SBA out of the process for determining presumed loss liability, indicating that presumed loss claims will be determined in judicial or administrative actions by the Government against misrepresenting contractors. The SBA also relaxed exposure compared to the proposed rule by adding a catch-all "other situations" exception to the unintentional error or technical malfunction defenses. The Final Rule is replete with references to good faith errors as a defense to liability. The Final Rule clarifies that the presumed loss will apply to subcontractors that misrepresent their status to receive subcontract awards, and to the relief of the prime contractor industry, the Final Rule protects prime contractors from liability if they rely on a written size representation by a small business subcontractor. As a practical matter, federal prime contractors would be well advised to obtain size and status certifications from their subcontractors, because in the absence of that certification, the door remains open to liability for prime contractors. The Final Rule does not change the nuclear sanctions for size or status misrepresentations. We expect to see claims under the Small Business Jobs Act and the Final Rule added as Counts in False Claims Act cases, and in Board of Contract Appeals cases in Government claims or counterclaims. Federal prime contractors and subcontractors should take proactive measures to mitigate risk in this area. If you have any questions about the Final Rule or recommended measures to mitigate risk, please contact a member of Blank Rome LLP's Government Contracts Practice Group. Notice: The purpose of this newsletter is to review the latest developments which are of interest to clients of Blank Rome LLP. The information contained herein is abridged from legislation, court decisions, and administrative rulings and should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.

A proposed rule published on August 7, 2013 will limit the time periods in which (1) contractors are allowed to comment on negative past performance evaluations posted via the Contractor Performance Assessment Reporting System (“CPARS”), and (2) past performance evaluations must be available to source selection officials through the Past Performance Information Retrieval System (“PPIRS”). Currently, contractors have a minimum of 30 days for contractor comments in response to the government’s past performance evaluations, and past performance evaluations are generally not made available until after the contractor’s comments have been made. Under the new proposed rule contractors will be provided a maximum of 14 days to submit comments and past performance evaluations must be made available to source selection officials on PPIRS not later than 14 days after the evaluation was transmitted to the contractor, whether or not contractor comments have been received. As a result of these proposed rule changes, contractors must be vigilant in responding to and, if necessary, rebutting negative past performance evaluations during the greatly reduced 14-day suspense period before such evaluations are made publicly available. A contractor’s failure to diligently monitor and respond to past performance evaluation reports may have significant negative repercussions on pending and future procurements. In the event a contractor fails to submit comments within the 14-day comment period, the proposed rule still permits a contractor’s comments to be added after the evaluation has been posted on PPIRS. Planned system changes to the PPIRS will also allow the government to revise a past performance evaluation if the government determines that corrections should be made after the 14-day period has expired. The proposed rule implements section 853 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2013 (Pub. L. 112-239, enacted January 2, 2013) and section 806 of the NDAA for FY 2012 (Pub. L. 112-81, enacted December 31, 2011, 10 U.S.C. 2302 Note). Interested parties should submit written comments to the Regulatory Secretariat on or before October 7, 2013 to be considered in the formation of the final rule. Comments may be submitted via the Federal eRulemaking portal (http:--www.regulations.gov) by searching for “FAR Case 2012-028”. Select the link “Submit a Comment” that corresponds with “FAR Case 2012-028”. Follow the instructions provided at the “Submit a Comment” screen. Notice: The purpose of this newsletter is to review the latest developments which are of interest to clients of Blank Rome LLP. The information contained herein is abridged from legislation, court decisions, and administrative rulings and should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.

In one of its first rulings interpreting the Small Business Jobs Act (“the Act”), the Small Business Administration’s (“SBA”) Office of Hearings and Appeals (“OHA”) curtailed the potential reach of the Act’s deemed certification provisions. On January 28, 2014, in the Size Appeal of TISTA Science and Technology Corporation (“TISTA”) (Docket No. SIZ-2013-11-04-139), OHA ruled that the Act’s deemed certification provisions do not apply to proposals for task orders under FSS contracts. Longstanding SBA regulations allow contracting officers to determine whether or not to require an offeror to certify its size status when submitting proposals for set aside task orders under long-term contracts. However, the 2010 amendments to Section 632 of the Act specified that “submission of a bid or proposal for a Federal…contract…[that is] set aside, or otherwise classified as intended for award to small business concerns” would be deemed “affirmative, willful, and intentional certifications of small business size and status.” In the TISTA size protest, the awardee was size eligible at the time it received its FSS contract in 2008, but exceeded the size standard at the time it submitted its proposal for a task order award in 2013. At issue in the protest was whether the Act’s deemed certification provisions made the awardee’s 2013 task order proposal a deemed certification of size eligibility. Citing the Federal Acquisition Regulation (“FAR”) definition of contract that included orders, the protester contended that the Act covered proposals for task orders because the FAR includes “orders” in the definition of “contracts” at FAR § 2.101. OHA disagreed, and ruled that Congress did not intend the Section 632(w)(2) deemed certification rule to cover task orders based on the language of the statute, and the potential conflict with other SBA regulations. But did Congress intend this outcome? The converse of OHA’s rationale is also true: If Congress intended to exclude task order proposals from the deemed certification rule, it could have easily done so, and it is possible to read the deemed certification provisions in a way that does not conflict with the existing regulations. Congress may need to revisit the language to clarify its intention. The federal government increasingly uses task orders to contract for goods and services—recent estimates place the volume of such activity between $55-$90 billion per year, and growing. OHA’s interpretation maintains the status quo and allows businesses that have grown to be other than small under a long-term contract to nonetheless compete for task orders set aside for small business without concern that the deemed certification provision might apply to their task order proposals. If you have any questions about OHA’s decision, or the implications for small businesses, please contact a member of Blank Rome’s government contracts practice group. Notice: The purpose of this newsletter is to review the latest developments which are of interest to clients of Blank Rome LLP. The information contained herein is abridged from legislation, court decisions, and administrative rulings and should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.

On Jan. 28, 2014, in the Size Appeal of TISTA Science and Technology Corporation (“TISTA”) (Docket No. SIZ-2013-11-04-139), the Small Business Administration’s Office of Hearings and Appeals (“OHA”) issued one of its first rulings interpreting the Small Business Jobs Act’s deemed certification provisions. OHA ruled that the act’s deemed certification provisions do not apply to proposals for task or delivery orders under long-term contracts. Longstanding regulations adopted by the U.S. Small Business Administration in 2006 provide that, on long-term contracts, size is determined at the time of the initial offer on the long-term contract, and offerors may, with limitations, maintain that small size on subsequent task order competitions even if they have grown beyond the size standard at the time of the task order competition. The regulations also allow contracting officers to determine whether or not to require an offeror to certify its size status when submitting proposals for set-aside task orders under long-term contracts. However, in 2010, Congress passed the Small Business Jobs Act, which amended Section 632 of the Small Business Act to specify that “submission of a bid or proposal for a Federal grant, contract, subcontract, cooperative agreement, or cooperative research and development agreement [that is] reserved, set aside, or otherwise classified as intended for award to small business concerns” would be deemed “affirmative, willful, and intentional certifications of small business size and status.” The issue in the TISTA protest was whether a task order proposal was a “proposal for a contract” and thus a deemed certification of size as established by Section 632 of the Small Business Jobs Act. TISTA’s Size Appeal In TISTA’s size appeal, TISTA challenged the awardee’s size status under Section 632 of the SBJA. The awardee was small under the North American Industry Classification System code upon award of the long-term Federal Supply Service contract in 2008, but was well over the size standard five years later when it submitted its offer on the protested task order competition. The awardee relied on its “legacy certification” on the FSS contract from 2008 in submitting its task order proposal. TISTA appealed an area office size determination that found the awardee to be small. TISTA argued that Section 632 of the act covers proposals submitted for task orders under long-term contracts that are set aside for small businesses. TISTA cited the Federal Acquisition Regulation definition of contract at FAR § 2.101, and several Board of Contract of Appeals and federal court cases holding that under circumstances applicable to this procurement, the Boards of Contract Appeals have held that task orders were contracts. Specifically, these tribunals have held that task orders can be contracts where there is “mutual intent to contract including an offer and acceptance, consideration, and a Government representative who had actual authority to bind the Government.” TISTA also argued that the area office decision impermissibly read an exception for task orders into the statute. OHA considered whether the awardee’s submission of a proposal for a task order set aside for small business constituted a deemed certification under the Small Business Jobs Act. OHA ruled that Congress did not intend the Section 632 deemed certification rule to cover task orders based on the language of the statute and the potential conflict with other SBA regulations. Specifically, OHA ruled that because the SBJA “omits any mention of task or delivery orders,” the plain language of the statute did not apply to orders under long-term contracts. OHA also drew a distinction between “certification” and “recertification” and found that “given that 15 U.S.C. § 632(w)(2) is silent on the issue of recertifications, there is no indication that Congress intended to overrule SBA's preexisting regulatory approach and replace it with a rule that recertification occurs for every order that is set-aside or restricted to small businesses.” OHA supported this analysis by asserting that: the FAR's definition of “contract’ is quite broad, and includes a variety of instruments involving expenditure of appropriated funds, such as bilateral contract modifications, which typically would not contain small business certifications. It would make little sense, and fundamentally alter existing law, to conclude that size certification or recertification occurs whenever a small business executes a bilateral contract modification. It therefore appears that Congress likely did not to use the word “contract” in the broad FAR sense of the term. OHA also found that that “the same legislation which gave rise to 15 U.S.C. § 632(w)(2) also contained provisions on the set-aside of orders,” which meant that because “Congress was fully capable of distinguishing ‘contracts’ and ‘orders,’ ... [it] did not intend the word ‘contract’ to encompass orders placed against existing contracts.” Regarding the potential conflict between the SBA’s regulations and the Small Business Jobs act, OHA stated, “although the statute makes clear that certification is ‘deemed’ to occur through submission of a bid or proposal on a set-aside contract, it does not specify when such certification, or recertification, is deemed to have occurred.” OHA thus held that “[i]nsofar as the statute is silent as to the timing of certification and-or recertification, the statute is not inconsistent with the SBA's regulatory approach that certification occurs at the contract level and remains in effect for five years unless and until the procuring agency requests recertification in conjunction with a particular order.” Did OHA Get it Right? Congress enacted the Small Business Jobs Act after a long series of legislative inquiries that pointed to many flaws in the Small Business Act. For example, there was a lack of clarity on when a business was certifying itself as small and the form of the required certification. To address this issue, Congress mandated a CEO’s signature on a certification, and added the deemed certification provisions in Section 632. However, when Congress used the term “contract” in the deemed certification statute, did it intend to include or exclude task orders? There is scant legislative history on the intention behind or the reach of the deemed certification provision. If Congress meant to include task orders, it would significantly impact, and arguably override, existing law on an offeror’s ability to retain small size status on long-term contracts. Such a ruling would mean that an offeror on a task order set aside for small business under a long-term contract would effectively be precluded form bidding on later task orders if it had exceeded the size standard at the time the task order proposals were due. This interpretation would open more opportunity for the small businesses that had not exceeded the size standard at the time of the task order proposal. On the other hand, it would reduce opportunities to successful firms that had exceeded the size standards. OHA’s ruling preserves the status quo, and until this issue is clarified by a court or a change in the statute, this decision will now be the operative rule. The TISTA decision highlights an ambiguity in the statute as to the reach of the long-term contract, which Congress should address. Implications for Small Businesses Small businesses should be aware that under the OHA ruling, the deemed certification provisions of the Small Business Jobs Act will not apply to task order proposals. If size recertification at the task order level would give an advantage to a small business competing for a set-aside task order, the small business should pursue a task order recertification requirement in the base solicitation, or through amendment. After award of the long-term contract, it will be difficult to add a recertification requirement. ____ Blank Rome LLP represented TISTA in this appeal.   "SBA Case Highlights Ambiguity In Small Business Jobs Act," by Albert B. Krachman and Lucas T. Hanback first appeared in Law360 on February 21, 2014.  To read the article online, please click here.  Reprinted with permission by Law360.

On February 19, 2013, President Obama issued Executive Order 13636—Improving Critical Infrastructure Cybersecurity—noting that cybersecurity represents one of the most serious national security challenges facing the United States and declaring that the U.S.’s policy is "to enhance the security and resilience of the Nation’s critical infrastructure and to maintain a cyber environment that encourages efficiency, innovation, and economic prosperity while promoting safety, security, business confidentiality, privacy, and civil liberties."1 Pursuant to Executive Order 13636, among other initiatives, the Department of Defense ("DOD") and General Services Administration ("GSA") were ordered to make recommendations on "the feasibility, security benefits, and relative merits of incorporating security standards into acquisition planning and contract administration" and the National Institute of Standards and Technology ("NIST") was directed to lead the development of a Cybersecurity Framework to reduce cyber risks.2 Improving Cybersecurity and Resilience through Acquisition The DOD and GSA’s recommendations were published in a Final Report–Improving Cybersecurity and Resilience through Acquisition–on January 23, 2014.3 The Final Report recognizes that the government’s use of network connectivity, processing power, data storage, and other information and communications technology makes the government more efficient and effective, but also more vulnerable to cyber attacks and exploitation.4 The Final Report noted a majority of federal technical information resides on information systems susceptible to cyber attack, including mission-critical systems requirements, concepts of operations, technologies, designs, engineering, systems production, and component manufacturing, and found "the Federal government and its contractors, subcontractors, and suppliers at all tiers of the supply chain are under constant attack, targeted by increasingly sophisticated and well-funded adversaries seeking to steal, compromise, alter or destroy sensitive information."5 In order to achieve cyber resiliency, the Final Report called for "a clear prioritization of cyber risk management as both element of enterprise risk management and as a technical requirement in acquisitions that present cyber risks."6 However, the DOD and GSA also noted a "selective approach" is appropriate because all acquisitions for not present the same level of risk. Thus the Final Report made the following recommendations: Require Baseline Cybersecurity Requirements as a Condition of Contract Award: For acquisitions that present cyber risks, the Final Report calls for the government to only do business with organizations that meet baseline cybersecurity requirements in their operations as well as products or services delivered to the government. The DOD and GSA recommend that the cybersecurity baseline be expressed in technical requirements and that contracts include performance measures to ensure cybersecurity effectiveness. Basic protections identified by the Final Report include: updated virus protection, multiple-factor logical access, methods to ensure confidentiality of data, and maintaining current security software patches. Beyond the baseline requirements, the Final Report recommends that the government take an incremental, risk-based approach for each acquisition.7 Require Contractor Cybersecurity Training: The Final Report calls for increased training among both government acquisition and contractor personnel. "As with any change to practice or policy, there is a concurrent need to train the relevant workforce to adapt to the changes."8 Develop Common Cybersecurity Definitions in the Federal Acquisition Regulation: The Final Report recommends that uniform definitions be adopted for acquisitions in order to increase clarity and prevent disputes.9 Prioritize Cyber Risks for Acquisitions: The Final Report calls for a government-wide, risk-based acquisition strategy, aligned with the NIST Cybersecurity Framework, to balance cost increases against the severity of the cyber threat and to mitigate cost increases by adopting cybersecurity requirements across market segments.10 Require Items Be Sourced from OEMs, Authorized Resellers, or "Trusted" Sources: The Final Report identifies the problem of vulnerable counterfeit or "grey market" components and subcomponents introduced into the supply chain because inauthentic end items and components often do not have the latest security-related updates or are not built to the OEM’s security standards. Thus, in certain circumstances where appropriate, the Final Report recommends goods be required to be provided only from OEMs, their authorized resellers, or other trusted sources. If the government chooses to use a source that is not in a trusted relationship with the OEM, the Final Report recommends that the government obtain assurances of the company’s ability to guarantee the security and integrity of the item being purchased.11 The Final Report recognizes that this approach "represents a limitation of available sources and therefore should only be used for types of acquisition that present risks great enough to justify the negative impact on competition or price differences between trusted and un-trusted sources."12 Increase Government Accountability for Cyber Risk Management: The Final Report notes the importance of integrating security standards into acquisition planning and contract administration to ensure key decision makers are accountable for cybersecurity risks and the fielded solutions.13 The Final Report recognizes that government purchases of products or services with adequate cybersecurity may have higher-upfront costs, but would reduce the total cost of ownership throughout the lifespan of the item purchased.14 "The cost of not using basic cybersecurity measures would be a significant detriment to contractor and Federal business operations, resulting in reduced system performance and the potential loss of valuable information."15 Implementation of the Final Report’s recommendations is expected to be aligned with the Comprehensive National Cybersecurity Initiative and the Cybersecurity Framework being developed by NIST pursuant to Executive Order 13636. The final version of the Cybersecurity Framework was released by NIST on February 13, 2014. Cybersecurity Framework Version 1.0 Primarily aimed at organizations with critical infrastructure and sensitive information, such as those in the financial, energy, and healthcare industries, the goal of the Framework is to better protect critical information as well as critical physical assets from cyber attacks. The Framework adopts industry standards and best practices to help organizations manage cybersecurity risks "in a cost-effective manner." In addition to the Framework document, the NIST also released a "Roadmap" document that sets forth the path toward future updates of the Framework. NIST has referred to the Framework document (labeled as Version 1.0) as a "living" document that will be updated, as necessary, in response to industry feedback and to keep pace with improvements in technology and new threats.  The NIST emphasizes that the Framework is "technology neutral" and should complement, and not replace, an organization’s risk management process and cybersecurity program. The Framework provides a common taxonomy and method for organizations to accomplish the following:  describe their current cybersecurity posture; describe their target state for cybersecurity; identify and prioritize opportunities for improvement within the context of a continuous and repeatable process; assess progress toward the target state; and communicate among internal and external stakeholders about cybersecurity risk. In keeping with the "living" nature of the Framework document, the NIST is expected to sponsor workshops with industry stakeholders over the next six months. These workshops will aim to assist organizations in adopting the Framework as well as to provide a forum where experiences with the Framework are shared and potential refinements identified. As noted above, the Framework is strictly voluntary and the NIST has no enforcement authority. However, Congress could enact legislation that would provide incentives for private entities that adopt the Framework.  The Framework document in its entirety can be downloaded here. Executive Order 13636, 78 Fed. Reg. 11739-44 (February 19, 2013). Id. Improving Cybersecurity and Resilience through Acquisition, Final Report of the Department of Defense and General Services Administration (November 2013). Id. at 7. Id. at 11. Id. at 4. Id. at 13-14. Id. at 14-15. Id. at 15. Id. at 15-17. Id. at 17-18. Id. at 18. Id. at 18-19. Id. at 6. Id. at 14. Notice: The purpose of this update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.

NEW DEVELOPMENTS The Department of Transportation ("DOT") recently announced that $600 million will be made available to fund transportation projects under the Transportation Investment Generating Economic Recovery ("TIGER") 2014 competitive grant program. These funds are available to support innovative transportation projects as well as regional transportation planning, and freight and port planning. Final applications must be submitted through Grants.gov by April 28, 2014 at 5:00 p.m. EDT. The DOT announcement can be found here: http:--www.dot.gov-tiger. BACKGROUND The TIGER grant program began as part of the American Recovery and Reinvestment Act. These federal funds leverage money from private sector partners, states, local governments, metropolitan planning organizations, and transit agencies to create "federal funding possibilities for large, game-changing multi-modal projects." Since 2009, the TIGER program has awarded $3.5 billion to 270 projects in all 50 states, the District of Columbia and Puerto Rico—including 100 projects to support rural communities. The $474 million 2013 TIGER round alone supported $1.8 billion in overall project investments. The program is highly competitive, and during the previous five rounds, the Department of Transportation received more than 5,300 applications requesting nearly $115 billion for transportation projects across the country. The most recent funding was provided by Congress as part of the bipartisan Consolidated Appropriations Act of 2014 (Pub. L. 113-76), which was signed by President Obama on January 17, 2017. DISCUSSION The TIGER 2014 grant program places an emphasis on projects that support reliable, safe, and affordable transportation options that improve connections for both urban and rural communities. DOT will prioritize applications for capital projects that better connect people to jobs, training and other opportunities, promote neighborhood redevelopment, and reconnect neighborhoods divided by physical barriers, such as highways and railroads. Unlike previous rounds of TIGER, funds are available for obligation until the statutory deadline of September 30, 2016 in order to encourage longer term projects. In addition to supporting capital grants, DOT has the flexibility to use up to $35 million of TIGER funds for planning grants to support the planning of innovative transportation, the planning of regional transportation, freight and port planning, and programmatic mitigation approaches that increase efficiency and improve outcomes for communities and the environment. Applicants must detail the benefits their project would deliver for five long-term outcomes: safety, economic competitiveness, state of good repair, livability, and environmental sustainability. DOT will award TIGER 2014 program grants on a competitive basis for projects that will have a significant impact on the nation, a metropolitan area, or a region. DOT will conduct a series of webinars to familiarize applicants with the TIGER grant program and process. These webinars will be held on March 12, March 19, and March 26, 2014. CONCLUSION AND RECOMMENDATIONS Applications for TIGER 2014 grants can be submitted beginning on April 3, 2014. Final applications are due in Grants.gov by April 28, 2014 at 5:00 p.m. EDT. However, applicants must complete a 2-4 week registration process before submitting an application. Thus, any company wishing to apply for a TIGER 2014 grant must take immediate action in order to meet the application deadline. If you are interested in applying for a TIGER 2014 grant, and would like assistance in applying for the grant, please feel free to contact a member of Blank Rome’s Government Contracts Practice Group or the Maritime Industry Team. Notice: The purpose of this Maritime Developments Advisory is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. The Advisory should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.  

On April 8, 2014, President Barack Obama, in honor of National Equal Pay Day, signed two executive actions designed to address pay discrimination and strengthen the enforcement of equal pay laws among federal contractors. First, the President signed an Executive Orderprohibiting federal contractors from retaliating against employees who choose to discuss their compensation.  The Executive Order does not compel workers to discuss pay or require employers to publish pay data.  Rather, the Executive Order prohibits federal contractors from discharging “or in any matter discriminating against any employee or applicant for employment because such employee or applicant has inquired about, discussed, or disclosed the compensation of the employee or applicant or another employee or applicant.”  Importantly, the Executive Order does not apply to situations where an employee with access to other employees’ or applicants’ compensation information as part of his or her essential job functions discloses that information to persons who otherwise would not have access to the information, unless one of a few limited exemptions applies.  The Department of Labor (“DOL”) is expected to issue proposed regulations implementing the Executive Order within 160 days. Second, the President signed a Presidential Memoranduminstructing the Secretary of Labor to propose new regulations within 120 days that require federal contractors and subcontractors to submit to DOL “summary data on the compensation paid to their employees, including data by sex and race.”  The President further instructed the Secretary to consider approaches that would (1) enable DOL to direct its enforcement resources toward entities whose reported data suggests potential discrepancies in compensation, (2) minimize the reporting burden on federal contractors and subcontractors generally, and particularly on small businesses and small nonprofit organizations, and (3) encourage greater voluntary employer compliance with federal pay laws and identify industry trends.  Additionally, the President requested that, where feasible, the Secretary avoid new record-keeping requirements by relying upon existing frameworks to collect the summary data. We will continue to monitor these executive actions and update you on the DOL's implementing regulations. If you would like further information about the Executive Order, the Presidential Memorandum, or the impact that these executive actions may have on your company, please contact a member of Blank Rome LLP's Government Contractsor Employment, Benefits & LaborPractice Groups. Notice: The purpose of this notice is to review the latest developments which are of interest to clients of Blank Rome LLP. The information contained herein is abridged from legislation, court decisions, and administrative rulings and should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.

Action Item: Firms making commercial off-the-shelf ("COTS") software sold to the federal government, or reselling COTS software to the federal government, should respond to the SBA’s recent proposed rule or risk a loss of market share. Commercial software manufacturers and certain federal resellers could find their federal business significantly impacted by an SBA Proposed Rule published recently at 79 Fed. Reg. 77955, December 29, 2014. If adopted without changes, the Rule will incentivize the government to buy commercial item software through small business set asides under NAICS Code 511210, which is currently limited to vendors under a size standard of $38.5M Average Annual Receipts over the prior 3 years. To do this, the SBA will be granting individual waivers of what is known as the "non-manufacturer rule" for certain software that meets the regulatory definitions. The waiver means that an eligible small business may resell software manufactured by a large business under the non-manufacturer exception to the general rule on limitation of subcontracting. While proposed for revision, the general rule currently requires a small business prime contractor on a set aside contract to self perform 50% of the manufacturing costs, excluding materials costs. The pending revision will change the subcontracting formula from a cost based calculation to one based on the amount paid to the prime contractor and similarly situated entities. Importantly, the Rule does not extend this preference to contracts that acquire newly created, custom designed software. Also excluded is software sold through subscription services, remote hosting of software, and data or other cloud-based applications not on government servers. These latter contracts would be deemed service contracts, making it difficult, if not impossible for a small business reseller to sell software manufactured by a large firm on a set aside contract. There are also provisions that govern software and service combinations, and dictate that the value of the services, in comparison to the value of the code, determines whether waivers will be granted.  If the Rule becomes final without change, it is likely to have several public and private sector impacts in the software vertical. The government will likely increase the use of set aside contracts under NAICS Code 511210 to acquire commercial item software that is uploaded to government servers and run from government servers because they can credit those purchases against their small business goals. Where the government has a choice of buying the same application either on an uploaded basis or as a service through the cloud, it will be incentivized to use the uploaded format, again because it can receive set aside credit if it buys from an eligible small business on a set aside contract. Manufacturers who sell significant volumes of commercial off the shelf software to the federal government, through resellers or directly, and who either are or plan to be substantially in the cloud, may be disadvantaged by the Proposed Rule if promulgated in its current form. As a hedge, those firms should maintain their code upload delivery models. Manufacturers would also be well advised to diversify their sales channels and examine their reseller relationships to be sure there are multiple relationships with small business vendors who are likely to remain under the $38.5M size standard for more than three years in the future. They should strategically plan for exploiting this channel and be prepared to assist the small businesses with the waiver process, which will be done on a contract-by-contract basis. Manufacturers may even consider strategic alliances, mentor protégé relationships, and-or investments in these firms because they are likely to realize significant growth. The change might also implicate manufacturers’ small business subcontracting plans. Large business resellers of commercial item software are likely to lose business and market share in this segment. Even though this is a Proposed Rule, it stakes out the legal position of the SBA on this issue. Even before the Rule takes effect, the SBA may grant a requested nonmanufacturer’s waiver if a qualified vendor files the right application. So it would be prudent for affected businesses to start looking at qualified small resellers early on. In its current form, the Proposed Rule creates potential winners and losers. Clearly, companies who stress COTS cloud solutions could be adversely impacted by the Rule. It is unclear why cloud service is being disadvantaged, and it is also unclear how one will compute the fair valuation of software versus services for purposes of obtaining the waivers. It would be prudent to comment on the Rule rather than to remain silent to either protect existing market share or to stake out growth potential. Comments are due by a February 27, 2015, deadline. Notice: The purpose of this update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.

Commercial software manufacturers and certain federal resellers could find their federal business significantly impacted by an SBA Proposed Rule published recently at 79 Fed. Reg. 77955, December 29, 2014. If adopted without changes, the Rule will incentivize the government to buy commercial item software through small business set asides under NAICS Code 511210, which is currently limited to vendors under a size standard of $38.5M Average Annual Receipts over the prior three years. To do this, the SBA will be granting individual waivers of what is known as the “non-manufacturer rule” for certain software that meets the regulatory definitions. The waiver means that an eligible small business may resell software manufactured by a large business under the non-manufacturer exception to the general rule on limitation of subcontracting. While proposed for revision, the general rule currently requires a small business prime contractor on a set aside contract to self-perform 50 percent of the manufacturing costs, excluding materials costs. The pending revision will change the subcontracting formula from a cost-based calculation to one based on the amount paid to the prime contractor and similarly situated entities. Importantly, the Rule does not extend the waiver to contracts that acquire newly created, custom designed software. Also excluded is software sold through subscription services, remote hosting of software, and data or other cloud-based applications not on government servers. These latter contracts would be deemed service contracts, making it difficult if not impossible for a small business reseller to sell software manufactured by a large firm on a set aside contract. There are also new provisions that govern software and service combinations, and dictate that the value of the services, in comparison to the value of the code, determines whether waivers will be granted. If the Rule becomes final without change, it is likely to have several public and private sector impacts in the software vertical. The government will likely increase the use of set aside contracts under NAICS Code 511210 to acquire commercial item software that is uploaded to government servers and run from government servers because they can credit those purchases against their small business goals. Where the government has a choice of buying the same application either on an uploaded basis or as a service through the cloud, it will be incentivized to use the uploaded format, again because it can receive set aside credit if it buys from an eligible small business on a set aside contract. Manufacturers who sell significant volumes of commercial software to the federal government, through resellers or directly, and who either are or plan to be substantially in the cloud, may be disadvantaged by the Proposed Rule if promulgated in its current form. As a hedge, those firms should maintain their code upload delivery models. Manufacturers would also be well advised to diversify their sales channels and examine their reseller relationships to be sure there are multiple relationships with small business vendors who are likely to remain under the $38.5M size standard for more than three years in the future. They should strategically plan for exploiting this channel and be prepared to assist the small businesses with the waiver process, which will be done on an individual contract-by-contract basis. Manufacturers may even consider strategic alliances, mentor protégé relationships, and-or investments in these firms because they are likely to realize significant growth. The change might also implicate manufacturers' small business subcontracting plans. Large business resellers of commercial item software are likely to lose business and market share in this segment. Even though this is a Proposed Rule, it stakes out the legal position of the SBA on this issue. Even before the Rule takes effect, the SBA may grant a requested non-manufacturer's waiver if a qualified vendor files the right application. It would therefore be prudent for affected businesses to start looking at qualified small resellers early on. In its current form, the Proposed Rule creates potential winners and losers. Clearly, companies who stress COTS cloud solutions could be adversely impacted by the Rule. It is unclear why cloud service is being disadvantaged, and it is also unclear how one will compute the fair valuation of software versus services for purposes of obtaining the waivers. Stakeholders should monitor the rulemaking and make preparations for the Final Rule. “Trouble Ahead For Federal Commercial Software Suppliers,” by Albert B. Krachman appeared in the March 4, 2015 edition of Law360, and was first published as a Blank Rome Alert in February 2015. To read the full article in Law360, please click here, and to read Blank Rome's Alert from February 2015, please click here. Reprinted with permission from Law360.

After a successful protest on a $95 million multiple award contract, a contracting officer once said to me, “Thank you for filing that protest; our division learned from it.” Having worked in procurement for more than 33 years for both the government and the private sector, I know my clients also have heard the inverse of that comment: “If you file a protest, you will never see another piece of business from our office.” Recent statistics from the Government Accountability Office ("GAO") have shown that about 40 percent of the time, companies filing bid protests get some form of relief from the GAO or the agency, often in terms of the agency taking corrective action to cure an error. Is every bid protest a mark of system failure or mistake? Is a bid protest a learning tool for contracting officers, or a personal attack that invites retribution against the protester? Whose fault is a bid protest? These are complex questions, because the chances a contractor has written a perfect proposal are about as low as the likelihood the government has conducted, and documented, a perfect source selection. To continuing reading Mr. Krachman's article, please click here. "When Contract Protests Emerge, Whose Fault Are They?" by Blank Rome Partner Albert B. Krachman was published in the May 8, 2015, edition of SIGNAL Magazine. Reprinted in part with permission.

The time limit on some challenges is not absolute. Many small businesses have encountered set-aside competitions where they either strongly believe, or know for certain, that a competitor has misrepresented its size or status. Some feel that agencies sometimes look the other way, or even purposely sidestep the small business rules, to allow favored firms of questionable size to compete for these contracts. Although the small business size protest is an available remedy, the five-day deadline for filing a well supported, "non-speculative" size protest often presents a barrier for small companies. It is very challenging to research and draft a quality size protest in just five working days. Also, what if the company does not learn that the competitor is large or ineligible until after the five-day deadline? What can be done in that situation? To read the full article online, please click here. “Small Business Size and Status Protests Are Better Late than Never,” by Al Krachman was published in SIGNAL Magazine on September 8, 2015. Reprinted in part with permission.