Federal Construction Contracting Blog

The Government Cannot Simply Disregard a Lower-Priced Proposal When Making a "Best Value" Source Selection

Michael Payne — Sat, 06 Feb 2010 12:11:06 -0500

By: Lane F. Kelman

In making an award on initial proposals, is a tradeoff only between the two (2) highest-rated, highest-priced proposals appropriate? The GAO, in a recent decision,Coastal Environments, Inc., B-401889, dated December 18, 2009, provides important clarification. The decision beckons closer scrutiny of awards by unsuccessful offerors.

In Coastal Environments, Inc., the RFP identified six (6) evaluation factors in descending order of importance: (1) personnel and company qualifications, (2) management capability, (3) technical excellence, (4) past performance, (5) small business participation, and (6) price; the RFP also identified several subfactors under the non-price evaluation factors. Award was to be made to the responsible offeror whose proposal was determined to represent the “best value” to the government, all factors considered.

Eight proposals were received and evaluated using the adjectival rating system. The contracting officer, as the Source Selection Authority (‘SSA”), reviewed the evaluation findings and performed a price/technical tradeoff between the two most highly rated proposals; those of Ecological Communications Corporation (“ECC”) and another Offeror. Those two proposals were also the highest priced proposals. The Source Selection Authority (“SSA”) ultimately selected ECC for award after concluding that “due to the highly specialized nature of the work…ECC’s technical superiority” justified paying an additional $2,984 to ECC.

Coastal, who was not part of the tradeoff process, filed a protest and alleged, among other issues, that the tradeoff process should not have been restricted to ECC and the other most highly rated offeror. Coastal’s proposal, while not as highly rated, was $17,434.44 lower in price than GCC’s proposal. The GAO held that the SSA impermissibly limited the price/technical tradeoff analysis to a comparison of the two highest-rated, highest-priced proposals. The SSA failed to conduct any qualitative assessment of the technical differences between the two (2) highest-rated, highest-priced proposals and any of the other technically acceptable proposals to determine whether either of these proposals contained features that would justify the payment of a price premium.

The GAO found that the two higher-rated, higher-priced proposals considered in the tradeoff both received overall adjectival ratings of “Good” and “Low Risk,” while Coastal’s proposal received the next lowest rating of “Acceptable” and “Low Risk,” but was priced approximately 20 percent lower. The GAO concluded that a proper tradeoff decision must, per Federal Acquisition Regulation § 15.308, provide a rational explanation of why a proposal’s evaluated technical superiority warrants paying a premium. Here, the SSA did not identify what benefits in ECC’s proposal warranted paying a premium to ECC when compared to Coastal’s lower-priced proposal, which was found to be acceptable and low risk.

Lane F. Kelman is a Partner in the firm and a member of the Federal Contracting Practice Group

How to Win Federal Construction Contracts with Teaming Arrangements

Michael Payne — Mon, 25 Jan 2010 00:24:21 -0500

A seminar on “How to Win Federal Construction Contracts with Teaming Arrangements” is being held on February 23, 2010, at the Hyatt Regency Grand Cypress Hotel in Orlando, Florida. The program is scheduled to take place from 8:00 a.m. to 1:00 p.m. and the seminar fee is $195, with a fee of $95 for additional people from the same company.

As contractors are well aware, the world of federal construction contracting has changed. Sealed bidding has largely given way to contracting by negotiation (“best value’), and the government is using task order contracts for construction more frequently. These large dollar value multi-year procurements are often beyond the economic reach of many small and medium-sized contractors. The negative effect on small businesses has not gone unnoticed.

The way to survive and thrive in this new world of federal construction contracting is to engage in various forms of teaming arrangements. These include joint ventures, committed subcontracting, large and small business teaming agreements, and small business subcontracting. In fact, the government often includes provisions in solicitations that encourage and promote teaming and joint ventures. These provisions permit small and medium-sized businesses to compete for contracts they would otherwise be deemed ineligible. To further foster small business participation, the government also uses set-aside procurements that limit competition to HUBZone business, Service Disabled Veteran Owned firms, or 8(a) concerns.

This seminar is being presented by the law firm of Cohen Seglias Pallas Greenhall & Furman and the Chairman of the Firm’s Federal Construction Practice Group, Michael H. Payne, will address the following topics:

* What is a teaming arrangement?

* What should be included in a teaming agreement?

* What types of joint ventures are permitted in federal construction contracting

* What are the requirements for a joint venture agreement?

* How can large business concerns benefit from small business set-asides that seem to exclude them from participation in many federal projects?

* Are there any circumstances where a large business can affiliate with a small business concern?

* What happens if two or more small businesses join to form a team?

* How can Service Disabled Veteran-Owned Small Businesses, HUBZone contractors, and 8 (a) firms leverage their size status and preferential status to maximize participation in larger dollar value procurements?

* How can a prime contractor take advantage of the past performance of a team member to increase its competitive position? hatever your experience level is with teaming arrangements, this seminar will provide you with the tools compete in the new landscape of federal government contracting.

To register, please respond by February 18, 2010 by clicking here. For questions, please contact Crystal Garcia at (215) 564-1700 or email cgarcia@cohenseglias.com.

Obama's Message to Federal Contractors: "Pay Your Taxes"

Michael Payne — Fri, 22 Jan 2010 01:13:15 -0500

By: Edward T. DeLisle

On Wednesday, January 20, 2010, President Obama signed a presidential memorandum directing the Internal Revenue Service to conduct an audit of all federal contractors. As reported by Nextgov.com, the audit is designed to identify those federal contractors that have failed to pay taxes and prevent them from obtaining additional federal work. The IRS is required to issue a report on its findings within ninety (90) days.

Calling out “deadbeat companies” that are being awarded government contracts while delinquent in their taxes, President Obama’s memorandum is intended to stop these companies from collecting government contracts while they are “gaming the system.” Studies by the Government Accountability Office have identified tens of thousands of such companies that, collectively, owe more than $5 billion in back taxes, the president said.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group.

The HUBZone Program and Federal Construction

Michael Payne — Fri, 15 Jan 2010 14:09:42 -0500

By: Michael H. Payne and Edward T. DeLisle

In order to qualify as a Historically Underutilized Business Zone (“HUBZone”) contractor, a firm must be a “small business” based on the size standards provided by the North American Industry Classification System (NAICS); the firm must be at least 51% owned and controlled by citizens of the United States; the firm's principal office (where the greatest number of employees perform their work, excluding contract sites) must be located in a designated HUBZone; and at least 35% of the firm's total workforce must reside in a designated HUBZone. In construction, a company does not need to include its field labor force among the 35% of its employees who must reside in a HUBZone. (See the SBA's HUBZone regulations).

The program encourages small businesses to locate in and hire employees from economically disadvantaged areas. Small firms participating in the program can receive competitive advantages in winning federal contracts. The government generally expects approximately three percent (3%) of all federal contracting dollars to be awarded to HUBZone firms annually. As reported by the HUBZONE Contractors National Council, as of January 8, 2010, there were 9,255 HUBZone-certified small business concerns specializing in the following major industries:

• Construction - 2,984 firms (32% of total)
• Services - 4,176 firms (45.1%)
• Research & Development - 879 firms (9.5%)
• Manufacturing - 1,675 firms (18.1%)
(Numbers total more than 9,255 because some firms appear in more than one industry category.)

Many HUBZone-certified firms are also certified in other set-aside programs. 12.2% of HUBZone firms are also 8(a) small businesses (minority-owned); 8.0% are Service Disabled Veteran-owned firms; and 0.9% are qualified in all three set-aside programs.

The mission of the HUBZone program, as expressed by the SBA, is “to promote job growth, capital investment, and economic development to historically underutilized business zones by providing contracting assistance to small businesses located in these economically distressed communities.” See the SBA’s HUBZone website for more details. In order to apply for HUBZone status, companies are encouraged to apply using the electronic application on the SBA website.

Michael H. Payne is the Chairman of the firm's Federal Practice Group. Edward T. DeLisle is a Partner in the firm and a member of the Federal Practice Group. He is a available to assist federal contractors on a whole range of small business issues including HUBZone certification, 8(a)compliance issues, Service Disabled Veteran-Owned Small Business formation, and teaming arrangements.

Recovery of Costs for Acceleration

Michael Payne — Mon, 11 Jan 2010 14:45:27 -0500

By: Michael H. Payne and Craig A. Schroeder

Acceleration is defined as a directive to increase efforts in order to complete performance on time, despite excusable delay. If the government does not agree that the contractor is entitled to acceleration costs, a contractor must file a request for an equitable adjustment (“REA”), or a claim under the Contract Disputes Act. Although different formulations have been used in setting forth the elements of constructive acceleration, the Court of Appeals for the Federal Circuit has generally described the requirements to include the following elements, each of which must be proved by the contractor: (1) that the contractor encountered a delay that is excusable under the contract; (2) that the contractor made a timely and sufficient request for an extension of the contract schedule; (3) that the government denied the contractor's request for an extension or failed to act on it within a reasonable time; (4) that the government insisted on completion of the contract within a period shorter than the period to which the contractor would be entitled by taking into account the period of excusable delay, after which the contractor notified the government that it regarded the alleged order to accelerate as a constructive change in the contract; and (5) that the contractor was required to expend extra resources to compensate for the lost time and remain on schedule. It is important to note that the contractor must prove that the costs claimed were actually incurred as a result of actions specifically taken to accelerate performance.

A contractor may accelerate on his own initiative to assure completion within the contract schedule or for other purposes. A contractor is, in fact, entitled to finish ahead of schedule, so long as he does not "tread upon the interests of others, or violate his contract." The contractor cannot compel the Government to aid him in finishing ahead of schedule, however, or to recover the costs of acceleration unless the Government has actually or constructively ordered the effort. No compensation is due where a contractor voluntarily accelerates performance for his own purposes.

Michael H. Payne is the Chairman of the firm's Federal Practice Group and may be contacted to discuss constructive acceleration or federal construction matters generally. Craig A. Schroeder is an Associate in the firm’s Federal Practice Group.

The Potential Third-Party Liability of a Federal Construction Contractor

Michael Payne — Fri, 18 Dec 2009 05:10:27 -0500

By: Michael H. Payne and Craig A. Schroeder

There has been a great deal of interest in the potential liability that a government contractor has for harm to third parties during or following the performance of a federal construction project. Although the government frequently enjoys sovereign immunity, the transfer of the government’s immunity to a contractor is certainly not automatic and, when it applies, it is generally the result of what has come to be known as the “Government Contractor Defense.” The applicability of that defense to a federal construction contractor is an open question that is beyond the scope of this article, however, but two recent cases have been decided in New Orleans that address the subject of contractor immunity from third party suits. These new cases both arise from the same construction project, the Mississippi River Gulf Outlet (the “MRGO”).

The first case, In Re Katrina Canal Breaches Consolidated Litigation, was heard in The United States District Court for the Eastern District of Louisiana. Six plaintiffs sought compensation from the government based upon alleged negligence of the U.S. Army Corps of Engineers (the “Corps”) with respect to the maintenance and operation of the MRGO for damages incurred in the aftermath of Hurricane Katrina. Before trial, the District Court had found that the Corps was shielded from liability as to the design and construction of the channel due to the discretionary function exception under the Federal Tort Claims Act (the “FTCA”). Notably, no government contractors or subcontractors were named in the suit.

Plaintiffs argued that the Corps’ negligent operation and maintenance of the MRGO – whereby, over time, the channel expanded to two to three times its design width – caused the breach of an important levee and produced catastrophic flooding. The District Court agreed that the Corps had, in fact, been negligent in its maintenance and operation of the MRGO and that, as a result, flooding had occurred to some of the plaintiffs’ property.

The government raised defenses as to its negligence under the Flood Control Act of 1928 (which was summarily dismissed as inapplicable), the FTCA’s “Due Care” exception and the FTCA’s “Discretionary Function” exception. The District Court found that the Corps could not invoke these statutory defenses. This was because the Corps had known about the potential expansion of the channel width due to erosion that ultimately caused the flooding. Hence, the Corps had not used “due care.” The Corps’ actions were also found to be in direct contravention of a mandate of the National Environmental Policy Act of 1969 to file an Environmental Impact Statement on its MRGO project. Thus, the Corps could not seek protection under the FTCA’s “discretionary function” exception. In the end, the court assessed damages for the plaintiffs for a total amount of $719,698.25.

The second case concerned an appeal of two class action matters that had been consolidated by the District Court, Ackerson, et al. v. Bean Dredging LLC, et al. and Reed v. United States. The District Court had found for the defendants and the plaintiffs appealed to the United States Court of Appeals for the Fifth Circuit. As in In Re Katrina, the plaintiffs alleged that dredging activities caused environmental damage to protective wetlands in the MRGO and that the government project caused an amplification of the storm surge in New Orleans during Hurricane Katrina, ultimately causing flooding. Unlike in In Re Katrina, however, the plaintiffs here sought recovery mainly against the government’s contractors (“Contractor Defendants”) who had performed the work.

The Contractor Defendants filed a motion to dismiss and the District Court concluded that they were shielded by government-contractor immunity under the holdings of Yearsley v. W.A. Ross Construction Co., 309 U.S. 18 (1940) and Boyle v. United Technologies Corp, 487 U.S. 500 (1988). The Appeals Court affirmed this decision, also citing Yearsley and Boyle extensively. Specifically, the Appeals Court affirmed that the only ways for an agent or officer of the government to be liable to a third-party for injury is if the agent exceeded his authority or that the authority used had not been validly conferred to that agent. In doing so, the Appeals Court further held that no specific agency relationship needed to be alleged by government contractors to receive government-contractor immunity.

These are encouraging decisions for contractors performing hurricane protection projects in New Orleans. The applicability of the government’s immunity to a contractor, through operation of the Government Contractor Defense or any other legal theory, however, is dependent on the facts of the case and may vary depending upon the jurisdiction. Specific legal advice should be sought in assessing the risk associated with the performance of a federal project that involves third party liability issues. These decisions by the courts in Louisiana, unfortunately, may not be regarded as the final word on the applicability of the Government Contractor Defense to current projects in New Orleans, or to federal construction generally.

Michael H. Payne is the Chairman of the firm's Federal Practice Group and may be contacted to discuss third party liability issues or federal construction matters generally. Craig A. Schroeder is an Associate in the firm’s Federal Practice Group.

The Danger of Involving Former Government Employees in Contractor Proposal Preparation

Michael Payne — Sat, 12 Dec 2009 07:38:35 -0500

By: Lane F. Kelman

As opportunities in the private sector remain, at best, stagnant, the public sector has become increasingly competitive. The desire to gain a competitive advantage, however, must be tempered by compliance with ethical obligations. When attempting to gain a competitive advantage, it is crucial to avoid the appearance that your advantage is unfair. A recent decision by the GAO, Health Net Federal Services, LLC, highlights the balance that must be had when you seek a competitive advantage and the risk if the balance is not maintained.

On November 9, 2009, the GAO sustained the bid protest of Health Net Federal Services, LLC (HNFS) of the award of a contract to Aetna Government Health Plans, LLC (AGHP). HNFS and AGHP issued offers in response to request for proposals issued by the Department of Defense TRICARE Management Activity (TMA) for T-3 TRICARE managed health care support services. TRICARE is a managed health care program implemented by the Department of Defense (DOD) for active-duty and retired members of the uniformed services, their dependents, and survivors.
HNFS was the incumbent contractor. Its bid protest focused on a number of different issues, the most compelling challenge was that AGHP should be excluded from the competition based on an alleged unfair competitive advantage stemming from AGHP’s hiring of a former TMA employee (the TMA Chief of Staff) to prepare AGHP’s proposal.

In evaluating the possibility of an unfair advantage on behalf of AGHP, the GAO acknowledged that a guiding principle is the obligation of contracting agencies to avoid even the appearance of impropriety in government procurements. Where a firm may have gained an unfair competitive advantage through its hiring of a former government official, the firm can be disqualified from a competition based on the appearance of impropriety - even if no actual impropriety can be shown - if the determination of an unfair competitive advantage is based on facts and not mere innuendo or suspicion.

The GAO went on to conclude that the former TMA Chief of Staff that was hired by AGHP did, in fact, have access to non-public propriety information. As a result of the actual access to this information, a prima facie case was established that an appearance of impropriety existed. Importantly, the access to propriety information and appearance of impropriety did not, in and of themselves, require disqualification. Rather, AGHP, despite a recommendation from TMA's ethics advisor to disclose the Chief of Staff's involvement to the Contracting Officer ("CO"), failed to do so. Since the CO was not provided the opportunity to investigate the issues stemming from the use of a high-level former TMA employee in the preparation of its proposal, the appearance of impropriety was necessarily not assessed by the CO prior to the award and the protest was sustained.

The recent emphasis on ethics on government contracting requires contractors to avoid any conduct that even appears to be unethical. The case highlights the care that must be taken when contractors hire former government employees and involve them in the procurement process. If the employee was involved in the planning of the project or procurement while employed by the government, or if the employee had access to non-public information, a risk exists that the relationship will result in the disqualification of the proposal. Regardless, there should be full disclosure to the Contracting Officer before submitting a proposal.

Lane F. Kelman is a Partner in the firm and is a member of the firm’s Federal Contract Practice Group. He may be contacted for advice regarding federal construction contracting matters, including issues involving ethics in federal contracting. His e-mail address is lkelman@cohenseglias.com.

Fraud, Abuse and the Service-Disabled Veteran-Owned Small Business Program

Michael Payne — Fri, 04 Dec 2009 14:38:45 -0500

By: Edward T. DeLisle

In recent testimony provided to the House of Representative’s Committee on Small Business, a disturbing fact was revealed: millions of dollars earmarked for Service-Disabled Veteran-Owned Businesses (“SDVOSBs”) have been paid to companies that do not qualify for the program. Compounding the problem is the fact that insufficient fraud-prevention programs exist to effectively combat such abuses. This was the conclusion reached by United States Government Accountability Office (the “GAO”) following a case study that included an investigation of ten (10) companies claiming SDVOSB eligibility.

In 2008 alone, $6.5 billion in federal contracts were awarded to companies that self-certified themselves as SDVOSBs. While this figure only represents 1.5% of all government contracts paid in that fiscal year, it is still a very large number. If the federal government ever attains its mandated goal of 3%, many more billions will become available to qualified SDVOSBs. Given the paucity of work in the private sector over the course of the last eighteen (18) months, many companies are attempting to tap into this potential source of revenue. As the GAO pointed out, however, a number of these companies have misrepresented their credentials, effectively taking contracts away from those that truly qualify to receive them.

The companies identified in the GAO case study received approximately $100 million in SDVOSB contracts, and over $300 million in additional 8(a), HUBZone and other non-SDVOSB contracts through the federal government. Certainly, none of these monies should have been paid to the companies in question. Notwithstanding the same, because there are no requirements to terminate contracts when a firm is deemed ineligible, in certain circumstances, companies were permitted to continue performing, despite the government’s determination that the firm did not qualify as an SDVOSB. Many more were not debarred from receiving federal contracts, even though the transgressions noted were obvious and seemingly blatant.

The GAO did note that Department of Veteran’s Affairs (the “VA”) has taken steps to address this problem by introducing an SDVOSB validation process. That process includes confirming an owner’s status as a disabled veteran, as well as his or her control over day-to-day operations. The problem, however, is that the VA’s certification and validation process is not a government-wide system. It is limited to those contracts issued directly by the VA. Because many other federal agencies issue contracts that are earmarked for SDVOSBs, there are considerable gaps in the SDVOSB program.

If your company is an SDVOSB, or if you are interested in forming a company that qualifies for participation in the program, it is very important for you to comply with applicable SBA and procurement regulations. The fierce competition for federal government contracts exposes many companies to size status protests which, if successful, can cause an SDVOSB to lose an award. Our Federal Contracting Practice Group is available to assist you with these important compliance issues.

Edward T. DeLisle is a Partner in the firm and is a member of the firm’s Federal Contract Practice Group. He is extensively involved in the representation of construction contractors on small business issues.

Federal Construction Contracting - Does a Newcomer Have a Chance?

Michael Payne — Sun, 25 Oct 2009 20:04:49 -0500

The recent decline in non-federal construction opportunities has resulted in a rapidly growing interest in the federal contracting market. The much-publicized American Recovery and Reinvestment Act of 2009 (“ARRA”), often referred to as the “Economic Stimulus Program,” has made billions of dollars available to federal agencies to fund construction projects. Add to that the billions of dollars being spent on the Hurricane & Storm Damage Risk Reduction System in New Orleans (‘HSDRRS”), the Base Realignment & Closure program (“BRAC”), and countless other military and civil works construction programs nationally, and it is easy to see why the federal market is generating so much interest. These federal opportunities are not necessarily easy for contractors to take advantage of, however, because increased opportunities have been accompanied by increased competition.

If your company is interested in getting into federal contracting for the first time, you can be certain of one thing – you are not alone. We have received dozens of requests from existing and new clients asking us to advise them about the best ways to get involved in the federal market. The answer is not always easy, because contractors who have never performed federal work may be at a disadvantage when participating in negotiated, “best value,” procurements. Unlike sealed bidding, where the competition is based on price alone and an award is made to the lowest responsive and responsible bidder, awards under negotiated contracting procedures not only consider price, but also consider evaluation factors like technical merit, past performance, experience, quality of personnel, and small business subcontracting. In a negotiated procurement it is not uncommon for an award to be made to a higher priced offeror who is evaluated as technically superior to the lowest-priced offeror. Past performance, when the offeror has not previously been awarded a federal contract, can be a serious obstacle.

The obstacle is not insurmountable, however. If a contractor has equivalent experience in the non-federal sector, and effectively demonstrates the value and relevance of that experience in its proposal, there are many federal agencies that will recognize the capabilities of the “new” contractor. It is important to present an effective proposal and to communicate your company’s capabilities in a clear and concise way. The good news is that awards are being made to construction contractors who have not performed federal work before, and federal agencies are always looking for enhanced competition. Your task, as an interested federal contractor, is to prepare an effective proposal that responds to each and every requirement of the solicitation and that addresses each and every evaluation factor. Our affiliate, FedCon Consulting, provides former government contracting officers and construction management personnel to assist contractors in the preparation of proposals.

Many newcomers to the marketplace are also concerned about the number of solicitations that are set aside for various types of disadvantaged small businesses, including minority 8(a) concerns, Historically Underutilized Business Zone (“HUBZone”) contractors, and Service Disabled Veteran-Owned Small Business (“SDVOSB”) concerns. To some, it appears that too many opportunities that might otherwise be available to non-disadvantaged small businesses, and large businesses, are being set aside for disadvantaged groups. Do not be dismayed, however, because many disadvantaged small business concerns need the assistance of other small and large businesses to be able to perform multi-million dollar federal construction projects and to meet the bonding requirements. As long as the rules prohibiting affiliation between large and small businesses are not violated, there are various types of teaming arrangements, joint ventures, and mentor-protégé agreements that allow non-disadvantaged businesses to participate in the vast federal construction market.

While the growing use of contracting by negotiation, and multiple award task order contracting (“MATOC”) has seemingly made it more difficult to compete, many of the most qualified contractors are thriving as a result of these procurement methods. Again, if your company does not have the sort of track record that will enable you to compete successfully, consider teaming arrangements that will allow you to get that first project “under your belt.” Earning the first federal award is the most difficult one, but the tremendous opportunities that lie ahead may very well be worth the effort.

We have learned that many of the projects funded by the Economic Stimulus Program will be solicited under sealed bidding because of the need to get the “shovel in the ground” quickly. Many of these sealed bid procurements will be set aside for small and small disadvantaged businesses, but some will be unrestricted, as well. For those entering the federal market for the first time, success on a sealed bid procurement may be the best way to get your foot in the door.

Michael H. Payne is the Chairman of the firm’s Federal Contracting Practice Group. The Group is available to provide assistance in the preparation of proposals, the structuring of teaming and joint venture agreements, and to provide advice on a wide range of federal contracting issues.

Court of Appeals Keeps MATOC Alive

Michael Payne — Tue, 06 Oct 2009 06:30:20 -0500

The Court of Appeals for the Federal Circuit has decided two cases that assure the continued use of the Multiple Award Task Order Contract (“MATOC”) in federal construction contracting. In the first case, Weeks Marine, Inc. v. United States, the United States Court of Federal Claims decided a bid protest in favor of Weeks Marine. The protest challenged the right of the South Atlantic Division of the Corps of Engineers to use MATOC procurement to solicit all maintenance dredging and shore protection projects for the next five years by establishing a MATOC pool of contractors who would compete for projects solicited on a task order basis. The Protester contended, and the Court agreed, that since sealed bidding had been used successfully in the procurement of dredging for many years, there was no basis to use contracting by negotiation, much less MATOC. The Court found that the Corps’ Acquisition Plan did not provide a rational basis for a departure from sealed bidding.

The Court of Appeals reversed the lower court and concluded that the Corps was required to “supply a reasoned chronicle of the risk assessment,” and did so “by stating the reasons for its procurement decision and the thinking behind those reasons.” Therefore, the Court concluded that as long as the Corps stated its reasons, and the thinking behind those reasons, the Court would not “second-guess” the Corps. In other words, even if the Corps’ rationale for using MATOC procurement made no sense and was not well supported, the Court would not disturb the Corps’ right to use a MATOC as long as some reasons were given. In this regard, the Court stated “If the court finds a reasonable basis for the agency’s action, the court should stay its hand even though it might, as an original proposition, have reached a different conclusion as to the proper administration and application of the procurement regulations.”

The second MATOC decision, Tyler Construction Group v. United States, involved a protest by a small business concern against the use of MATOC procurements to procure barracks construction in an eight state region. The protester contended that Indefinite Delivery Indefinite Quantity (“IDIQ”) contracts may only be used to procure supplies and services, and not construction, pursuant to FAR 16.5. MATOC procurements are solicited through the IDIQ contracting procedures specified in FAR 16.5, but that section of the FAR does not mention “construction” even once. Tyler argued that the Corps, under the guise of “innovation,” had adapted a contracting method used to procure supplies and services, like rounds of ammunition or electrical repair services, to the acquisition of large multi-million dollar buildings.

The Tyler protest also addressed the issue of improper bundling in violation of the Small Business Act. By taking individual projects, many of which were less than the $31.5 million (now $33.5 million) small business size standard for general construction, and bundling them into a $300 million MATOC procurement, the Corps effectively prevented small business concerns from competing as prime contractors. In other words, even though many small businesses could compete for projects in the $30 million range, they are excluded by the size of the bundled MATOC solicitation. In fact, both small businesses and small to medium-sized large businesses are effectively excluded from competition by MATOC procurements.

The Court of Federal Claims ruled that since the use of IDIQ/MATOC was not specifically prohibited in the procurement of construction by the FAR, it was therefore permitted. The Court also found that the Corps had conducted market research and had concluded that there was an industry consensus that bundling was “necessary and justified.” The Court of Appeals agreed with the lower court and decided that “The Corps, like other federal procurement entities, has broad discretion to determine what particular method of procurement will be in the best interests of the United States in a particular situation.”

In this writer’s opinion the widespread use of MATOC procurements to procure large dollar value construction projects is not consistent with the FAR. It is interesting that the use of the IDIQ procedure for construction was not subjected to review by the Defense Acquisition Regulations Council (DAR Council), as is commonly done when a new regulation is needed, or when there is a request for a deviation from an existing regulation. Although the Corps has taken the position that IDIQ/MATOC is an innovative method that is within its procurement discretion, we find it to be strange that a method affecting billions of dollars of construction procurement is not specifically addressed by the FAR, or the supplemental agency regulations (DFARS, AFARS, EFARS). In fact, when the Corps was challenged because it was not following its own regulations (EFARS) that addressed IDIQ contracting, it promptly rescinded those regulations. What the construction contracting community is left with is a multi-billion dollar procurement methodology that is unregulated, is ripe for abuse, and that only serves the interests of a reduced federal procurement workforce. It certainly remains to be seen whether MATOC is truly more efficient or cost-effective than traditional single project solicitations.

Most disturbing of all, is the hands-off policy adopted by the Court of Appeals for the Federal Circuit on matters of federal procurement. If the agencies can do whatever they want, as long as it is not expressly prohibited by law or regulation, and as long as they provide some reason for their decisions, the competitive opportunities that have been the hallmark of federal construction contracting will continue to be eroded. Many capable contractors have been, and will be, denied a fair opportunity to compete and, in the long run, that cannot possibly be in the best interests of the construction contracting community, or the federal government.

Michael Payne is a Partner and is the Chairman of the firm's Federal Practice Group.

The Impact of Protests and Claims on the Evaluation of Past Performance

Michael Payne — Sun, 04 Oct 2009 21:47:56 -0500

Contractors continue to be concerned about the impact that the filing of protests or claims will have on their past performance evaluations in negotiated procurements. While it is never a good idea to file a frivolous protest or claim, it is improper for procurement officials to downgrade past performance evaluations simply because a contractor has exercised a right afforded by law and regulation. In fact, the Office of Management and Budget issued a Memorandum for Senior Procurement Executives on April 1, 2002, and stated that “. . . the filing of protests, the filing of claims, or the use of ADR, must not be considered by an agency in either past performance evaluations or source selection decisions.” The Memorandum went on to provide that contractors may not be given “downgraded past performance evaluations for availing themselves of their rights by filing protests and claims or for deciding not to use ADR; and Contractors may not be given more positive past performance evaluations for refraining from filing protests and claims or for agreeing to use ADR.”

The Under Secretary of Defense endorsed the Memorandum and circulated it on December 16, 2002. The cover letter stated that “We should continue to work with our contractors to avoid or minimize unnecessary protests and claims and encourage the use of ADR, where appropriate, while not discouraging contractors from availing themselves of the rights provided to them by law. The policy embodied in the Memorandum has not changed and contractors should challenge any past performance evaluation that is downgraded because of previous protests or claims. It must be recognized, moreover, that the reason for a lower than expected evaluation may not always be revealed during a debriefing. If a contractor suspects that an inappropriate downgrading has occurred, the only way to prove it may be to file a protest so that the agency’s Administrative Record may be reviewed by the protester’s attorney. (Note: In a negotiated procurement, the Administrative Record is almost always subject to a Protective Order that prohibits disclosure of the information to anyone other than the protester’s attorney).

Michael Payne is a Partner and is the Chairman of the firm's Federal Practice Group.

Compulsory E-Verify Program for Federal Contractors Starts September 8, 2009

Michael Payne — Fri, 04 Sep 2009 11:27:41 -0500

By: Michael H. Payne and Craig A. Schroeder

Effective September 8, 2009, federal contractors awarded new contracts of $100,000 or more with a performance period of longer than 120 days will be required to use E-Verify, an internet-based system that allows employers to electronically verify the employment eligibility of their newly hired employees. In addition, affected contractors will also be required to confirm the employment eligibility of their current employees who perform contract services for the federal government within the United States. The contractor and any covered subcontractors on the project are required to enroll in the E-Verify program within 30 calendar days of the contract or subcontract award date. The rule only covers subcontractors if a prime contract includes the E-Verify clause (73 FR 67704, available at http://www.acquisition.gov/far/current/html/52_222.html#wp1156645). For subcontracts that flow from those prime contracts, the rule extends the E-Verify requirement to subcontracts for services or for construction with a value over $3,000. Usage of E-Verify also applies to indefinite-delivery/indefinite-quantity contracts modified after the September 8, 2009 rule effective date.

The rule, however, exempts the following contracts:

Contracts that include only commercially available off-the-shelf (COTS) items (or minor modifications to a COTS item) and related services;

      Contracts of less than the simplified acquisition threshold ($100,000);

      Contracts with a performance period of less than 120 days; and

      Contracts where all work is performed outside the United States.

Employees who normally perform support work, e.g., indirect or overhead functions, and do not perform any substantial duties under the contract, are also excluded from the E-Verify requirement.

Proponents of the E-Verify rule say that it confirms the government’s commitment to maintain a legal workforce, creating more reliable employees and reducing illegal hiring practices. They also say that E-Verify reduces discrimination against immigrant workers since employers feel confident that the new hires are authorized to work and are not using false documents. This alleviates employer concerns about discrimination lawsuits since the employer is relying on the government for authorization.

While the system is accurate, it’s not fail-proof – if the program inaccurately rules out a potential employee, that employee may not get a job. It also creates yet another hoop through which contractors that want to work with the government must now jump through.

This program, of course, simply adds to the recent ARRA reporting requirements, and the ethics compliance requirements, that make contracting with the federal government more and more difficult. Contractors need to be ever vigilant in their compliance with solicitation requirements to avoid inadvertent violations that could lead to suspension and debarment.

More information about the rule can be found at www.uscis.gov/e-verify and http://www.dhs.gov/files/programs/gc_1185221678150.shtm

Website for American Recovery and Reinvestment Act (ARRA) Reporting Now Operational

Joseph Hackenbracht — Tue, 18 Aug 2009 15:33:43 -0500

In an earlier blog we discussed what the ARRA meant for Federal Construction Contractors, and noted that the reporting would be over the internet, once the government had its website up and running.

On Monday, August 17, 2009, recipients of economic stimulus funds were notified that they now can access the website www.federalreporting.gov and register. Registration is necessary before the site will permit recipients to file reports, which begins on October 1, 2009. In addition to completing the registration process on the website, recipients also must obtain a Federal Reporting Personal Identification Number (FRPIN). Instructions on how to obtain a FRPIN can be found at http://www.recovery.gov/?q=content/recipient-reporting. The Government has published a 32 page guide to assist recipients in the registration process.

The government has indicated that anyone interested in reviewing the reports filed by recipients of Stimulus funding will be able to do so beginning on October 11, 2009 at the website www.recovery.gov.

Federal Green Construction and the Stimulus Act

Michael Payne — Tue, 04 Aug 2009 11:16:35 -0500

By: Lane F. Kelman and Christopher Soper

As part of the American Recovery and Reinvestment Act of 2009 (the "Stimulus Act") the General Services Administration's ("GSA") Public Building Service was authorized to invest 4.5 billion dollars to transform federal facilities into exemplary, high-performance green buildings. The allocated money is scheduled to be awarded in its entirety within the next two (2) years. A list of proposed projects in all fifty states has already been submitted to Congress. These designated projects are intended to improve energy efficiency, conserve resources over the long-term, provide models of high-performance green design and reduce the government's reliance on costly operating leases.

While the government's attempt to transition to high-performance green buildings is a noble goal, it presents federal contractors with a unique set of challenges. Federal contractors interested in these green construction projects should be prepared to deal with factors that were not previously considered when putting together your proposal and project team. These factors are unique to green building and include potentially unfamiliar project specifications, rating systems, new materials and installation techniques. A resource that is readily available to federal contractors interested in performing green building is the Federal Green Construction Guide for Specifiers.

The Federal Green Construction Guide for Specifiers (the "Guide") was created to assist federal building project managers to meet the various legal requirements of green construction. The Guide provides sample specification language for federal green construction projects. It is an excellent tool for federal contractors to familiarize themselves with the specifications and performance requirements associated with green building. The Guide can be found at http://www.wbdg.org/design/greenspec.php.

Also keep in mind the new legal concerns that are associated with green building. The ability to recognize and address the risks inherent in a green building construction contract will minimize the potential for disputes and exposure. A checklist of some of the factors that you should review are as follows:

* Identify which party is responsible for documenting and achieving LEED certification.
* Identify the damages associated with failing to obtain the required LEED certification.
* Confirm that the insurance coverage on the project takes into account the green nature of the project.
* Check the warranty and guaranty language to ensure that new green construction procedures or installation materials do not void the warranty or guaranty for a product.
* Investigate the availability of green construction materials and the replacement price for such materials.
* Make sure the construction schedule accounts for time associated with LEED certification.
* This list is in no way exhaustive of the issues that should be addressed or may arise on a green construction project, but does provide an idea of the types of things to consider.

The Stimulus Act will add significant momentum to green building. As green building evolves, it is expected that what is perceived as a trend or niche will become standardized. Those contractors that position themselves now will have a competitive edge in the future.

Government Held Responsible for "Utter Silence"

Michael Payne — Mon, 03 Aug 2009 15:54:05 -0500

An Armed Services Board case, ADT Construction Group, Inc., involves an appeal from a contracting officer's final decision denying a claim for $826,725.16 and a 278-day time extension. The contractor had filed a claim for pre-construction delays arising out of a contract for the design and construction of a munitions maintenance facility at Nellis Air Force Base, Nevada. Although the contract in question was ultimately terminated for default and appealed to the Board (ASBCA No. 55358), the termination appeal was suspended pending the outcome of the appeal on the underlying delay claim. The Board obviously concluded that the merits of the underlying delay claim could have an effect on the merits of the termination for default.

Although the Board found that some of the delay was the fault and responsibility of the Government, we were particularly interested in the Board's conclusion about the contractor's right to pursue "fast track." After drafting the solicitation the government learned that the Department of Defense Explosives Safety Board ("DDESB") required 100% design of the entire project before it would review the plans. Thus, the drafters sought to modify the solicitation to remove all references to fast track as an option. The Board found that they "failed miserably at that task" and several references to fast track as an option remained in the solicitation when it was issued. ADT stated in its proposal that it would use the fast track method for design and construction.

The Board concluded that to the extent the contract was ambiguous in that regard, the contractor repeatedly gave notice when it said it wanted to do fast track and the government repeatedly ignored that notice. The evidence shows that the government never intended to allow fast track, and indeed its actions supported that intention, yet it failed to communicate those intentions to ADT. The government's utter silence when the contractor repeatedly raised the issue of fast track squarely put the burden on the government to respond during the design phase - and it did not. Therefore, the Board found that the contractor had a contract right to pursue fast track.

Corps of Engineers Announces Recovery Act Projects

Joseph Hackenbracht — Fri, 24 Jul 2009 15:05:40 -0500

The U.S. Army Corps of Engineers has posted the Civil Works projects that it intends to fund from the appropriations Congress provided in the American Recovery and Reinvestment Act of 2009 (Pub. L. 111-5) on its website. In order to spend its $5 billion slice of the $787 billion stimulus pie, the Corps selected approximately 178 Construction projects and 892 Operation and Maintenance projects, nine Formerly Utilized Sites Remedial Action Program (FUSRAP) projects. These projects or useful increments of these projects will be completed with stimulus funding.

The only state that is not slated to receive any stimulus projects is Wyoming, because no eligible work on any ongoing Civil Works activity was presently available. The Corps applied the selection criteria which largely revolved around contracts that could be awarded and completed quickly. The wide geographic distribution of selected projects spreads the employment and other economic benefits across the United States and across Civil Works programs to provide the nation with project benefits related to inland and coastal navigation, the environment, flood and storm damage reduction, hydropower, and recreation.

The Corps has indicated that the majority of the contracts will be competitively bid. Some contracts will be awarded by issuing task orders on existing contracts generally referred to as Indefinite Delivery Indefinite Quantity (IDIQ) contracts or Multiple Award Task Order Contracts (MATOC). At this time the Corps is unable to specify what projects will be procured in what fashion. The Corps has indicated that it intends to make maximum use of small businesses, either as prime contractors or subcontractors, in its stimulus program.

In a recent article in Engineering News Record, Bruce Buckley reported that “Driven by a need to speed projects to market, federal agencies are drawing heavily on accelerated delivery methods to move stimulus-funded work into the express lane. More than ever, traditional stand-alone procurement will take a back seat on federal jobs, as many new opportunities end up with firms holding existing “task order” contracts.” The risk that overuse of task order contracts will be anti-competitive was stressed in the article. Mr. Buckley noted that “Agencies are already leaning heavily on IDIQ contracts. Data from the Federal Procurement Data System show that orders through contracts grew from 14% of total dollars in fiscal 1990 to about 52% in fiscal 2005, says OMB.” In a May 2007 memo to federal acquisition officers, then-OMB Administrator Paul Denett warned of “a lack of meaningful competition for orders” in light of the increased use of IDIQ vehicles.

Mr. Buckley quoted Michael Payne, chairman of the federal construction practice group in Cohen Seglias Pallas Greenhall & Furman: “As more tasks go to IDIQ holders, some small to medium-size firms who don’t have IDIQ contracts are locked out . . . With IDIQ contract limits now reaching into the hundreds of millions of dollars and the scope sometimes spanning multiple states, many firms can’t get adequate bonding to compete.” Mr. Payne also stressed that the method could hurt many of those the stimulus is designed to help, “The purpose is to lead to job creation. What better way than to go with open competition and make it available to the maximum number of companies?”

The American Recovery and Reinvestment Act of 2009: What it Means for Federal Construction Contractors

Michael Payne — Sat, 16 May 2009 09:33:19 -0500

Co-authored by Michael H. Payne and Craig A. Schroeder

On February 17, 2009, the President signed Public Law 111-5, the American Recovery and Reinvestment Act of 2009 (also known as “ARRA,” the “Recovery Act,” and the “Stimulus Act”), including a number of provisions to be implemented in Federal Government contracts. The Recovery Act’s purposes are to stimulate the economy and to create and retain jobs. The Act gives preference to activities that can be started and completed expeditiously, including a goal of using at least 50 percent of the funds made available by it for activities that can be initiated not later than June 17, 2009.

An Interim Rule issued on March 31, 2009, implements section 1512, which is also known as the ``Jobs Accountability Act.'' Subsection (c) of section 1512 requires contractors that receive awards (or modifications to existing awards) funded, in whole or in part, by the Recovery Act to report quarterly on the use of the funds. The comment period on the interim rule expires on June 1, 2009. In addition, a new section was added to the FAR, subpart 4.15, “American Recovery and Reinvestment Act – Reporting Requirements,” and a new clause was added to implement the reporting requirements, FAR 52.204-11. Contracting Officers are now required to include the new clause in solicitations and contracts funded in whole or in part with Recovery Act funds, except classified solicitations and contracts. Commercial item contracts and Commercially Available Off-The-Shelf (COTS) item contracts are covered, as well as actions under the simplified acquisition threshold.

Effective March 31, 2009, five (5) interim Federal Acquisition Regulation (FAR) rules went into effect that implement several requirements of the Recovery Act. See Federal Acquisition Circular (FAC) 2005-32, published at 74 Fed. Reg. 14,639 (Mar. 31, 2009). These new rules only apply to federal procurement contracts funded with stimulus money. Their goal is increased transparency and accountability in the spending of Stimulus Act funds. The new rules include:

1. Reporting Requirements for Recipients of Recovery Funds (See 74 Federal Register 14639);

2. Publicizing Contract Actions (See 74 Federal Register 14636);

3. GAO and IG Access to Company Employees (See 74 Federal Register 14646);

4. Whistleblower Protections (See 74 Federal Register 14633); and

5. Buy American Requirements for Construction Materials (See 74 Federal Register 14623).

Each rule is discussed, in turn, below.

1. Reporting Requirements for Recipients of Recovery Funds

This is the most onerous of the new requirements and contractors must now file quarterly reports documenting their use of stimulus funds. See FAR Case 2009-009, Interim Rule, American Recovery and Reinvestment Act of 2009 (the Recovery Act)— Reporting Requirements, 74 Fed. Reg. 14,639 (Mar. 31, 2009). Information on the Recovery Act may be found on the Recovery Act Web site (www.recovery.gov). A new website is under construction, www.federalreporting.gov, that will facilitate online reporting. The site is expected to be operational before July 10, 2009.

The new mandated contract clause, FAR 52.204-11, which must be included in all contracts receiving stimulus funds, requires the prime contractor, and first tier subcontractors, to report the following information:

(i) Contract and order number;

(ii) Amount of stimulus funds invoiced by the contractor for the reporting period;

(iii) List of significant supplies delivered or services performed;

(iv) Assessment of the contractor’s progress on the contract;

(v) Employment impact of the contract (e.g., an estimate of the number of jobs created and retained);

(vi) The names and compensation of the five most highly compensated officers of the contractor for the calendar year in which the contract is awarded if the contractor receives 80 percent and $25 million or more of its annual gross revenues from federal awards and the public does not have access to the information through periodic reports filed with the Securities and Exchange Commission or the Internal Revenue Service; and

(vii) Detailed information on first-tier subcontracts.

Reporting on invoices submitted prior to June 30, 2009 are due no later than July 10, 2009. After those dates, contractor reports must be submitted no later than the 10th day after the end of each calendar quarter. The new reporting requirements apply to all solicitations and contracts funded in whole or in part with Recovery Act funds, except classified solicitations and contracts. This includes Government-wide Acquisition Contracts (GWACs), multi-agency contracts (MACs), Federal Supply Schedule (FSS) contracts, or agency indefinite-delivery indefinite-quantity (ID/IQ) contracts that will be funded with Recovery Act funds.

2. Publicizing Contract Actions

Contracting Officers are now required to enter data in the Federal Procurement Data System for any contract action funded, even in part, by the Stimulus Act. See FAR Case 2009-010, Interim Rule, American Recovery and Reinvestment Act of 2009 (the Recovery Act) — Publicizing Contract Actions, 74 Fed. Reg. 14,636 (Mar. 31, 2009). They must now also post the following on the FedBizOpps.gov website for any covered contract action:

(i) Identification of action;

(ii) Pre-award notices for orders exceeding $25,000;

(iii) A “clear and unambiguous” description of supplies and services; and

(iv) A rationale for awarding any action that is not fixed-price and awarded through competitive procedures.

3. GAO and IG Access to Company Employees

The interim rules amend the FAR to provide new authorities to the Comptroller General, or Government Accountability Office (GAO), and agency inspector generals (IGs). See FAR Case 2009-011, Interim Rule, American Recovery and Reinvestment Act of 2009 (the Recovery Act) — GAO/IG Access, 74 Fed. Reg. 14,646 (Mar. 31, 2009).

GAO and agency IGs are now authorized to audit prime contracts and subcontracts and interview prime contractor personnel, and GAO is authorized to interview subcontractor personnel for FAR Part 12, 14, and 15 contracts funded by the stimulus plan. The rules, however, do not grant IGs the authority to interview subcontractor employees. See 74 Fed. Reg. 14,647.

Notably, a separate interim rule authorizes the Comptroller General to interview current contractor employees when conducting audits regardless of whether the contract is funded by the stimulus plan. See FAR Case 2008-026, Interim Rule, GAO Access to Contractor Employees, 74 Fed. Reg. 14,649 (Mar. 31, 2009). Commercial-item contracts not funded by the stimulus plan are exempt from the new oversight authority.

4. Whistleblower Protections

Additional protections for state, local, and government contractor whistleblowers are also provided for in a new clause of the interim rules. See FAR Case 2009-012, Interim Rule, American Recovery and Reinvestment Act of 2009 (the Recovery Act) — Whistleblower Protections, 74 Fed. Reg. 14,633 (Mar. 31, 2009). Essentially, the clause prohibits a non-federal employer receiving stimulus funds from discriminating against an employee as a reprisal for making a disclosure of what the employee reasonably believes to be evidence of gross mismanagement, misuse, or waste of stimulus funds or a violation of law related to a contract involving stimulus funds. In addition, contractors receiving stimulus funds must now post a notice of their employees’ rights and remedies relating to whistleblower protections. This whistleblower clause must be included in all stimulus-funded contracts and subcontracts.

5. Buy American Requirements for Construction

Last, but not least, the rules implement the Buy American requirements for federal buildings and public works funded by the stimulus plan. See FAR Case 2009-008, Interim Rule, American Recovery and Reinvestment Act of 2009 (the Recovery Act — Buy American Requirements for Construction Material, 74 Fed. Reg. 14,623 (Mar. 31, 2009). Essentially, it prohibits, with certain exceptions, the use of stimulus funds for the construction, alteration, maintenance, or repair of a public building or work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States.

Conclusion

The new and pre-existing compliance obligations will continue to be of paramount importance due to the increased authority and funding provided to GAO and the agency IGs to perform oversight functions. Undoubtedly, the mix of new reporting obligations and increased oversight is a significant change in the compliance environment faced by government contractors and could expose contractors to new liability risks. These requirements are evolving and further changes are possible when the final rules are issued.

Michael H. Payne is the Chairman of the Federal Contracting Practice Group of the law firm of Cohen Seglias Pallas Greenhall & Furman PC

Department of Defense Expenditure Plan Provides Tremendous Opportunities for Federal Construction Contractors

Michael Payne — Wed, 25 Mar 2009 04:13:13 -0500

Although many aspects of our economy are suffering, the federal construction market will most certainly be booming. On Friday March 20, 2009, the Department of Defense issued a 191 page Report to Congress detailing how it plans to spend the money it has received as part of the American Recovery and Reinvestment Act of 2009, also known as the “Stimulus Package.” The DoD has “identified specific investments in construction, facility improvements, and energy efficiency projects that will help improve the quality of life for our troops and their families.” Included in the Report is a very detailed breakdown of how the money will be spent. For each project anticipated, the included spreadsheet provides cost, a brief description of the work, and the project location

The Recovery Act includes approximately $7.4 billion in Defense-related appropriations, which accounts for less than 1 percent of the total $787 billion stimulus package. The Department intends to spend this funding with “unprecedented full transparency and accountability.” A website, www.Recovery.gov, is the main vehicle to provide every citizen with the ability to monitor the progress of the recovery. The DoD also has a website which links to Recovery.gov. and it may be found at http://www.defenselink.mil/recovery.

The DoD plans to spend $2.3 billion of the Stimulus funds on military construction and family housing construction projects. The Department also indicates that it will be “pursuing architectural and engineering services greater than $1 million for 5 projects, conducting repair projects greater than $7.5 million for 56 projects, and carrying out 45 Energy Conservation Investment Program projects, respectively.” In addition, the DOD provided a list of 3,300 Facilities Sustainment, Restoration, and Modernization (“FSRM”) projects costing an estimated $3.4 billion, representing 80% of the total FSRM funds appropriated to the DOD. The FSRM projects account for over $3.83 billion of their entire Stimulus spending. The following are the areas where DoD plans to spend money as quickly as possible:

• $4.2 billion in Operation and Maintenance accounts to improve, repair, and modernize DOD facilities, including energy-related improvements
• $1.3 billion in military construction for hospitals
• $240 million in military construction for child development centers
• $100 million in military construction for warrior transition complexes
• $535 million for other military construction projects, such as housing for the troops and their families, energy conservation, and National Guard facilities
• $300 million to develop energy-efficient technologies
• $120 million for the Energy Conservation Investment Program (“ECIP”)
• $555 million for a temporary expansion of the Homeowner’s Assistance Program (“HAP”) benefits for private home sale losses of both DOD military and civilian personnel
• $15 million for DOD Inspector General oversight and audit of Recovery Act execution

The federal agency that is the most heavily involved in construction, the U.S. Army Corps of Engineers (“USACE”), has provided Congress with “informed estimates” of existing capability to perform additional work. The Corps has set forth project selection criteria as projects that will:

(1) Be obligated/executed quickly

(2) Result in high, immediate employment

(3) Have little schedule risk

(4) Be executed by contract or direct hire of temporary labor

(5) Complete either a project phase, a project, or will provide a useful service that does not require additional funding

For the USACE Civil Works Program, the Recovery Act includes $4.6 billion in funding. Of that, $2.1 billion is appropriated for construction and $2.3 billion for Operation and Maintenance (O&M). Appropriations are also included for the Mississippi River and Tributaries account. The Corps estimates that it will award contracts on approximately 400 maintenance projects with O&M funding by the end of April with contract values ranging from $250,000 to $10 million and construction durations of 6 months to 2 years. The Corps also estimates the award of approximately 300 construction contracts ranging in value from $1 million to $30 million by the end of April with construction durations ranging from 6 months to 3-1/2 years.

These projects will provide tremendous opportunities for federal construction contractors. It remains to be seen whether the government has enough procurement people to issue so many solicitations in such a short time and whether the specific agencies have the capability to properly administer all of this work. On the bright side, however, the surge of work created from all of these new projects should give our economy the boost that it needs.

Obama Issues Memorandum Ordering Reduced Wastefulness in the Federal Procurement Process

Elise M. Carlin — Tue, 10 Mar 2009 08:34:34 -0500

On February 18, the Office of Management and Budget (“OMB”) director Peter Orszag issued guidance to agencies regarding the administration of federal Stimulus funds. Just this past week, on March 4, President Obama signed a memorandum designed to reform federal government contracting. These directives mark the beginning of reform in the world of government contracting, and reflect the greater accountability and transparency the new administration promises to American taxpayers.

The OMB memo requires agencies to submit spending and performance data to the new website http://www.recovery.gov on a regular basis. The website is a web portal that demonstrates exactly how the Stimulus funds are being spent, and it calls itself the “centerpiece” of efforts to implement the American Recovery and Reinvestment Act with “accountability and transparency.” In a video message to Americans on the website, President Obama pledges greater accountability and transparency in government spending. In his address, he notes that the “size and scale of this effort demand unprecedented efforts to root out waste, inefficiency and unnecessary spending,” and he refers to the Stimulus as a “significant investment in our country’s future.”

The OMB memo also increases the requirements for those doing business with the federal government. Starting on March 3, agencies must submit weekly reports breaking down how they have spent Stimulus funding. They must also summarize any major actions taken as well as any future activities. Beginning May 1, they must provide recovery plans outlining their individual agency goals and any coordinating efforts. By May 8, they must being submitting monthly financial reports detailing their obligations, expenditures, and other pertinent financial information.

Under the new requirements, agencies are now required to post pre-solicitation and award notices for any task and delivery order acquisition contracts on FedBizOpps, a clearinghouse for federal government contracting opportunities. Any Stimulus-related prospects must be specially formatted to differentiate them from regular projects. For any contracts or orders over $500,000, the agencies must summarize the contract or order, provide a description of the particular goods or services required, and then post that information to the recovery.gov website, making it available to the public.

Agencies are also urged to use fixed-price contracts wherever possible and appropriate. Several types of fixed-price contracts exist. They are designed to facilitate proper pricing under varying conditions. Generally, they place more cost responsibility on the contractor than on the Government, and encourage greater efficiency in contract management. According to Orszag, these kinds of contracts “expose the government to the least risk.” Fixed-price contracts are outlined in more detail in Subpart 16.2 of the Federal Acquisition Regulation (“FAR”). More detailed instructions will be provided to agencies in the coming months.

Obama’s presidential memo comes out of the recent government responsibility summit and calls for massive overhaul in government procurement. In his announcement regarding this memo, President Obama noted that, “last year, the Government Accountability Office, looked into 95 major defense projects and found cost overruns that totaled $295 billion…That's $295 billion in wasteful spending.”

In addition to stepping up oversight within government procurement, some of the steps to be taken in overhauling the current system are to open up more opportunities for small businesses and to cease the outsourcing of services that should be performed by the government. Obama also calls for a reduction of no-bid and cost-plus contracts. No-bid contracts are another name for sole-source contracts, contracts done without the benefit of the competitive bidding process.

The justification usually offered for such contracts is that there is only one person or company that can provide the contractual services needed and that any attempt to obtain bids would only result in one person or company being available to meet the need. This kind of contract is described in greater detail in FAR Subpart 6.3. Obama notes that, “[e]xcessive reliance by executive agencies on sole-source contracts (or contracts with a limited number of sources) and cost-reimbursement contracts creates a risk that taxpayer funds will be spent on contracts that are wasteful, inefficient, subject to misuse, or otherwise not well designed to serve the needs of the federal government or the interests of the American taxpayer.”

The OMB will issue new rules regarding these changes by October 1, 2009, the beginning of the government’s next fiscal year. Obama hopes to save Americans around $40 billion annually by reforming the procurement process.

The American Recovery and Reinvestment Act of 2009 and Its Impact on Federal Construction Contracting

Elise M. Carlin — Wed, 18 Feb 2009 00:26:53 -0500

Since President Barack Obama was inaugurated last month, he has initiated many changes which will impact federal contracting: first, he issued an executive order requiring a successor vendor on a services contract to offer a preceding contractor’s employees jobs under the new contract; second, in another executive order, he encouraged the use of project labor agreements to ensure that federal work would not be disturbed by “labor unrest” (see earlier blog article); and, in a third order, he prohibited contractors from passing along the costs of supporting or fighting their employees’ exercise of the right to unionize or bargain collectively. Today President Obama signed the American Recovery and Reinvestment Act into law, a statute more commonly referred to as the “Stimulus Bill.” The total amount of the stimulus is approximately $787 billion and it promises great potential for more federal construction contracting work.

The purpose behind this legislation is to relieve the nation from the current state of economic distress and to create jobs. Another priority of the stimulus package is to improve the infrastructure of the country. This means more money for government contracts, and in turn, more opportunities for construction contractors. The allocation of funds within the Stimulus clearly demonstrates the growth potential for federal construction contractors: nearly 40%, or $311 billion, of the total amount is allocated to federal appropriations, with an estimated $131 billion going toward federal construction projects. Below is the breakdown:

Transportation-$49.3 billion

Defense/Veterans-$7.78 billion

Housing/HUD-$9.6 billion

Education and Schools-no specific amount is designated but $39.5 billion of the allotted $53.6 billion State Fiscal Stabilization Fund goes to local school districts who have the option of the modernizing their facilities with this money.

Energy-$30.62 billion

Buildings-$13.37 billion

Water and Environment-$20.1 billion

A major portion of this funding remains available until September 30, 2010.

The Stimulus also promises to help small businesses. The terms of the Stimulus authorize the Small Business Administration (“SBA”) to temporarily eliminate or reduce fees for participation in its loan-guarantee programs. It also increases to 90% the percentage of qualifying loans that the SBA can guarantee. Also offered is a “small business stabilization financing” which offers small businesses in distress money to pay off existing loans. These loans must be repaid within five years, can be for up to $35,000 and can be used to make up to six months of payments on prior loans. The interest on these loans will be fully subsidized with no payments due for the first year. Also offered are hiring incentives, a break on capital gains for those who invest in small businesses, increased loss accounting, and an expansion of allowable equipment expense deductions for small businesses.

White House projections anticipate that this public works spending will lead to millions of jobs for American workers. While there are legitimate questions about whether the employment generated by the Stimulus will be sustainable once the projects are completed, and whether the long-term effects of greater debt will lead to even greater economic problems in the future, there is little doubt that there will be an immediate benefit to federal, state, and local construction contractors.