Recent Developments in Federal Procurement 2004 – 2005

1. Recent Developmentsin Federal Procurement2004 – 2005 NCMA Cape Canaveral Chapter June 2005 E. S. Cavallucci Harris Corporation Legal Department

2. Glossary Recent Developments in Federal Procurement 2004 – 2005 ADA: Anti-Deficiency Act B&P: Bid and Proposal CDA: Contract Disputes Act C&PD: Cost & Pricing Data CAFC: Circuit Court of Appeals for the Federal Circuit CAS: Cost Accounting Standards CO: Contracting Officer COFC: Court of Federal Claims DOJ: Department of Justice FCA: False Claims Act FOIA: Freedom of Information Act FR: Federal Register Kor: Contractor OGE: Office of Government Ethics QT: Qui Tam TINA: Truth in Negotiations Act T/C: Termination for Convenience T/D: Termination for Default USSC: United States Supreme Court

3. GFY 2004 Statistics for Q.T. Cases • $545,000,000 recovered where U.S. intervened (more than $667,000,000 FCA total) • $9,400,000 recovered where no U.S. intervention • $108,000,000 recovered by whistleblowers

4. False Claims Act (FCA)/ Qui Tam Actions • U.S. ex rel. DRC, Inc., et al. v. Custer Battles, LLC (CV-04-199A) • U.S.D.C. Eastern District of VA 1:04-CV-00199-TSE-TRJ • Issue: Are officials of the Iraq Coalition Provisional Authority (CPA) “officers or employees of the U.S.” for FCA purposes? • Involves security Kor for Baghdad Airport and Iraq Currency Exchange • Government argues that “Iraqi funds” in CPA possession is U.S. money/property for FCA. Also: • Brewer was head of CPA • Most CPA officials were Americans • Jurisdictional hearing: May 12, 2005

5. Truth in Negotiations Act (TINA) • Appeal of UTC (ASBCA Nos 51410, 53089, 53349), 2005 ASBCA Lexis 10 (January 19, 2005) 2004-1 B.C.A. (CCH) P32,556 • Reconsideration of previous ASBCA decision holding that AF had not proven entitlement • Offsets proven by UTC exceeded AF claims • Held for UTC: • AF could show no reliance on data: no review by CO • Award based on competition, not cost data • SAIC Defective Pricing Case • AF Kor at Kelly AFB; 8FFP delivery orders worth $24M • Q.T./FCA case raising violation of TINA • “undisclosed contingencies”/management estimates • Controversy: AFGC Notice of February 11, 2005 • NDIA and PSC responses to notice: withdraw/clarify • Case settled before trial • See FederalContractsReport (Vol. 83, No. 14, April 12, 2005)

6. Cost Principles • Ford Motor Co. v. U.S. (August 2004) 56 Fed. CL. 85 • CAFC decision on Kor liability for environmental damages • Contract written during WWII • Kor “reservation of rights” language • Language held to protect Kor from subsequently discovered damage • FAC 2001, December 30, 2004, Item VI; FAR Case 2001-018 • FAR $ threshold raised from $500K to $550K for contracts subject to penalties for including “expressly unallowable costs”.

7. Cost Principles (con’d) • Southwest Marine, Inc. ASBCA No. 54234 (Slip Op. February 23, 2005) 2005-1 B.C.A. (CCH) P32,892; • Costs incurred by Kor in unsuccessful defense of suit under the Clean Water Act held unallowable • Follows Boeing NA v. Roche, 298 3D 1274 (Federal Circuit 2002) • Kor argued FAR 31.205-33 makes costs allowable • Government argues costs unallowable under FAR 31.205-47(b)(2) • Board sides with Government saying that suit here equal to “Government suit” under 31.205-47 therefore unallowable. Also holds no apportionment possible.

8. Performance • Cherokee Nation v. Leavitt • USSC decision (No. 02-1472, March 1, 2005) 125 S. Ct. 1172; 161 L.Ed. 2d 66 • Holding: When government enters into contract using general appropriations, it is binding whether funds available or not. • affirms CAFC; reversed 10th CCA • Unanimous decision • Government “ran out of funds” to pay certain administrative costs relating to tribal health care. • SC held agency can’t avoid contract by claiming funds spent elsewhere if Congress appropriated “unrestricted” funds. • SUFI Network Services, Inc. (August 17, 2004), 2004-2 B.C.A. (CCH) P32,714, ASBCA No. 54503 • Board found AF breached contract by allowing lodging guests to use calling cards rather than contract long distance phones. • Breach allowed Kor to stop work and collect lost profits.

9. Performance (con’d) • CW Government Travel, Inc. v. U.S. (COFC No. 04-718C) December 30, 2004 63 Fed. CL. 369 • Kor can get declaratory relief by following CDA even if Government only threatening breach. • True even if CO responds to request for relief but states (incorrectly) that response is not a final decision. • Kor established enough of a “live dispute” to get relief. • Blackstone Consulting, Inc. v. U.S. (Federal Circuit No. 02-1728C) March 25, 2005 WL 850874 (Fed.CL.) • Involves government assertion of “impossibility of performance” due to its inability to award a contract because of bid protests making award impossible.

10. Performance (cont’d) • CAFC agrees with government and found impossibility • Bid protests made contract performance impossible • Not government fault • Not foreseeable • Risks of protests not on government. • Bannum Inc. v. U.S. 404 F.3d 1346 (Federal Circuit No. 04-5008 April 21, 2005) • Interprets FAR 42.1503 – Kor performance evaluations • Where disagreement about Kor performance exists, evaluation must be made by “independent party above the CO” • Involved bid protest by plaintiff against Bureau of Prisons • Court held administrators who did not have authority over the CO not consistent with FAR • Plaintiff lost protest: errors not sufficient to effect the outcome

11. Performance (con’d) • NECCO, Inc. GSBCA No. 16354, March 1, 2005, 2005 Westlaw 487676 • Following advise or commitment of a COR held insufficient to constitute a change to the contract schedule • T for D held proper • Contract had express language re limits of COR authority • International Data Products Corp. v. U.S. Nos 01-45C, 03-2515C, (March 28, 2005) 64 Fed.CL.642 • COFC decision involving IDIQ contract • Kor terms: • Minimum guarantee $100,000 • Total estimated quantity $100,000,000

12. Performance (con’d) • After 2 years agency T for C’d the Kor with orders of $35M • Kor submitted T for C claim of $1.7M (claiming costs based on $100,000,000 quantity) • SJ for government – held: once government meets contract minimum no further legal obligation under contract • Contract allocates the risk to Kor; T for C doesn’t shift the risk • Riley & Ephriam Construction, Inc. v. U.S. (CAFC, May 18, 2005) 61 Fed. CL. 405 • CDA requires actual delivery of F.D. to Kor or agent before clock starts on CDA appeal. • Delivery to P.O. Box and fax of F.D. where receipt denied by Kor’s lawyer insufficient to establish proof of receipt (no CO follow up to confirm receipt)

13. Miscellaneous • FOIA • McDonnell Douglas Corp. v. Dept. of the AF, No. 02-5342(D.C. Circuit, July 27, 2004) 375 F.3d 1182 • Held: disclosure of line item pricing (including option year pricing was protected by FOIA exemption 4 and the Trade Secrets Act • Rejected AF agreement that price just one of many competitive aspects of bid/proposal • Can’t argue facts or law not previously raised in lower administrative procedures • DoD Memo: “Competition at the Subcontractor Level” • July 12, 2004 • Issued by Michael Wynn • Concern about industry consolidation and impact on “competitive environment”

14. Miscellaneous (con’d) • Emphasizes need for: • Effective acquisition strategy by CO • Appropriate “incentive tools” • Use of competition in assembling team • DCMA tasked to assist in review of “subcontractor competition plans” • Protection of Intellectual Property Rights • Campbell Plastics Engineering & Mfg., Inc. v. Secretary of the Army (Federal Circuit, November 10, 2004) 389 F.3d 1243 • Held: Kor’s failure to comply with 60 day notice requirement of clause causes forfeiture of patent rights • Other contractor reports within period held irrelevant; insufficient notice to government • Strict compliance with Patent Rights clause required • New Postal Service Procurement Regulations 70 FR 20291 • Effective May 19, 2005 • Seeks to become “more commercial” • Complete rewrite of regulations, and purchasing manuals

15. Miscellaneous (con’d) • Post-Druyun/Sears Fallout • AF expands review of all contracts handled by Druyun • Bid protests by LM, BAE, L3 on C-130 upgrade and other contracts • Procurement Fraud Working Group • Paul McNulty, USA for Eastern District of VA • FBI, DoD, HLS, NRO, other agencies • Focus on contract “F,W, & A” • Mike Wynn memo on “Ethics and Integrity” • March 1, 2005 • Secretary of Defense memo re post-employment restrictions • October 25, 2004 • Imposed on DoD employees (reporting and certification) • Office of Government Ethics (OGE) – FR, Vol. 70, No. 83 (May 2, 2005)

16. Miscellaneous (con’d) • OGE Notice (con’d) • Conducting review of criminal conflict of interest laws regarding executive branch employment • Comments due June 20, 2005 • AIA, DII and other industry groups asked to comment • Defense Science Board Task Force • March 2005 report • Reviews Management Oversight in Acquisition Organizations • Critical of current acquisition practices regarding oversight and review of contract award and administration • Legislation S. 1042 • Portion of DoD Authorization Act • Subtitle C, Section 821 • Requires Kor to report “compensation paid” to “officers and employees” of DoD