foley’s 2012 annual update on government contracts · foley’s 2012 annual update on government...

©2012 Foley & Lardner LLP 12.8761

Foley’s 2012 Annual Update on Government Contracts

©2012 Foley & Lardner LLP • Attorney Advertisement • Prior results do not guarantee a similar outcome • 321 North Clark Street, Chicago, IL 60654 • 312.832.4500

Table of Contents Seminar Topics Tab 1 Commercial Item Contracting for Prime Contractors and Subcontractors Tab 2 Small Business Issues for Small and Large Businesses Tab 3 Compliance Update Tab 4 Pre-Award Bid Protests: Fighting the Battle That Helps You Win the War Tab 5 Money Matters Tab 6 Counterfeit Parts and Other Supply Chain Challenges for Government Contractors Tab 7 Top Ten REA/Claim Considerations Tab 8 Key Government Contract-Related Web Sites to Bookmark Tab 9 Glossary of Acronyms Tab 10 Biographical Summaries Tab 11


Commercial Item Contracting for Prime Contractors and Subcontractors P Definition of "Commercial Item" Goods

and Services P Recent attempts to narrow definition P Benefits of commercial item contracting P Required clauses for prime contractors P Required clauses for subcontractors Small Business Issues for Small and Large Businesses

P Small Business Subcontracting and

Affiliation Rules P JVs / Mentor-Protégée Program /

Limitations on Subcontracting P Small Business Subcontracting Plans P New rules for the SBIR/STTR program P Increased focus on penalties for false

small business certifications Compliance Update

P What makes a good "mandatory

disclosure" P New emphasis on

suspension/debarment P Proposed legislation directed at

"automatic" suspension/debarment for certain convictions

Pre-Award Bid Protests: Fighting the Battle That Helps You Win The War

P Benefits of pre-award protests using

recent cases

Money Matters P Sequestration P Recent decisions on cost allowability

and allocability P Truth in Negotiations Act Developments P Hot Topics - Exec Compensation; DoD

Business Systems Rule Counterfeit Parts & Other Supply Chain Challenges for Government Contractors P Counterfeit Electronic Parts

detection/prevention P Buy American Act Requirements P Specialty Metals Restrictions P Conflict Minerals Top Ten REA/Claim Considerations Key Government Contract-Related Web Sites

Foley & Lardner LLP Annual Update on Government Contracts

October 15, 2012 – Schoolcraft College – Livonia, MI

October 17, 2012 – The Pfister Hotel– Milwaukee, WI

October 23, 2012 – The Westin-Waltham – Boston, MA

12:30 p.m. – 1:00 p.m. Registration 1:00 p.m. – 5:15 p.m. Seminar

Reception to Follow

Seminar Topics

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©2012 Foley & Lardner LLP • Attorney Advertising • Prior results do not guarantee a similar outcome • Models used are not clients but may be representative of clients • 321 N. Clark Street, Suite 2800, Chicago, IL 60654 • 312.832.4500 •

Commercial Item Contracting for Prime Contractors and

Subcontractors

Erin L. ToomeyOctober 2012

©2012 Foley & Lardner LLP

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Overview

BackgroundBenefits of Commercial Item ContractingWhat is a “Commercial Item” Under the FAR?Recent Attempts to Narrow Commercial Item DefinitionContract Drafting and NegotiationExemptions for Commercial Item ContractsRequirements that Apply to Commercial Item Contractors

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Background

Historical Impediments to Contracting with the Federal Government– Government-unique auditing and accounting requirements

(e.g., Cost Accounting Standards, Truth in Negotiations Act, etc.)

– Government-unique specifications and standards– Technical data and computer software rights– Government-unique contract requirements (e.g.,

termination for convenience, unique government specifications, unilateral changes, etc.)


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Benefits of Commercial Item Contracting

The government has a stated preference to acquire commercial items “to the maximum extent practicable”, including the acquisition of commercial servicesCommercial item prime contracts and subcontracts are “streamlined”under FAR Part 12 to resemble non-government commercial contracts– FAR Part 12 takes precedence over any other section of the FAR

– FAR 12.102(c)– Far fewer clauses and flowdowns– Exemption from many typical government contract requirements– Allows contractors to propose terms consistent with commercial

practice in their industriesKeeps overhead costs lower with less administrative burdens (less risk), which helps contractors keep prices competitive – this also benefits the government!

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What is a “Commercial Item” Under the FAR?

The expansive definition, including the treatment of product modifications and commercial services, is found at FAR 2.101The definition of a commercial item is not limited to “commercial off the shelf” (COTS)– COTS is a subset of commercial item– COTS defined in FAR 2.101 as:

A commercial item under Paragraph (1) of the definition; Sold in substantial quantities in the commercial marketplace; andOffered to the government without modification, in the same formin which it is sold in the commercial marketplace

– Prime contracts and subcontracts for COTS items are exempt from additional FAR/DFARS clauses


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“Commercial Item” means (FAR 2.101) -(1) Any item, other than real property, that is of a type

customarily used by the general public or by non-governmental entities for purposes other than governmental purposes, and-

(i) Has been sold, leased, or licensed to the general public; or

(ii) Has been offered for sale, lease, or license to the general public;

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(2) Any item that evolved from an item described in paragraph (1) of this definition through advances in technology or performance and that is not yet available in the commercial marketplace, but will be available in the commercial marketplace in time to satisfy the delivery requirements under a Government solicitation;


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(3) Any item that would satisfy a criterion expressed in paragraphs (1) or (2) of this definition, but for-

(i) Modifications of a type customarily available in the commercial marketplace; or

(ii) Minor modifications of a type not customarily available in the commercial marketplace made to meet Federal Government requirements. Minor modifications means modifications that do not significantly alter the nongovernmental function or essential physical characteristics of an item or component, or change the purpose of a process. Factors to be considered in determining whether a modification is minor include the value and size of the modification and the comparative value and size of the final product. Dollar values and percentages may be used as guideposts, but are not conclusive evidence that a modification is minor;

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(4) Any combination of items meeting the requirements of paragraphs (1), (2), (3), or (5) of this definition that are of a type customarily combined and sold in combination to the general public;


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(5) Installation services, maintenance services, repair services, training services, and other services if-(i) Such services are procured for support of an item referred to

in paragraphs (1), (2), (3), or (4) of this definition, regardless of whether such services are provided by the same source or at the same time as the item; and

(ii) The source of such services provides similar services contemporaneously to the general public under terms and conditions similar to those offered to the Federal Government;

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(6) Services of a type offered and sold competitively in substantial quantities in the commercial marketplace based on established catalog or market prices for specific tasks performed or specific outcomes to be achieved and under standard commercial terms and conditions.

For purposes of these services -


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(i) Catalog price means a price included in a catalog, price list, schedule, or other form that is regularly maintained by the manufacturer or vendor, is either published or otherwise available for inspection by customers, and states prices at which sales are currently, or were last, made to a significant number of buyers constituting the general public; and

(ii) Market prices means current prices that are established in the course of ordinary trade between buyers and sellers free to bargain and that can be substantiated through competition or from sources independent of the offerors.

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(7)Any item, combination of items, or service referred to in paragraphs (1) through (6) of this definition, notwithstanding the fact that the item, combination of items, or service is transferred between or among separate divisions, subsidiaries, or affiliates of a contractor; or

(8) A non-developmental item, if the procuring agency determines the item was developed exclusively at private expense and sold in substantial quantities, on a competitive basis, to multiple State and local governments.


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Recent Attempts to Narrow Commercial Item Definition

2006 DoD Inspector General “Report on Commercial Contracting for the Acquisition of Defense Systems”– In 35 out of 42 (83%) commercial contracts reviewed, contracting officials did not

adequately justify the commercial nature of the contracts– Contracting officials “used loopholes in the broad commercial item definition to justify

acquiring defense systems and subsystems without determining that a commercial market exists”

– Concluded that the commercial item definition was too broad and allowed contracting officials to award contracts for defense systems and subsystems that had no commercial market and no meaningful pricing history

– Recommended tightening the commercial item definition – at the time, DoD did not concur with this recommendation

2006 GAO Report “Contract Management: DoD Vulnerabilities to Contracting Fraud, Waste, and Abuse”– “DoD sometimes uses commercial procedures to procure items that are misclassified

and therefore not subject to the forces of a competitive marketplace”– Seriously affects DoD’s ability to assess the reasonableness of the contractor’s price

and obtain best value– Concluded this is a “vulnerability” requiring attention

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2007 Acquisition Advisory Panel– Reaffirmed DoD IG and GAO findings that the commercial item definition was too broad– Specifically, “of a type” language permitted goods and services not sold in substantial

quantities in the commercial marketplace to be classified as “commercial”– Congress always intended pricing for commercial items and services to be based on

either competition or market prices– Concluded the FAR’s definition of commercial services was too broad– Recommended that FAR 2.101 definition of commercial item services be amended to

delete the “of a type” language2007 National Defense Authorization Act– Directed a Panel within DoD to recommend changes to the law to eliminate

vulnerabilities that increased the risk of fraud, waste, and abuse at DoD– Panel’s report to Congress found that commercial item acquisitions continued to be

vulnerable to pricing deficiencies because fair and reasonable prices could not always be established due to lack of competition and no requirement for cost or pricing data

– Recommended the definition of commercial item be amended to eliminate the phrases “of a type” and “offered for sale”


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In 2012, DoD proposed a statutory change to the commercial item definition be included in the National Defense Authorization bill for 2013– Eliminate items “of a type” from the existing statutory prescription for goods

(the definition of services in the statute does not contain “of a type”language)

– Eliminate goods or services merely offered for sale, lease, or license (but not yet sold, leased or licensed) to the general public from the existing statutory definition

– Adjust the standard for determining fair and reasonable prices that requires prior sale of “substantial” quantities to one that allows prior sale of “like”quantities

– Proposal has not yet been included in the House and/or Senate versions of the NDA bill for 2013

DoD Final Rule (77 Fed. Reg. 11480, 3/12/2012) – requires a higher-level of approval for commercial item determinations for acquisitions over $1 million when the determination is based on “of a type” or “offered for sale” language in the definition of a commercial item

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Industry Comments on DoD’s Proposed Statutory Change– Companies with cutting-edge technology that have not yet

begun selling products commercially, but plan to, will no longer qualify as commercial items

– If high-tech items, like software, fail to meet the new definition of a commercial item, IP limitations will not apply, which will discourage such contractors from doing business with the government

– Could change GSA Multiple Award Schedule Contracts, which have long durations and many option years


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Contract Drafting and Negotiation

Commercial item contracts and subcontracts must be firm-fixed price or firm-fixed price with economic price adjustment– Limited exceptions for labor-hour and time-and-materials

contracts requiring various high-level government approvals– DoD Final Rule (76 Fed. Reg. 21,810, 4/19/2011)

Added DFARS 212.207, which states that use of time-and-materials and labor-hour contracts for the acquisition of commercial items is authorized only for the following:– Services acquired for support of a commercial item, as described in

paragraph (5) of the commercial item definition in FAR 2.101

– Emergency repair services

– Any other commercial services only to the extent that the head of the agency concerned approves a written determination by the contracting officer

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Can have a commercial item subcontract even if the prime contract or higher-tiered contract is noncommercial

– “To the maximum extent practicable, the contractor shall incorporate, and require subcontractors at all tiers to incorporate, commercial items or nondevelopmental items as components of items to be supplied under this contract” (FAR 52.244-6(b))

– Subcontracts include only a few required flowdowns

Price analysis must still be performed to determine whether the price is “fair and reasonable”– Price analysis performed in accordance with FAR 15.404-1(b)

– Price analysis does not include an analysis of the contractor’s separate cost elements or proposed profit


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Commercial Item Prime Contracts– FAR 52.212-4, “Contract Terms and Conditions – Commercial Items”

provides coverage on the following topics:

Termination for theGovernment’s Convenience

Termination for CauseTitleWarrantyLimitation of LiabilityOther CompliancesCompliance With Laws Unique to Government ContractsOrder of PrecedenceCentral Contractor Registration

Inspection/AcceptanceAssignmentChangesDisputesDefinitionsExcusable DelaysInvoicePatent IndemnityPaymentRisk of LossTaxes

Topics in bold and underlined cannot be tailored – all other clauses can be tailored (FAR 12.302)

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Contract Drafting and NegotiationCommercial Item Prime Contracts (cont…)– FAR/DFARS Clauses

FAR 52.212-5, “Contract Terms and Conditions Required to Implement Statutes and Executive Orders – Commercial Items”DFARS 252.212-7001, “Contract Terms and Conditions Required to Implement Statutes or Executive Orders Applicable to Defense Acquisitions of Commercial Items” (if DoD contract)

– Best PracticesReview the government’s clauses – know what is required and what can be tailoredDon’t waste time trying to negotiate mandatory clauses that cannot be tailoredIdentify the clauses you want to target and provide a justification to the Contracting OfficerBe prepared to offer new/revised clauses and justify them as thecustomary commercial practiceReview the clauses checked off in FAR 52.212-5 and DFARS 252.212-7001 and negotiate out unnecessary clauses or clauses that should not apply to the procurement


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Commercial Item Subcontracts – If you have a FAR Part 12 Commercial Item Subcontract and the

Prime Contract is not a FAR Part 12 Commercial Item ContractPrime Contract Contains FAR 52.244-6(c) –– Lists the mandatory FAR clauses for commercial item

subcontracts, to the extent applicable– Permits the prime contractor to flow down to subcontracts for

commercial items a minimal number of additional clauses necessary to satisfy its contractual obligations (e.g., Inspection and Acceptance, Warranty, Termination, Stop Work Order, Data Rights,Patent Indemnity, Changes, Definitions, Taxes, Risk of Loss, DPAS Rating, etc.)

Prime Contract Contains DFARS 252.244-7000 –– Lists the mandatory DFARS clauses for commercial item

subcontracts, to the extent applicable

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Commercial Item Subcontracts (cont…)– If you have a FAR Part 12 Commercial Item

Subcontract and the Prime Contract is a FAR Part 12 Commercial Item Contract

Prime Contract Contains FAR 52.212-5 – Paragraph (e)(i) lists the mandatory FAR clauses for

commercial item subcontracts, to the extent applicable– Also permits the prime contractor to flow down to

subcontracts for commercial items a minimal number of additional clauses necessary to satisfy its contractual obligations

Prime Contract Contains DFARS 252.212-7001– Paragraph (c) lists the mandatory DFARS clauses for

commercial item subcontracts, to the extent applicable


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Exemptions for Commercial Item Contracts

Truth in Negotiations Act (TINA)– Provides the government with all significant and relevant cost or

pricing data available to contractors during price negotiations– Disclosure statute

Does not require contractors to use a certain supplier or subcontractor or accounting system

– Defines requirements for the submission of cost or pricing data and exemptions

– Requires certification that data are current, accurate and complete– Provides the government with the right to examine contractor’s

records– Sets forth rules governing remedies for TINA violations, known as

“defective pricing”Exemptions– Commercial item as defined in FAR 2.101

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Relevant TINA FAR Clauses– 52.215-10, “Price Reduction for Defective Cost

or Pricing Data”– 52.215-11, “Price Reduction for Defective Cost

or Pricing Data – Modifications”– 52.215-12, “Subcontractor Cost or Pricing Data”– 52.215-13, “Subcontractor Cost or Pricing Data

– Modifications”



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Cost Accounting Standards (CAS)– Governs the measurement, timing and allocability of costs

charged to certain negotiated government contracts– Imposes major accounting requirements on contractors

having contracts subject to them– Requires the negotiation of impacts of changes to the

contractor’s cost accounting practices– Exemptions:

Firm fixed price and fixed price with economic price adjustment contracts and subcontracts for the acquisition of commercial items

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Relevant CAS FAR Clauses– 52.230-1, “Cost Accounting Standards Notices

and Certification”– 52.230-2, “Cost Accounting Standards”– 52.230-3, “Disclosure and Consistency of Cost

Accounting Practices”– 52.230-6, “Administration of Cost Accounting

Standards”


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Technical Data (FAR 12.211)– Commercial Item Contracts

“Government shall acquire only the technical data and the rights in that data customarily provided to the public with a commercial item or process”Presumption that the commercial item was developed exclusively at private expenseSolicitation and contract clauses left to agencies or created by the Contracting Officer for the procurementNo specific marking requirements

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Technical Data (DFARS 212.211 and 227.7102)– DoD shall acquire only the technical data customarily provided to the public

with a commercial item or process, except:Form, fit, or function dataData required for repair or maintenance or for the proper installation, operating, or handling of a commercial itemData describing the modifications made at Government expense to a commercial item to meet the requirements of a Government solicitation

– Applicable DFARS solicitation and contract clausesDFARS 252.227-7015, “Technical Data – Commercial Items”DFARS 252.227-7037, “Validation of Restrictive Markings on Technical Data

– Effective 9/20/2011, use DFARS 252.227-7013, “Rights in Technical Data – Non-Commercial Items” in addition to DFARS 252.227-7015 if the Government will pay for any portion of the development costs of a commercial item

DFARS 252.227-7013 governs the technical data developed in any part at Government expenseDFARS 252.227-7015 governs the technical data developed exclusively at private expense


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Computer Software (FAR 12.212)– “Commercial computer software or commercial

computer software documentation shall be acquired under licenses customarily provided to the public”provided such licenses are consistent with Federal law and otherwise satisfy the government’s needs

– “Commercial Computer Software” defined in FAR 2.101 as any computer software that is a commercial item

Excludes computer software documentation, which is considered technical data

– FAR 52.227-19, “Commercial Computer Software License”

– No specific marking requirement

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Computer Software and Computer Software Documentation (DFARS 212.212 and 227.7202)– Policy to identify and evaluate opportunities for the use of commercial computer software

at all stages of the acquisition process– Acquired under the licenses customarily provided to the public unless such licenses are

inconsistent with Federal procurement law or do not otherwise satisfy user needs– Obtained competitively, to the maximum extent practicable, using FFP contracts or orders– Commercial Computer Software defined in DFARS 252.227-7014, “Rights in

Noncommercial Computer Software and Noncommercial Computer Software Documentation” - Software developed or regularly used for nongovernmental purposes which:

(i) has been sold, leased, or licensed to the public; (ii) has been offered for sale, lease, or license to the public;(iii) has not been offered, sold, leased, or licensed to the public but will be available for commercial sale, lease, or license in time to satisfy the delivery requirements of the contract; or (iv) satisfies a criterion in (i), (ii), or (iii) and would only require a minor modification to meet the requirements of the contract

– No prescribed contract clause


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FAR 52.215-2, “Audit and Records – Negotiation”– Permits the government to audit a contractor’s cost

records for up to 3 years after the contractor’s receipt of final payment

– Only applies if the subcontract exceeds $150,000 and:Is a cost-reimbursement, time-and-materials, labor-hour, or price-redeterminable contract;The contractor was required to provide certified cost or pricingdata; orThe contractor is required to furnish cost, funding, or performance reports

– Note: The clause will apply to a commercial item, time-and-materials or labor-hour contact

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Exemptions for Commercial Item Subcontracts

Small Business Subcontracting Plan – Exemption only applies to commercial item subcontracts– Includes goals expressed in terms of total planned subcontracting dollars

for use of each type of small business concern– Includes total projected sales (in dollars), the total value of projected

subcontracts to support the sales, and the total dollars planned to be subcontracted to each type of small business concern

– Includes a description of the principal types of supplies and services to be subcontracted, and an identification of the types of supplies and services planned for subcontracting to each type of small business concern

– Includes policies and procedures for implementing the plan– Exemptions:

Commercial Item Subcontracts issued under a prime contract containing FAR 52.212-5 or 52.244-6


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Exemptions for Commercial Item Subcontracts

Relevant Small Business Subcontracting Plan FAR/DFARS Clauses:– FAR 52.219-9, “Small Business Subcontracting

Plan”– FAR 52.219-16, “Liquidated Damages –

Subcontracting Plan”– DFARS 252.219-7003, “Small Business

Subcontracting Plan (DoD Contracts)”

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Changes– Non-Commercial Item Prime Contracts

Government can unilaterally direct changesThe contractor must proceed with the change as directed, even if the parties have not yet agreed on a corresponding equitable adjustment to the contract price and/or delivery scheduleFAR Clauses– 52.243-1, “Changes – Fixed-Price”– 52.243-2, “Changes – Cost-Reimbursement”– 52.243-3, “Changes – Time-and-Materials or Labor-Hours”– 52.243-4, “Changes” (applies to construction contracts)

– Commercial Item Prime Contracts (FAR 52.212-4(c))Changes may only be made by mutual agreement of the partiesContractor does not need to perform the change until an agreement is reached

– Commercial Item SubcontractsSubcontractors can agree to accept unilateral changes directed by the government, but insist that all other changes be mutually agreed upon by the parties


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Requirements That Apply toCommercial Item Contractors

Domestic sourcing requirements (e.g., Buy American Act, Trade Agreements Act, specialty metals restrictions, etc.)Equal Employment Opportunity Clauses (e.g., affirmative action program)Wage and Hour Clauses (e.g., Service Contract Act)Employment Eligibility Verification (E-Verify)Contractor Code of Business Ethics and Conduct (but not the requirement for a business ethics awareness and compliance program and internal control system)Preference for Privately Owned U.S.-Flag Commercial VesselsSmall Business Subcontracting Plan – only applies to commercial item prime contracts over $650,000

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SummaryTake advantage of FAR Part 12 and the streamlined acquisition process for commercial item goods and servicesDevelop a commercial item justification to send to the government or higher-tiered contractors to support commercial item treatmentNegotiate out of commercial item prime contracts clauses from which commercial items are exemptNegotiate out of commercial item subcontracts clauses from which commercial items are exempt, clauses that the higher-tiered contractor is not required to flowdown and do not make good business sense, and clauses that do not apply to subcontractors (e.g., FAR 52.233-1, “Disputes”)Draft Version 2.0 of the DoD’s Commercial Item Handbook http://www.acq.osd.mil/dpap/cpic/draftcihandbook08012011.docx

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Small Business IssuesFor Small And Large Businesses

David T. Ralston, Jr.October 2012


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Overview of Federal Contracting ProcessFor Small Business Procurements

Government agency identifies requirement and contract-type– Goal is 23% of federal procurement dollars to small business– FY2010: $97 billion to small businesses

Contracting Officer (CO) performs market research– Considers preferences (HUBZone, etc. v. set-aside)– Assesses Rule of Two status

Based on market research, CO decides to proceed with– Preferred small businesses– General set-aside, or– Unrestricted procurement

Synopsis published– Indicates preference, set-aside or unrestricted– If set-aside, will indicate applicable NAICS code

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Overview Of Federal Contracting Process (cont’d)

Solicitation issued– Indicates set-aside or unrestricted– NAICS protest– 10 day deadline after solicitation issued– Preference/set-aside protest due before proposal submission

Initial proposals submitted; discussions conductedAward decision– If set-aside, offerors given notice of proposed award– Size protests due within five days of notice– If no protest, award made to tentative awardee– If protests, award held until 10 days after CO sends protest to SBA,

maybe longer– If unrestricted, award announced


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Federal Small Business Set-Aside Programs

Set aside = federal contract restricted to small business concerns (SBCs)SBC definition– For profit– U.S. operational location– Operates in U.S./or makes significant contribution to U.S.

economy– U.S. citizenship not required

Do set-asides programs apply to GSA’s FSS?– GSA said no, while GAO and SBA said yes– Congress agreed with GAO and SBA in Small Business

Jobs Act of 2010

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Federal Small Business Set-Asides (cont’d)

SBA preference/set-aside order of priority:– Group 1 (considered at parity):

Historically Underutilized Biz Zone (HUBZone) set-aside– HUBZone sole-source award

Service Disabled Veteran-owned SBC set-aside– SDVOSBC sole-source award

8(a) programWomen-owned Small Business

– Group 2: General small business set-aside– Group 3: Unrestricted


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CO makes tentative decision on applicable NAICS code and related size standard, undertakes market researchApproach varies based on Simplified Acquisition Threshold ($150,000)– At or below SAT: Procurements reserved exclusively for

SBCs unless market research shows Rule of Two not metMay consider Group 1 preference Burden on CO to show Rule of Two not met

– Above SAT: Set aside to be used if market research showsreasonable likelihood Rule of Two met

CO must consider Group 1 preference, but has discretion to use Group 1 or notMust use Group 2 if Rule of Two met

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Rule of Two:– Two or more SBCs

ResponsibleWith applicable NAICS code approval, and If above SAT, offering the products of different SBCs

- AND -– Award expected to be made at Fair Market Price

CO first considers Group 1: If Group 1 SBCs meet Rule of Two, Group 1 procurementIf not, Group 2 considered: If Group 2 SBCs meet Rule of Two, Group 2 procurementIf not, unrestricted procurement


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Role of North American Industry Classification System (NAICS) Codes

NAICS codes replace SIC codes; codes on webCO designates applicable NAICS code for procurement (supply or service)NAICS code determines SBC size standard– Annual receipts– Maximum employee count– 45 different size standards

SBA adjusts NAICS codes/size standards periodically

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NAICS Appeals

“Adversely affected” offeror/interested party may appeal CO’s code choiceTest: Is NAICS code choice consistent with– Contract statement of work– Weighting of evaluation elements

Appeal filed with SBA’s Office of Hearings and Appeals (OHA) in DC Appeal within 10 days of issuance of IFB/RFPAppeal goal: Obtain code with size standard just above your size


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Challenging CO’s Set-aside Decision

SBCs can challenge unrestricted procurement, i.e., that Rule of Two can be metLarge businesses can challenge set-asides, i.e., that Rule of Two not metFocus of challenge is adequacy of market researchTest: Reasonable expectation that Rule of Two will be metAgency/GAO rule: Must be protested before offer submitted; otherwise waived

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Size Status Calculation

Annual Receipts– Used for construction/services NAICS codes– Receipts = total income + cost of goods sold– Average over last three complete taxable years– Includes

All revenues, not just NAICS workAffiliates

– Proof: Income tax returns – Construction – ranges from $7 to $33.5 million– Services – most common = $7 million


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Size Status Calculation (cont’d)

Employee Count– Used for manufacturing/mining NAICS codes– Avg. no. of employees each pay period– Preceding completed 12 calendar months– Proof: Payroll records– Full-time, part-time, temps et al = head count– Predominant size standard = 500 employees– Upper range from 750 to 1,500

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Size Status Issues

Self-certification process– Size status (receipts/head count) represented in System for Award

Management (SAM) (old Online Reps & Certs Application), or Offer– Accepted as true absent size protest– Other CO/SBA info on size

SBA certificate/approval required– HUBZone SBC– 8(a)

Size as of date of offer controls (except SBIR) Issues:– Major penalties for misrepresentation– Recertification requirement– Affiliation– Non-manufacturer Rule– Meeting 50% Rule


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Penalties For Misrepresentation

Small Business Jobs Act of 2010 (SBJA) changed landscape and enhance misrepresentation penalties– Certain actions = certification of size status

– Submission of bid/offer– Encouraging award based on size– Registering in electronic database

– Signature of authorized official on certification– Annual updating required– Presumption that total contract amount loss flows from

misrepresentationSBA rulemaking underway– So many comments filed that period extended twice– Final rule pending

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Penalties For Misrepresentation (cont’d)

SBA proposed rule under SBJA– Irrefutable presumption of loss

Even stronger than SBJAFails to consider value to government of service/goods deliveredConflicts with Supreme Court precedent

– Offer = “willful, intentional certification”– Has provision for “unintentional errors”

Heavy burden to prove lack of intentEssentially strict liabilityMay conflict with the False Claims Act (FCA)

– Provides strong basis for exposureUnder FCASuspension/debarment

Outcome: SBCs must consult counsel on close questions


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Recertification Rules

Issue: Can firms grow large (“other than small”) during long-term contracts?Yes:– “Long-term” contracts = FSS, MAS, GWAC, 5-year– Recertification required

Prior to 6th year and each option thereafterWhen CO/agency requests, orAcquisition/merger/novation

Contract termination not required, but agency loses small business credit

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Affiliation Rules

Affiliation:– When one concern controls/has power to control the other, or– Third-party controls/has power to control two firms– Then, the firms are combined for size determination

Use receipts/employee count of all affiliated entities

Common ownership/Voting control– 50% plus– Less than 50% but controlling– Net present effect rule

Common managementSubstantially identical interestsNewly organized concernsNegative control devices


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Ostensible Subcontractor Rule

Affiliation rule treats prime and sub as affiliated for receipts/employee count“Ostensible” subcontractor is– Truly dominant firm, despite subcontractor position– Controlling contract performance

Test: Which party will perform the “primary and vital” tasks for contract– Seven part test– Major point – is prime “unusually reliant” on sub

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Affiliation Exceptions

Mentor-protégé programs– SBA – 8(a) program– DoD– GSA

Alaskan Native corporationsAmerican Indian tribesCertain JVs


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Non-manufacturer Rule

Non-manufacturer (NMF) = retailer/wholesalerApplies to supply contracts only– Not to services contracts– But per COFC, also to supply contracts with some services

NMF may qualify as SBC under general set-aside– 500 employee size standard– Uses 500 even if NAICS size standard higher– Primarily engage in wholesale/retail trade– Normally offers product to public– Supplies end-item of another SBC, unless waiver obtained

With waiver, SBC can supply products of large firm

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50% Limit On Subcontracting Rule

Limit on subcontracting: SBC prime must perform 50% of work– Option years included in count if used for evaluation

Calculation depends on contract type:– Services: 50% of labor costs by SBC’s own employees– Supplies: 50% of cost of manufacturing by prime, excluding cost of

materials– Construction: 15% of cost of contract by prime, excluding cost of

materials Protestable?– Usually no – considered contract administration– But yes if 50% limit violation is obvious from proposal

Morris-Griffin decision: Subcontract plainly violating 50% rule is unenforceable


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Teaming and Subcontracting Impact

When a SBC prime contractor, remember:– Affiliation rules

Ostensible subcontractor

– 50% subcontract limitation– Federal flow-down requirements

When a subcontractor, remember:– Prime is the awardee, not the sub– Prime’s commitment to teaming/subcontract is

not ordinarily binding

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23

SBA Size Status Protests

Protest: Challenge to SBC’s self-certificationHow to protest– In writing to CO, or call to CO, followed by letter– Allegation of specific facts– Lawyer not required, but really advisable

Who may protest– Offerors that lose– CO– SBA


24

SBA Size Status Protests (cont’d)

When must size protest be brought:– Five business days of notice of tentative/actual award– CO/SBA protests always timely– Untimely protests don’t get considered unless CO/SBA

adopts

Impact of timely protest– Suspends award until 10 business days after SBA gets

protest– May result in contract termination

Consider simultaneous GAO bid protest – obtains longer stay of contract award

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25

SBA Size Status Protests (cont’d)

Protest triggers SBA Area Office (AO) investigation– Protest allegations frame issues, but SBA not limited to

them– Challenged firm required to file SBA 355

SBA 355 can require major effort; three days to replyFailure to file = “other than small” resultFailure to provide info = adverse inference

AO issues size determination– Only 14% decided in 15 days– 40% within one month; 77% within two months

FY05-FY11– Average of 557 size protests/year– 26% sustained; 66% denied/dismissed


26

SBA Size Appeals Of AO Decisions

Before appeal – consider asking AO to reconsiderAppeal to SBA’s OHA– Who can appeal: Any interested party– Time to appeal: 15 days of AO decision– Record closes fast– Must show errors of law/fact– Limited to facts/arguments presented to AO– Protective orders are used

Best advice: Get a lawyer for OHA appeal

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27

SBA Size Appeals (cont’d)

About 10% of AO decisions are appealed to OHATime to OHA decision– 15 days: 7%– 30 days: 34%– 60 days: 75%

FY08-FY11 results– Average 57 OHA decisions/year– Dismissals: 17%– Affirmed AO decision: 48%– Reversed/remanded/vacated: 35%

OHA decisions can be appealed under APA


28

Impact of Adverse Formal Size Determination

Firm ineligible for award of contractIf performance commenced, contract to be terminated or option years not exercisedPrecludes firm from later self-certifying under same or lower size standardPotential for misrepresentation penalties

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29

New Rules For SBIR/STTR Investors

SBIR/STTR programs – federal R&D set-asides for small businessVenture capital (VC) investment currently limited by SBA’s U.S. citizenship rule– 50% of ownership of SBIR/STTR entity must be U.S.

citizens– Only “natural person” U.S. citizens count

NDAA 2012– Reauthorized SBIR/STTR programs– Required liberalized SBA rules for VC investment in

SBIR/STTR entities


30

New Rules For SBIR/STTR Investors (cont’d)

SBA proposed rules– SBIR/STTR applicant firm must be organized in

U.S.– Permits multiple VCs to own more than 50% of

SBIT/STTR applicantPermits domestic concerns as majority owners of applicantEnds 50% U.S. natural person citizenship ownershipPrecludes single VC from more than 50% ownership

– Size standard remains 500 employeesIncludes temps and leased employees

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Usual SBA affiliation rules apply, with exceptions– Board held to control SBIR/STTR applicant when

Stock widely held, or Two or more persons hold large blocks of stock, but no one person has over 50%

– Presumption of identity of interest (i.e., affiliation) whenFamily members are co-ownersApplicant is dependent on non-arm length loans

If VC affiliation is found– Portfolio companies’ receipts/employees not counted

unlessVC owns 50% of portfolio company’s stockVC control majority of portfolio company’s board seats


32


SBIR/STTR applicant size status and qualification determined at offer date andaward date– Change from current rule of award date only

Certification requiredProtests expressly authorized

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33

Small Business Subcontracting Plans –Diligence Required By Large Businesses

SBJA mandated enforcement of small business subcontracting plansSBA proposed rules (still under consideration)– Will apply to large primes with contracts

Over $650,000$1.5 million for construction

New "subcontract" definition for data reporting - any agreement by prime or subcontractor for supplies or services required in contract or subcontractNew limits on small business credit reported in subcontracting plans (such as the SF-249) for small business subcontracting– Excludes contracts performed outside U.S. (except State Department

contracts)– Credit limited to next immediate contract tier

Thus prime can take credit only for small business subcontracts awarded to its first tier subcontractors


34

Small Business Subcontracting Plans (cont’d)

– Good faith effort by prime requiredTo obtain goods/services from small business subcontractors– Referenced in bid/proposal– Having a written agreement (i.e., teaming), or– Drafted section of bid/proposal with intent/understanding of

performance of contact work

Promptly pay subcontractors

– Explanation for deviation required to CO– Three incidents of untimely payment within 12 months =

adverse report in FAPIIS– Prime’s level of use of subcontractors may be used in later

evaluations of prime

1


Compliance Update

George W. AshOctober 2012


2

Compliance Update

FAR Clause on Mandatory Disclosure

Mandatory Disclosure and Suspension/Debarment

Mandatory Disclosure Nuts and Bolts

Increasing Emphasis on Suspension/Debarment

Best Practices and Tips on Compliance

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3

FAR 52.203-13 Compliance Summary

If contract/subcontract is greater than$5 Million and performance greater than 120 days– All Contractors within 30 days of award must have a

written code of business ethics and conduct (includes commercial items and SB contracts)

– Make a copy of the Code available to each employee engaged in performance of the contract

– Includes mandatory timely disclosure obligations– Exercise due diligence and encourage ethical conduct

Includes “due diligence” in hiring employees


4

FAR 52.203-13 Compliance Summary (con’t)

If contract/subcontract is greater than$5 Million and performance greater than 120 days– All contractors except small business and commercial item

contractors, within 90 days of award, must:Make reasonable efforts not to include as a principal an individual whom due diligence would have exposed as having engaged in conduct that is in conflict with the Contractor’s code of business ethics and conduct;

Establish an ongoing business ethics awareness and compliance program;

Implement an internal control system to facilitate timely discovery;

Implement an internal control system to ensure corrective measures.

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5

Contract Clause MandatoryDisclosure Requirements

Timely Disclosure–To the Agency OIG and the Contracting Officer

Credible EvidenceIn connection with the award, performance, or closeout of the contract or any subcontract under the contractPrincipal, employee, agent, or subcontractor has committed–A violation of Federal criminal law involving fraud, conflict ofinterest, bribery, or gratuity violations; or–A violation of the civil False Claims Act

Disclosure requirement continues until 3 years after final payment on the contract


6

What This Means For You

Mandatory Disclosure Requirements– Requires contractors to disclose known violations by it, its

subcontractors and agents– Does not seem to require contractors to disclose information

about other contractors (including the prime or a higher tiered subcontractor) or violations by government employees

– Mandatory disclosure of FCA violations presents a risk of prompting a qui tam lawsuit

– Contractors must be diligent about flowing down this clause to its subcontractors when applicable

The clause does not require contractors to review/approve its subcontractors’ codes or systems, but it may be a good practice to confirm that the subcontractors have such codes and systems

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7

FAR Suspension/Debarment Provisionson Mandatory Disclosure

Knowing failure by a principal to– Timely Disclosure– Credible Evidence– A violation of Federal criminal law involving fraud, conflict of

interest, bribery, or gratuity violations; or– A violation of the civil False Claims Act– Significant overpayments– In connection with the award, performance, or closeout of

the contract or any subcontract under the contract

Disclosure requirement continues until 3 years after final payment on the contract


8


Independent Cause for Suspension/Debarment– All contractors should have internal controls systems for identifying

when they receive an overpayment from the Government– Since the knowledge of a principal triggers the suspension and

debarment clause, all principals must be trained to identify potential violations of federal criminal law (involving fraud, conflict of interest, bribery or gratuity violations) and FCA violations

– However, what constitutes a false claim under the FCA is not always clear

Courts often disagree as to when a violation of the FCA has occurredRule noted that genuine disputes over the proper application of the FCA may be considered in evaluating whether the contractor knowingly failed to disclose a violation

– Requirement to perform a higher level of due diligence in selecting principals and subcontractors

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9


The Mandatory Disclosure requirement has a retroactive effect– Applies up to three years after final payment

Rule rejected contract closeout as the end point because fraud often occurs at that time

– Good reason to be diligent in closing out contracts– Contractors have an obligation to make mandatory

disclosures regarding contracts in place and for conduct that occurred prior to the effective date of the rule, and prior to the contractor having an internal control system in place

– The suspension/debarment rules apply independently (no special clause required, no monetary threshold)


10

Mandatory Disclosure -Understanding the Process

You make the disclosure to the OIG and the Contracting Officer, but it will then likely be forwarded to a number of other offices and stakeholders– DoJ

– DCAA

– Suspension/Debarment Office

– Criminal investigators

– Other interested agencies

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11

Mandatory Disclosures To Date

More than 600 disclosures made90% are from DoD– Most common:

MischargingMisuse of propertyFalse timecards

Second largest agency is GSA– Trade Agreement Act violations– Defective Pricing– Quality deficiencies– Price reduction violations

So far, four individuals but no companies have been prosecuted12 individuals and one company have been subjected to suspension/debarment actions


12

Issues Involving Mandatory Disclosure

What is “credible evidence” and when do you have it?Who is a “Principal”?What is my obligation regarding subcontractors and agents?How can I be sure my disclosure is timely?To whom and how do I disclose?How do I preserve confidentiality and privilege?What does “full cooperation” mean?How is restitution decided?What obligations do you have to your employees?What obligations do your employees have to you?

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13

Suspension and Debarment FY2009/FY2010/FY2011

AF Army Navy DLA

– Suspensions 73/91/148 134/133/112 12/25/24 48/140/34

– Proposed Debarments 86/68/139 112/125/235 39/38/80 163/169/206

– Debarments 63/206/80 117/170/179 44/78/92 131/166/184

In 2009, there were roughly 1,900 federal suspensions/debarment actions

In 2011, there were more than 3,000


14

The Demand for More Suspension/Debarment Actions

Numerous reports have called for greater and more frequent use of the suspension/debarment tool, including some that call for automatic suspensions on indictment and automatic debarment upon conviction of a felony. See:– Interim and Final Reports of the Wartime Contracting Commission– DoD OIG Report, “Additional Actions Can Further Improve the DoD Suspension

and Debarment Process”– GAO Report, “Suspension and Debarment – Some Agency Programs Need

Greater Attention, and Government-Wide Oversight Could be Improved”– Council of the IG on Integrity and Efficiencies, “Don’t Let the Tool Box Rust:

Observations on Suspension and Debarment, Debunking Myths, and Suggested Practices for Offices of Inspector Generals”

– OMB Memo, “Suspension and Debarment of Federal Contractors and Grantees”

In addition, there have been numerous congressional Hearings on “Weeding out Bad Contractors,” and suggestions that any terminations for default should be reviewed by the Suspension/Debarment Official

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15

New Basis for Debarment – Human Trafficking

President Obama issued an Executive Order on September 25, 2012 calling for FAR changes prohibiting contractors, subcontractors and their employees from any activities involving human trafficking:– Prohibits misleading or fraudulent recruitment practices, charging, recruitment

fees, destroying or confiscating employee’s identity documents– Contractors must pay transportation costs at the end of employment for

“improper” workers as U.S. government contractor or subcontractorContracts over $500,000 performed outside the U.S. must have a compliance program involving awareness of the anti-trafficking policy, outlining punishments and identifying a reporting process and will be required to certify compliance with these requirements at the time of awardOrder takes effect immediately with 180 day deadline for FAR implementationComparable legislation exists in both the House and Senate


16

Automatic Suspension/Debarment?

Consolidated Appropriations Act of 2012 prohibits certain agencies from using federally approved funds to enter into a contract with any corporation that was convicted of a felony under federal law within the previous 24 months, unless the agency has considered suspension or debarment and made a determination that further action is not necessary to protect the government’s interest– This has resulted in a new certification to be used when FY2012 funds

are involved

There are many anomalies in this provision that agencies are struggling with:– Applies to corporations, not contractors– Triggered by agency knowledge– For non-DoD agencies, it also applies to “officers or agents,” tax

delinquencies

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17

Training Aid for Those WithCompliance Responsibilities

Encyclopedia of Ethical Failure produced by DoD Office of General Counsel– www.dod.mil/dodgc/defense_ethics/dod_oge/eef_complete_2012.doc

Drafted to be used as a training tool for government employees

Includes summaries of both DoD and non-DoD violations, as well as some non-federal violations

Helpful for contractors in the areas of gratuities, post-government employment job applicants, misuse of government property as well as kickbacks, bribes, etc.

Includes hundreds of examples of ethical violations and punishments


18

Written Code of BusinessEthics and Conduct

Clearly a best practice

Required by the FAR for most contractors

Factor in suspension/debarment decisions

Sentencing guideline benefit

Communicate management’s emphasis on compliance/ethics

Provide instruction to employees

They actually work!

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19

Effective Codes

Well written, clear languageTailored to your organization/industryAddresses the risks you faceUses examplesIncludes a strong “tone from the top” and leadership commitmentIncludes a statement of company values“Meshes” with employee handbook, company policies, etc.Woven into the operation of the contractor


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Wrap-Up – Compliance Best Practices

If you do business with the government, you should:– Have a compliance program tailored to your business,

including:A compliance code/handbookA training programA compliance officer (someone with clear responsibility)

Having an effective compliance program reduces violations and provides more favorable treatment if a violation occursKnow what is in your contract– Minimize risk by rejecting unnecessary

provisions/requirements

1


Pre-Award Bid Protests:Fighting the Battle That Helps You

Win the War

Frank S. MurrayOctober 2012


2

Pre-Award Bid Protests

What issues must be challenged pre-award?Filing deadlinesTeaching Points from ProtestsRecent cases and Pre-Award Protest Success Story

2


3

The Best Protest Guide There Is

Foley & Lardner Federal Protest Guide– Written by David Ralston and Frank Murray

Provides detailed discussion of – Protest jurisdiction & timeliness requirements– Stay of contract award/performance– Protest process– Available relief– Advantages/disadvantages of the forum– Common protest grounds– Available statistics


4

Identifying Pre-Award Issues

Pre-award protests involve challenges to a deficiency in the solicitationRequires careful review of solicitation for potential issuesRead the Solicitation – then read it again twice more – then call us with questions

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5

Review the Solicitation

Pay special attention to:– Sections B & C: Tells what agency wants– Section F: Tells when they want it– Section H: Special contract requirements– Section J, Attachments: Tells special issues/conditions

Pay extra-special attention to:– Section L: Identifies proposal content and format

requirements– Section M: Tells how the agency will pick the winner –

This is not a secret!


6

More Teaching Points

Focus on provisions drafted by the agencyUnderstand how the contract will workUnderstand what the agency thinks it wantsForce agency to clarify confusing RFP language before submission of proposalsWrite proposals that respond to the RFPWrite proposals that make sense

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7

Protesting Solicitation Defects

Good rule of thumb whether issue is a “solicitation defect” that must be raised prior to closing date:– Is there a problem with acquisition even BEFORE proposal

submission/contract award?– If yes, probably a “solicitation defect” issue that must be

protested prior to closing date.


8

Pre-Award Protest Filing Deadlines

Solicitation/RFP/RFQ defects– FAR 33.103(e)/4 CFR § 21.2(a)(1)– If defect in initial solicitation, must protest defect

prior to due date for initial proposal/quote submission/bid opening

– Alleged improprieties not in initial solicitation but subsequently incorporated into solicitation via amendment

Must be protested by next closing time for receipt of proposals after incorporation

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9

Pre-Award Protest Filing Deadlines

Pitfall: defect incorporated into solicitation amendment, but only short time allowed prior to response deadlineHave to act FASTIn a pinch, an agency protest can keep the door open to file at GAO later, but need to get it in before deadlineGuzar Mirbuchakot Trans., COFC March 29, 2012– GAO had dismissed previous pre-award protest at GAO as

untimely filed, because protester had 5 hours noticebefore closing time that agency would not accept .zip files


10

Common “Defective Solicitation” Protest Grounds

RFP not detailed enoughRFP too detailed, too restrictive (sets standards that are not needed)Many brand-name or equal issuesNeed more time to respondRFP is ambiguous (“patent ambiguity” vs. “latent ambiguity”)Small-business issues (failure to set aside, wrong size standard, HUBZone issues)

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11

Clarifying Contract Requirements

InfraMap Corp., B-405167.6, Feb. 6, 2012– RFP for Underground Utility Location (UUL)

services on Army facility, base year plus 4 option years

– Offerors required to bid firm, fixed annual price to provide all location/marking services required

– Low price, technically acceptable award– InfraMap was incumbent, lost two prior rounds but

successfully protested and Army recompeted


12

The Problem With the Solicitation

RFP projected that UUL requirements would increase by 10% per year over 2010 requirementsAgency issues amendment requiring final proposal revisions in four daysOn same date, Army’s Chief Engineer informed InfraMap that the RFP’s workload would encompass UUL work required by an electrical privatization project, which would represent a massive increase in workload beyond what was projected in RFP

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13

Army’s Position: What Problem?

Army position was that the contract would obligate contractor to perform whatever services were needed at the fixed contract price, and that the 10% annual increase projection was based on number of permits, not mileage (so permits could be gamed)No mention in RFP of utilities privatization workload; none of the other bidders were likely to be aware of the inclusion (or magnitude) of that additional work in contract


14

InfraMap Fights the Battle

InfraMap faced with two unappealing options:– If bid based solely on RFP’s express workload projections,

might win contract but be required to perform work well beyond what it priced into bid

– But, if bid based on real (albeit unstated) requirements, InfraMap price would be higher than other bidders and lose the LPTA competition

InfraMap took option 3– Filed a pre-award protest challenging RFP workload

projections as failing to accurately reflect level of work to be performed under the contract, depriving offerors of information needed to compete equally and intelligently

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15

The Army Fights Back

Army filed motion to dismiss InfraMap’s protest as untimelyArgued that the RFP’s workload projections were unchanged from original solicitation; thus, had to be protested prior to original closing date months priorInfraMap pointed out that it had no reason to question the RFP’s workload projections until the conversation with the Army Engineer, and InfraMap protested before the next closing dateGAO: InfraMap protest was timely


16

But InfraMap Wins the War

Agency report showed agency had not performed any meaningful analysis to support its claim that the utilities privatization workload would be consistent with RFP projectionGAO sustained InfraMap protest and recommended that Army perform detailed analysis of impact of utilities privatization workload and amend the RFP “to provide sufficient information to convey the level of work associated with” the increased requirementsInfraMap leveled the playing field by making sure all bidders would be aware of the actual contract requirements… AND InfraMap won the award when the RFP was clarified and recompeted!

1


Money Matters

George W. AshOctober 2012


2

Money Matters

SequestrationSelected Cost Allowability IssuesExecutive Compensation ReportingDFARS Rule on One OfferCost or Pricing Data DefinitionDCAA and Internal AuditsDFARS Business System Reviews

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3

Sequestration

“May you live in interesting times”– Ancient and Chinese, or Modern and Western?


4

Sequestration

How did we get here?– Budget Control Act of 2011 (“BCA”) was passed in August

2011 to end the debt ceiling standoffThe BCA called for a Joint Select Committee on Deficit Reduction, with a requirement that Congress must enact legislation developed by this Committee by January 12, 2012 that would reduce the deficit by $1.2 trillion over 10 years– The Committee could not reach a consensus and no legislation was

passedUnder the BCA, automatic cuts would commence on January 2, 2013Under the BCA, half of the cuts would come from DoD, and half from other agenciesAll agencies are affected without regard to existing priorities or strategy– The only exception is that the President is empowered to exempt

military personnel, which he has done

3


5

Sequestration

Congress passed the BCA, why not change or repeal it?– Congress is divided along philosophical lines– The President has said he will veto any attempt to

change the BCA

No action will occur until after the November 2012 election


6

Sequestration

The ”financial cliff” of sequestration is a product of the fundamental difference in philosophy between the two major political parties in the role of government, cost control and government revenue creation (taxation)– Bush era tax cuts due to expire December 31, 2012

unless extended– President Obama wants to increase taxes on those with

more than $250,000 adjusted gross income– Republicans want tax reduction

Reduction in government spending

4


7

Sequestration

What happens on January 2, 2013 if there is no agreement or change to the BCA?– Automatic cuts of $1.1 Billion

$100 Billion of the $1.2 Trillion estimated to come from reduced interest payments

– Roughly $55 Billion from DoD and $55 Billion from non-defense agencies in FY2013

9.4% reduction for DoD and 8% reduction for non-DoD agenciesCuts are to be made to every “program, project and activity”Note that FY2013 started on October 1, 2012

– While DoD military members are exempt, it is estimated 108,000 civilian employees at DoD will be cut

– It has been estimated that sequestration could result in the loss of more than 2,000,000 jobs in the U.S., and reduce the nation’s gross domestic product by $215 Billion


8

Sequestration and the WARN Act

Should contractors issue layoff notices and comply with the federal WARN Act?– Obama Administration says NO

Can contractors rely on this?

– Assuming layoffs could occur on January 2, 2013, the notices should be given November 2, 2012

A defense industry report found that sequestration would cause more than 2,000,000 layoffs– Others say this is exaggerated

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9

The Impact of Sequestration

If sequestration happens, agencies are likely to:– Cancel solicitations– Decline to exercise options– Use the limitation of funds clause (FAR 52.232-22)– Place minimum orders under IDIQ contracts– Down-scope existing contracts– Review the contractor’s period of performance– Order stop work/stop shipment actions– Accelerate completion of performance– More quickly issue terminations for default– Cancel multi-year contracts– Terminate contracts for convenience– Seek the re-negotiation of contracts– Pursue liquidated damages– Demand detailed cost or pricing data– Heighten emphasis on business systems and compliance


10

SequestrationWhat Contractors Should Do Now

Conduct an internal self assessment of your government business– Assess funding, risk of adverse action

Identify contracts that focus on an agency’s core capabilitySubcontracts will depend on essential nature of the primeBe on time and within budgetStrengthen customer relationshipsPublic companies should be working on qualification statements nowConsider status and impact of non-government workConduct compliance review, discover deficienciesMake a contract vulnerability assessmentConsider ADR for existing disputesConsider impact on indirect cost recoveryImplement cost controls nowReduce debtDevelop a WARN strategyReview subcontract agreements

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11

Conducting the Internal Self-Assessmentof Your Government Contract

Type of Contract– Fully funded FFP contracts– Options exercised prior to October 1, 2012– Options exercised between October 1, 2012 and January 2, 2013– IDIQ contracts at risk

Fiscal Year of Funding– FY2012 should be OK– FY2013, Q1 – not clear– FY2013, Q2 and later – at risk

Modifications Envisioned– Unexercised options– In scope vs. out of scope changes

Is the contract incrementally funded– Most at risk– If incremental funding in doubt, may lead to a termination for convenience


12

Sequestration – Looking Into the Future

No action before the Presidential electionWill lame duck Congress act?How will the election results impact sequestration avoidance?Is a temporary reprieve likely?The “problem” – greater expenditures than revenue will not go away regardless of the election results– So, if not sequestration, what is the solution?

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13

Sequestration and the Budget Crisis

Long term impact?– Cuts in subsequent years– Personnel cuts/furloughs– Loss of industrial base– Huge unemployment/recession– Increase unit cost of weapons– Loss of readiness and training– Impact on volunteer force– Impact on national security


14

REA Preparation CostsRecovery of Consultant and Attorney Fees

Tip Top Construction, Inc. v. Patrick R. Donahoe, Postmaster General, U.S. Court of Appeals Fed. Cir., 2011-1509; decided Sept. 19, 2012– Reaffirmed Bill Strong Enterprises, Inc. v. Shannon, 49 F.3d 1541

(Fed. Cir. 1995)– Costs incurred in connection with negotiations related to additional

compensation because of a government caused delay are allowable and recoverable as contract administration costs, even if negotiations ultimately fail

– Note that this contract was not covered by the FAR– Government argued costs were incurred in an attempt to maximize

recovery and to prepare and document a claim

Key distinction: Cost incurred in connection with the administration of the contract vs. the prosecution of a claim– Why did the contractor incur the cost?

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15

Allowability of Attorney’s Fees

FAR 31.205-33(f) states that to be allowable, fees for professional and consultant services must be supported by evidence of the nature and scope of the services furnished, including work product and related documentsDCAA sometimes uses this language to demand privileged work product prepared by the attorneyThe ASBCA ruled that the attorney/client privilege does not have to be waived in order to recover attorney fees– Parsons-UXB Joint Venture, ASBCA No. 56481, 11-2 BCA

¶34806


16

Executive Compensation Allowability

Currently for the top five employees the maximum allowable cost recovery is $693,951 based on a federal executive compensation benchmark– This amount is adjusted annually and has more than doubled over the

past 12 years– §803 of the National Defense Authorization Act extended the cap to

all contractor employees for DoD, NASA and Coast Guard contracts– Government employee unions have complained bitterly, calling the

recoveries exorbitant, claiming lowering the cap to $200,000 would save $50 Billion over 10 years

– House bill would lower the cap to $200,000 for all employees– One Senate bill would lower the cap to $400,000 for all employees

(tied to the President’s salary)Another provision in the Senate version of National Defense Authorization Act would set it at $230,200 for FY2013

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17

DCAA Loses Executive Compensation Appeals

Contractors have successfully challenged DCAA’s determination that contractor’s executive compensation was excessive in J.F. Taylor, Inc., ASBCA Nos. 56105, 56322___ BCA ____, 2012 WL 261272 (January 18, 2012) and Metron, Inc., ASBCA Nos. 56624, 56751, 56752, ____ BCA ____, WL 2282598 (June 4, 2012)– In both cases, the Board found DCAA’s assumptions to be

arbitrary, unjust and unreasonable– The government is appealing both decisions


18

FAR Finalizes Executive Pay - Subcontract Reporting Rule77 Fed. Reg. 44046, July 26, 2012

Federal Funding Accountability and Transparency Act of 2006 mandates a free public website of federal contract award information requiring contractors to report compensation of their top five executives and that of first-tier subcontract awards of $25,000 or more– Rule applies if the contractor receives $25 Million or more

in federal funds, or if 80% of their revenue comes from the federal government, unless their gross income is less than $300,000

– Rule applies to all businesses, commercial item contracts and commercially available off-the-shelf item contracts

– Data is entered via the Central Contractor Registration

10


19DFARS Final Rule

New Process When Only One Offer Received77 Fed. Reg. 39126 (June 29, 2012)

Under the FAR, the implication is that a contractor’s price is presumed reasonable if it was submitted with the expectation of competition, even if it is the only offer received– However, DoD has implemented a policy that “adequate price

competition does not exist if only one offer is received”– Under the DoD Final Rule:

If only one bid is received on a solicitation that ran less than 30 days, the contracting officer must reopen the solicitation for at least 30 more daysIf only one bid is received on a solicitation that ran more than 30 days, the Contracting Officer must analyze whether the prices are fair andreasonable or negotiate a lower priceRule applies to acquisitions above the simplified acquisition thresholdThere is an exception for contingency (wartime) contracting


20

Cost or Pricing Data Developments

In 2011, the FAR was amended to clarify the distinction between “certified cost or pricing data”and “data other than certified cost or pricing data”– “Judgmental information” and “judgmental factors” are

specifically included in the definition of “data other than certified cost or pricing data”

Query – “data other than certified cost or pricing data” still has to be disclosed, just not certified– If judgmental information and factors are not disclosed, what is the

government’s remedy?– Is it a False Claim Act violation?

Also in 2011, the FAR was revised to make excess payments due to defective pricing subject to compound interest instead of simple interest

11


21

DCAA to Focus on Internal Audits and Work Papers

December 2011 GAO report criticized DCAA’s lack of use and failure to request contractors internal auditsCurrent case law makes a distinction between “negotiations, pricing, or performance of a particular contract” (objective underlying data) which DCAA may demand, versus “management reviews and internal audits”(subjective audit materials) which DCAA cannot require of contractorsIn response to GAO’s criticism, DCAA has asked Congress to expand DCAA’s subpoena authority to internal audit materials– Such a provision is included in §843 of the Senate version of the NDAA

DCAA has issued guidance related to requesting access to internal audits on August 14, 2012– Contractors should expect more requests for internal audits from DCAA and

proactively develop policies to coordinate and segregate sensitive, privileged material


22

DCAA Slowdown Hurts Contractors

In response to criticism that it emphasized speed over thoroughness, DCAA has contributed to a growing backlog of audit requestsDCAA’s 4,225 auditors completed 7,390 audit reports in 2011, less than two per auditorDCAA completed only 349 audits of incurred costs in 2011, at an average of 965 days for eachDCAA is getting more aggressive as well– In 2001, they questioned 2.19% of contractor’s costs– In 2011, those questioned had risen to 9.25%

The Bipartisan Commission on Wartime Contracting has estimated that by 2016 the government will have $1 Trillion of unaudited contract costs

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23

DCAA Business System Audits77 Fed. Reg. 11355 (Feb. 24, 2012)

“Contractor business systems and internal controls are the first line of defense against waste, fraud and abuse.”Final Rule addresses six specific business systems– Business systems include accounting, purchasing, estimating, earned value

management, material management and property management– A finding of “significant deficiency” in any one of the six may result in a 5%

withhold until the issue is resolved and up to a 10% withhold if more than one system is deficient

A “significant deficiency” is defined as “a shortcoming in the system that materially affects the ability of officials of the Department of Defense to rely upon the information produced by the system that is needed for management purposes.”There is concern that DCAA will equate a “significant deficiency” with a “material deficiency”

– The Business System Requirement applies to CAS covered contracts, in effect exempting small businesses

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Counterfeit Parts and Other Supply Chain Challenges

for Government Contractors

Frank S. MurrayOctober 2012


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Topics

Counterfeit PartsConflict MineralsThe Buy American ActSpecialty Metals Sourcing for Department of Defense Contracts/Subcontracts

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Foley’s Government Supply Chain Regulation Team

Buy American ActTrade Agreements ActFederal Transit Administration “Buy America” RegulationsRecovery Act “Buy American”Requirements

Counterfeit PartsConflict MineralsSpecialty MetalsBerry AmendmentState “Buy American”RequirementsCustoms & Border Protection Country of Origin Determinations


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Counterfeit Parts

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Counterfeit Parts – Key Questions

Why will the rules matter? Why is the DoD supply chain vulnerable to counterfeiting, and how do counterfeits enter the supply chain?How has DoD been directed to address the counterfeiting problem?What problems will DoD’s “solutions” cause for contractors and suppliers?


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Why Counterfeit Parts Rules Matter

Will impact how electronic parts are acquired by DoD and defense contractorsWill require suppliers to modify and enhance quality programs to detect and avoid counterfeitsWill create new flow downs and indemnity issuesWill eventually – perhaps even immediately –extend beyond electronic parts and beyond DoD

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DoD’s Counterfeit Parts Problem

Senate investigation found 1,800 cases of suspect counterfeit electronic parts in DoDsupply chain in 2009-2010– Cases involved over one million individual

counterfeit parts– Sophisticated counterfeiting operations exist

openly in China– Counterfeit parts are of unknown reliability and

can put defense system performance at risk– Counterfeit parts discovered by major defense

contractors, but not timely reported to DoD


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Why DoD Supply Chain Especially At Risk

“Military-grade” parts more costly/valuable, therefore more attractive to counterfeitersHeavy reliance on out-of-production or “obsolete” parts– Short production lifecycle for semiconductors

Often only 18 to 24 month

– Long lifecycles for defense platforms/systemsF-15 put into service in 1975

Parts/System qualification requirements can lead to design rigidity, less flexibility to update with newer, in-production parts

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Counterfeiting From Electronic Waste

Harvesting of e-wasteChips heated over open flames to loosen from board; washed in rivers, dried on open sidewalksParts sanded to remove existing markings“Black topping” to hide sanding marksSophisticated printing equipment used to put false markings on parts


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GAO Investigation of Internet Purchasing

GAO-12-375, “DoD Supply Chain: Suspect Counterfeit Electronic Parts Can Be Found on Internet Purchasing Platforms,” Feb. 2012GAO created fictitious company to join Internet purchasing platforms and solicit vendor quotes for rare/obsolete or “bogus”partsRequested parts that were new in original packaging, no mixed date codes

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What GAO Found

All orders were placed with Chinese vendorsAll parts received were suspect counterfeit or bogusChinese vendors were willing to quote – and ship product – on orders for “bogus” parts (invalid P/Ns)


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Congress’ Response to the Problem

Section 818 of FY 2012 National Defense Authorization Act, “Detection and Avoidance of Counterfeit Electronic Parts”Requires Department of Defense to adopt internal guidance to address counterfeiting of electronic partsAlso requires DoD to adopt regulations imposing new responsibilities on contractors(and subcontractors) regarding detection and avoidance of counterfeit electronic parts

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DoD’s “Internal” Obligations Under Sec. 818

Establish DoD-wide definitions of “counterfeit electronic part” and “suspect counterfeit electronic part”Adopt “risk-based approach” for DoD procurement officials to minimize impact of counterfeits in purchasing electronic partsIssue guidance on suspension/debarment for suppliers with repeated supply chain integrity issuesEstablish system for reporting DoD discovery of counterfeit or suspected counterfeit partsEstablish process for acting on reports of counterfeit or suspected counterfeit parts


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DoD Internal Guidance (So Far)

March 16, 2012 Kendall Memo, “Overarching DoD Counterfeit Prevention Guidance”– Defines “counterfeit materiel” as “an item that is

an unauthorized copy or substitute that has been identified, marked, and/or altered by a source other than the item’s legally authorized source and has been misrepresented to be an authorized item of the legally authorized source”

– Used item misrepresented as new may be subject to fraudulent representation procedures

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DoD Internal Guidance (So Far)

Definition covers all parts, not just electronic partsDesignates the Government-Industry Data Exchange Program (“GIDEP”) as the reporting mechanism for reports of suspected or confirmed counterfeit partsStresses that anti-counterfeiting requirements imposed on prime contractors must “flow down to appropriate lower-tier subcontractors”


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New Contractor Requirements

DoD is charged with issuing new regulations that would require “covered contractors” to:– Be responsible for detecting/avoiding counterfeit

electronic parts in their products and for any rework/corrective action required because of counterfeits

– Bear cost of any rework/corrective action for counterfeits

Statute defines as “unallowable” the cost of counterfeit or suspect counterfeit parts and cost of rework or corrective action to remedy use or inclusion of counterfeits

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“Covered Contractors”

Defined as contractors subject to Cost Accounting Standards (“CAS”) coverageWould reach all the major defense contractors, who will seek to flow down counterfeit detection & avoidance responsibilities to their supply chain, which would impact non-CAS-covered suppliers at lower tiersDoD may also elect to extend reach of anti-counterfeiting requirements to non-CAS-covered prime contractors


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New Contractor Requirements (con't)

Report any discovery of suspect counterfeit parts through GIDEPObtain electronic parts that are still in production only from either the OEM/OCM or its authorized dealersWhenever possible, obtain out-of-production parts only from “trusted suppliers”Notify DoD if purchase of electronic parts was made from other than “trusted supplier” and comply with inspection, testing, authentication requirements for such parts imposed by DoD

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“Trusted Suppliers”

DoD is to establish qualification requirements to allow DoD to identify a source as a “trusted supplier”– Qualification requirements to be consistent with

10 USC 2319– Will requirements be similar to FAR 9.2

procedures for getting on Qualified Bidders List/Qualified Manufacturers List?


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“Trusted Suppliers” (con't)

Contractors allowed to qualify their own “trusted suppliers” using “established industry standards” BUT:– Contractor qualification of “trusted suppliers” is

subject to DoD review/audit– Contractor/subcontractor “assumes responsibility

for the authenticity of parts provided by such suppliers”

Issue: what are the “established industry standards” for qualifying “trusted suppliers”?

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Timing of DoD Regulations

Supposed to have been issued by September 26, 2012 (270 days after enactment of 2012 NDAA)DFARS case was opened on 8/31/2012, initial report due 10/3/2012Will it be an “interim rule” (effective immediately), or a “proposed rule” (allowing DoD to receive and act on feedback from industry prior to rule going into effect)?


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DLA and DNA?

Defense Logistics Agency (DLA) issued a Special Notice on 8/3/2012 that would require botanical DNA markings for items in Federal Supply Class (FSC) 5962, “Electronic Microcircuits,” that have been determined to be “at high risk for counterfeiting”Would require contractors to obtain DNA marking material from Applied DNA SciencesCostly requirement, unproven technologyWhat about out-of-production parts? Will requirement drive commercial semiconductor manufacturers out of DoD market?

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Key Issues for Contractors/Suppliers

How much is the government willing to pay to “eliminate” the risk of counterfeits?“Safe Harbor” vs. Strict Liability for Contractors for Counterfeits– DoD internal guidance to DoD procurement officials is to

implement “risk-based” approach to mitigating counterfeits

– Strict contractor liability for rework is “zero tolerance,” not “risk-based”

What if counterfeit was GFP or purchased from DoD-qualified “trusted supplier”?Are there some high-risk, obsolete parts that no one will be willing to supply, at risk of open-ended counterfeit rework liability?


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Key Issues for Contractors/Suppliers

What level of testing/inspection will be good enough, particularly given sophistication and adaptability of many counterfeiters?Flow Downs and Indemnity Ramifications in Supply AgreementsHow will “trusted suppliers” be defined & qualified?Small Business ImpactHow will DoD determine if failure was due to counterfeit vs. defective (but authentic) part?

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Planning Ahead for Counterfeit Rules

Know where your vulnerabilities are– Obsolete or rare parts– High value parts– Safety-critical parts or parts critical to functionality– Purchases from “independent distributors”

Know who you do business with– Lesson from GAO report: be wary of vendors you

know only over the Internet– Inspect/audit supplier quality systems


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Supply chain traceability– Certificates of Conformance and Traceability– Show “chain of custody” of parts traceable back to

OCM/OEM or authorized dealer

Adapt purchase order/supplier terms and conditions as required to deal with counterfeit-specific issues, such as impoundment of suspect counterfeitsLook for opportunities to remove obsolete parts from designAssess ability to vet/inspect existing inventory for counterfeits

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Register for and monitor GIDEP (and other industry sources) for reports of counterfeits – ERAI High Risk Parts Database

http://www.erai.com/Index.aspx

Consult available industry standards– SAE AS5553, “Counterfeit Electronic Parts;

Avoidance, Detection, Mitigation, and Disposition”– SAE AS6081, “Counterfeit Electronic Parts;

Avoidance Protocol, Distributors” (under development)


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Conflict Minerals

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Conflict Minerals Background

Conflict minerals rules issued by Securities and Exchange Commission (“SEC”)Final rules adopted on 8/22/2012 in 3-2 voteRules implement a statutory provision in Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010SEC estimates initial costs to industry of compliance at $2-4 billion; some industry sources estimate costs more on the order of $16 billion


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Conflict Minerals Basics

What are “conflict minerals”?What is the “conflict region”?If these are SEC rules, and my company doesn’t have to file SEC reports, why should I care about these rules?Getting to know your smelterNo de minimis exceptions based on content or size of company

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Conflict Minerals: 3TG

Tin– Used in alloys, tin plating, and solders for joining pipes and

electronic circuits Tungsten– Used for metal wires, electrodes, and contacts in lighting,

electronic, electrical, heating and welding applicationsTantalum– Used in electronic components, including mobile phones

and computers, and as alloy for carbide tools and jet engine components

Gold– Used for jewelry and in electronic, communications, and

aerospace equipment


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The Conflict Region

Democratic Republic of Congo (“DRC”)“Covered Countries” = the DRC and any country adjoining the DRC– Angola, Burundi, Central African Republic, Republic of the

Congo, Rwanda, South Sudan, Tanzania, Uganda, and Zambia

Rules arise from human rights violations committed by armed groups in DRC region & their use of these “conflict minerals” to fund their activitiesRules aren’t aimed at preventing all sourcing of minerals from “Covered Countries”; only at making sure that any conflict minerals sourced from conflict region did not finance or benefit armed groups

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Why the Rules Impact Non-SEC Filers

SEC’s conflict minerals rules apply directly to publicly traded companies required to file reports with SECSo if your company doesn’t have to file SEC reports, it doesn’t have to worry about the rules, right? WRONGDoes a company that files SEC reports buy one of your products, even multiple tiers up the supply chain? If so, you are going to be asked about conflict minerals in your products and where they come from


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Do the Rules Apply?

Does your product contain any conflict minerals that are “necessary to the functionality or production” of the product?– Is conflict mineral intentionally added to the

product or any component of the product?– Is conflict mineral necessary to the product’s

generally expected function, use, or purpose– Is conflict mineral intentionally included in

production process and is found in the product in some amount after production?

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Disclosure, Not Content, Requirement

“Name and Shame”– Disclosure regime, NOT a content requirement– No prohibition on using minerals that funded conflict in

DRC region, but must disclose– However, because companies will be under pressure to

certify as “DRC Conflict Free,” companies will likely require their suppliers to source minerals in a way that allows “Conflict Free” certification

Requirement to inquire into origins of conflict minerals begins in January 2013Exception for minerals “outside the supply chain”(refined, smelted, or located outside Covered Countries) prior to 1/31/2013


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Reasonable Country of Origin Inquiry

If product contains a conflict mineral necessary to its functionality/production, must then conduct a “reasonable country-of-origin inquiry” on source of conflict mineralsFor most non-mining companies, that will mean tracing conflict mineral back to the smelter (for tin, tungsten, tantalum) or refiner (for gold)Smelter/refiner is key point in supply chain traceability for conflict minerals

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Getting to Know Your Smelter

“Conflict-free Smelter” programs– Electronic Industry Citizenship Coalition (EICC) &

Global e-Sustainability Initiative (GeSI)– http://www.conflictfreesmelter.org– Voluntary program in which independent third-

party evaluates smelter and refiner procurement activities and determines whether smelter can verify its minerals come from conflict-free sources

– Lists of Conflict-Free Tantalum and Tin Smelters and Gold Refiners (Tungsten list in development)


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Conflict Minerals Compliance Tips

Engage with your supply chain to determine which of your products contain conflict mineralsRequire suppliers to trace conflict mineral origins back to smeltersMake use of “conflict-free” smelters/refiners when possibleAdopt a company policy of “conflict free,”responsible sourcing and communicate it to suppliers

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The Buy American Act


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The Buy American Act (BAA)

Enacted in 1933, BAA creates domestic content preference in US Government (USG) acquisition. Statute: USG agencies must acquire domestic end products and construction materials for use in US.Application: Price disadvantage imposed on foreign goods at evaluation stage.BAA focus − place of production/manufacture, notnationality of supplier.

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The Buy American Act

Applies to “construction material” and “supplies”Supplies are end items sold to the federal government (each CLIN generally considered an item of supply)Price evaluation preference for domestic goods– Domestic end product evaluated at offered price– Low offer of foreign end product evaluated with 6% add-on

to offer 12% add-on for small business/labor surplus area procurement50% add-on for DoD procurement


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Two-Part Test for BAA

Two-part test to determine if end product is domestic– Place of Manufacture Test: end product physically

manufactured in U.S.– Cost of Components Test: cost of domestic

components equals/exceeds 50% of total cost in end product

End product must generally meet both tests to be considered “domestic” for BAA purposes – Exception: COTS items not subject to C/o/C test

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BAA -- Supplies

Place of Manufacture Test– Requires “completion in the form required by the

government”– Assembly operations can be enough, so long as

they are not “minimal”– Does not require “substantial transformation” in

U.S.BAA standard for “manufacture” is less rigorous than the “substantial transformation” standard used by Customs in country-of-origin decisions


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BAA -- Supplies

Cost of Components Test– Cost of Components Test is waived for COTS

(commercially available off the shelf) items COTS items only need to be manufactured in U.S., component sourcing irrelevant

– For non-COTS items, cost of domestic components must equal or exceed 50% total component cost in end product

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COTS Definition

To qualify as a COTS item, product must be:– A commercial item (as defined by FAR 2.101)– Sold in substantial quantities in the commercial

marketplace– Offered to the Government without modification,

in the same form in which it is sold in the commercial marketplace

Military-unique or MILSPEC items ≠ COTS


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COTS Definition (con't)

“Substantial quantities” not defined, no black-letter guidelines. Can vary case-by-case depending on item (lower amount of sales needed for high-price item, etc.)– Relevant considerations:

Number of units sold for commercial useComparison of number of units sold for commercial use to those sold for government use

– “Substantial Quantities” can be less than 50% commercial sales; intent is just to make sure item at issue is, in fact, being sold in commercial marketplace by the vendor

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BAA – Cost of Components Test

“Component” = articles/materials/supplies incorporated directly into end product (first-tier only)– To be “domestic” component, the component must have

been manufactured/substantially remanufactured in the U.S. (i.e., meets the “place of manufacture test”)

– No review of origin of subcomponents– No “cost of subcomponents” test– Components are either entirely foreign or entirely domestic

based solely on place of manufacture


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BAA – Calculating Cost of Components

Two Types of Components: Purchased v. Manufactured (i.e., Made)The cost of a purchased component = the acquisition cost, including:– Transportation to point of incorporation into the end

product, and– Customs duties (if applicable)

The cost of a manufactured component = all manufacturing costs, including:– Transportation, and– Allocable overhead, but not profit

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BAA ExceptionsUnreasonable cost – Lowest-priced domestic offer still exceeds foreign offer

with BAA price add-on (6%/12%/50%)– Not applied between two foreign offers– Tie goes to domestic firm

Inconsistent with public interest– Used to waive BAA for various trade agreements, DoD

bilateral defense agreement MOUsDomestic non-availability– Exception applies when domestic products are not

available in sufficient commercial quantities of satisfactory quality

Materials are to be used outside U.S.


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BAA Exceptions (con't)

Domestic Non-availability Exception– Can be individual procurement-specific

determinationsRequires Head of Contracting Activity determination (i.e., above Contracting Officer level)

– Class non-availability determinations apply to all procurements

List of class determination materials in FAR 25.104Market research still required by CO to verify non-availability; if market research shows that item is now available domestically, presumption of non-availability from class determination does not apply

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BAA Compliance

BAA compliance is measured at the prime contractor levelPrime contractors submit BAA certifications with their offers– Offerors are supposed to indicate which foreign products

are being used in their offer as part of certification– Compliance issues typically arise when offerors submit

certifications that identify no foreign products in offer, thereby certifying entire offer will be “domestic” per BAA


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BAA Compliance (con't)

Potential consequences of false/inaccurate certifications of BAA compliance:– Suspension and/or debarment from federal

government contracting/subcontracting– Default termination or price reduction on affected

contract– Criminal referral possible for serious cases– False Claims Act exposure, as express

certifications are made (can involve treble damages)

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BAA Contract Clauses/Citations

FAR Part 25FAR Clauses 52.225-1 through 52.225-4; 52.225-7; 52.225-9 through 52.225-12DFARS Subparts 225.1 and 225.2DFARS Clauses 252.225-7001, 252.225-7002, 252.225-7035, 252.225-7036


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DoD Specialty MetalsSource Restrictions

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Specialty Metals Sourcing

A DoD-specific rule requires use of domestic “specialty metals” (with some exceptions) in products delivered to DoDSpecialty metals rule often requires flow-down to subcontractors/suppliers at all tiersRule itself is very strict and often requires tracing specialty metals to its melt source, but there are several exceptions that can aid in compliance and reduce burden of the rule


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Specialty Metals vs. BAA

Differences between Specialty Metals rule and BAA requirements:– Specialty Metals rules apply only to DoD

acquisitions; BAA rules apply to both defense and civilian agency USG acquisitions

– Specialty Metals rules often require flow down through supply chain, whereas BAA requirements do not flow down

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What is a “specialty metal”?

“Specialty metal” defined at DFARS 252.225-7009(a)(12):– Metal alloys consisting of nickel, iron-nickel, and cobalt

base alloys containing a total of other alloying metals (except iron) in excess of 10%; or

– Titanium and titanium alloys; or– Zirconium and zirconium base alloys; or– Steel:

With a maximum alloy content exceeding one or more of the following limits: manganese, 1.65 percent; silicon, 0.60 percent; or copper, 0.60 percent; orContaining more than 0.25 percent of any of the following elements: aluminum, chromium, cobalt, molybdenum, nickel, niobium (columbium), titanium, tungsten, or vanadium.


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What is a “specialty metal”?

Specialty steels– Most stainless steels fall within the “steel” portion

of the specialty metals definition and therefore must comply with the specialty metals rules.

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Specialty Metals: The Basic Rule

“Any specialty metals incorporated into items delivered under this contract shall be melted or produced in the United States, its outlying areas, or a qualifying country” (DFARS 252.225-7009(b))Rule also requires flow-down of specialty metals clause to subcontractors/suppliers “to the extent necessary to ensure compliance of the end products that the Contractor will deliver to the Government”


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Exceptions

Several exceptions to the Basic Rule:– Qualifying country products– COTS items– Electronic components– Fasteners– Domestic Non-Availability Determinations– Contingency Operations– “De Minimis” exception

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The Qualifying Country Exception

“Qualifying countries” are countries with an MOU with DoD (mostly NATO allies)– List of qualifying countries at DFARS 225.872-1

United States is not a qualifying countryTwo prongs to exception:– Specialty metals melted in a qualifying country are

excepted, and– Products (end products or components) manufactured in a

qualifying country are excepted (no matter where the specialty metals contained therein were melted)

Consequently, when metals are incorporated into an article manufactured in a qualifying country, where the metals were originally melted does not matter


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The Qualifying Countries

United KingdomNetherlandsFinland

TurkeyLuxembourgEgypt

SwitzerlandItalyDenmark

SwedenIsraelCanada

SpainGreeceBelgium

PortugalGermanyAustria

NorwayFranceAustralia

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COTS Exception

“Offered Without Modification”– For purposes of specialty metals COTS exception,

means item is not modified prior to contractual acceptance by the next higher tier in the supply chain

Special rules for COTS fasteners incorporated into non-COTS items


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Electronic Components Exception

“Electronic Components” are excepted from specialty metals restriction– Defined as “an item that operates by controlling the flow

of electrons or other electrically charged particles in circuits, using interconnections of electrical devices such as resistors, inductors, capacitors, diodes, switches, transistors, or integrated circuits”

– “Electronic Components” definition does not include structural or mechanical parts of an assembly containing an electronic component, and does not include any high performance magnets that may be used in the electronic component

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Fasteners Exception

Non-COTS fasteners (and COTS fasteners incorporated into non-COTS items) are excepted from specialty metals restriction if:– they are commercial items AND– manufacturer of the fasteners certifies it will purchase,

during the relevant calendar year, an amount of domestically melted or produced specialty metal, in the required form, for use in the production of fasteners for sale to the Department of Defense and other customers, that is not less than 50 percent of the total amount of the specialty metal that it will purchase to carry out the production of such fasteners for all customers.

Requires attention to fastener supplier certification status


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COTS Fasteners

Note that COTS fasteners are generally NOT covered by the COTS exception, UNLESS the fasteners are incorporated into COTS end items, subsystems, assemblies, or components In other words, despite being “COTS items”themselves, COTS fasteners that are incorporated into non-COTS items ARE subject to the specialty metals restrictions UNLESS they meet the criteria for the Fastener Exception

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“De Minimis” Exception

DoD may accept delivery of an item containing otherwise non-compliant specialty metals if the total weight of the non-compliant metals in the item does not exceed 2% of the total weight of all specialty metals in the item2% de minimis weight calculation based on the contractor’s good faith estimate


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“De Minimis” Exception

Exception of last resort– Not needed if any other exception would apply to the “non-

compliant” metals (qualifying country, DNAD, electronic component, COTS, etc.)

– Measured at end item level, and contractor to determine implementation to subs

Thus, if operating as subcontractor, you cannot count on ability to use “de minimis” exception as basis for compliance

– Application of exception is discretionary (DoD “may”accept, not “shall” accept)

– Does not apply to high performance magnets

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Specialty Metals Compliance Checklist

Determine which of your products contain “specialty metals”Try to find domestically sourced suppliers if possible– This is still the simplest way to know you are compliant

Apply exceptions to the domestic source requirement, working from the broadest to the most narrowObtain information on melt/production source of specialty metals if no exception appliesFlow down requirement as needed to ensure compliance (i.e., if no exception applies that would prevent need for flow down, such as COTS, qualifying country, electronic component)Certifications of compliance are generally not requiredConsult counsel early if you have questions regarding how the restrictions apply to a specific case

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Top Ten REA/Claim Considerations

David T. Ralston, Jr.

October 2012


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1. Submit notices of intent to submit REAs and claims as early as possible

Every Changes clause requires– Written notice of claimed right to adjustment to CO

– Submitted within 30 days of receipt of change order

Constructive changes require notice within 20 days of asserted change

But, relief possible– CO retains right to receive and act upon a proposal submitted

before final payment of the contract

– When government “aware of the operative facts” that underlying REA, recovery not barred for lack of written notice

– If notice untimely, government must show prejudiced by lack of timely written notice

Best practice: Give timely notice -- avoid the issue!

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2. Spend time/effort preparing good REAs

REA is a request to negotiate– No specified format in FAR– But good analysis and supporting documents absolutely

requiredCosts to prepare REA recoverable– Reasonable legal/consultant fees includable in REA– Recoverable even if REA denied– Must be supported, and treated consistently

Direct versus indirect costs– Costs to prepare/prosecute a claim are not allowable– Enlist the help of professionals at REA stage – don’t wait

until an impasse with Government– Good REAS = Improved likelihood of recovery


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3. Convert REA to a claim if an impasse results

An REA is NOT a CDA claim– REA seeks negotiations; claim requests CO decision

under Disputes Clause– Costs for REA allowable; not for a claim– No interest on REA; interest starts with claim filing

Don’t frame REA as claimBut - well-prepared REA easily converts to a CDA claimCDA claim must be– Certified– Resubmitted to CO– Seeks a sum certain– Asks for final decision by CO

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4. Do not be afraid to assert valid REAs

Contractors fear submitting REAs as bad for customer relationsTruth is the opposite– FAR encourages REAs

Wants negotiated resolutionsBased on proposal prepared at early pointThat’s why REA legal/consultant costs recoverable

– COs understand the process and EXPECT good contractor management of changes and adjustments


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5. Certification required with claimsgreater than $100,000

Use exact certification language in FAR– Made in good faith– Supporting data accurate and complete– Amount sought accurately reflects adjustment

for which Government liable– Signed by person authorized to bind contractor

DoD REAs require certification– 10 USC 2410(a); DFARS 252.243.7002– New certification must be used for DoD claims

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6. Timely submit claim to Contracting Officer

Must submit to CO– ACO or other government officials not sufficient

Must be submitted prior to final paymentMust be submitted within 6 years of accrual– Applies to government claims too

Defenses that can be characterized as a claim must be filed as a claimNew grounds of recovery may require additional claim submissions


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7. If CO issues final decision denying claim in whole or part, submit a timely appeal

Boards contract appeals– 90 days of receipt of final CO decision– Appeal initiated with notice– Complaint filed within 30 days of notice– Counsel not required – but really recommended

COFC– One year of receipt of final CO decision– Must file complaint– Counsel required for corporations

Can appeal a deemed denial

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8. Monetary claim must state a sum certain; non-monetary claims are cognizable

Sum certain is a required element of monetary claim– FAR 2.101– Purpose is to determine whether certification required– Means a finite amount; no qualifications/conditions– Terms not a sum certain

Not less thanExceeding

– No sum certain = no jurisdiction

Claims for non-monetary relief are permitted– Contract interpretation


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9. Manage Subcontractor REAs/Claims

Flow down comparable claims filing requirements and notice periods to subcontractorsIncorporate subcontractor REAs in prime REAsBut -- subcontracts are NOT subject to CDA– No CDA jurisdiction, or BCA/COFC appeals– Can’t incorporate CDA into subcontract– Prime-subcontractor disputes are state law matters– Prime can sponsor subcontractor claims to CO

Must be certified by primeUse sponsorship agreements

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10. Determine which forum is better for an appeal

CDA appeals of CO final decision filed at– BCAs– COFC– Election doctrine applies

Decision where to file should be based on– Which forum has more favorable law– Are there any possible claims of contractor fraud– Cost/speed of decision– Agency counsel v. DOJ counsel

Decision should NOT be based on missing BCA 90 filing deadline

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Key Government Contract-RelatedWeb Sites to Bookmark

Erin L. ToomeyOctober 2012


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www.sam.gov

System for Award Management (SAM)– Free web site – Consolidates the capabilities you used to find in:

Central Contractor Registration (CCR)Online Representations and Certifications Application (ORCA)Excluded Parties List System (EPLS)

– Future phases of SAM will add the capabilities of other systems used in Federal procurement and awards processes

– No need to register in SAM to perform free, public searches

– Must register in SAM to modify/update your CCR and ORCA registrations

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www.sam.gov


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www.sam.gov

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www.sam.gov


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www.acquisition.gov

Acquisition Central– Current and archived copies of:

Federal Acquisition Regulation (FAR)General Services Acquisition Manual (GSAM)Code of Federal Regulations (CFR)Federal Register

– Federal Agency Procurement Forecasts

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www.acquisition.gov


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www.gpo.gov/fdsys/search/home.action

U.S. Government Printing Office – Federal Digital System– New website for Code of Federal Regulations

(CFR), Federal Register, and United States Code (USC)

– Congressional bills, documents, hearings, records, and reports

– U.S. Government Budget– Contains both browse and search functionality

within each government publication

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http://fapiis.ppirs.gov

Federal Awardee Performance and Integrity Information System – Consolidates all data that contracting officers use when making their

responsibility determinations, including:Past performance reviews (includes information from PPIRS and CPARS)Suspensions and Debarments (includes information from EPLS)Non-responsibility determinationsCivil, criminal and administrative proceedings relating to a contractor’s performance of federal, state, and local contracts, grants, and cooperative agreements

– Originally created to help the government evaluate the “responsibility”of contractors

– Information posted in FAPIIS on or after April 15, 2011 is available to the public, with the exception of past performance reviews

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www.usaspending.gov

Ability to search awarded contracts, grants, loans, and other types of spending across many agenciesIncludes subcontract and subgrant information since the end of 2010 – still a work in progressCan perform advance searches by search term, spending type, recipient, place of performance, recipient location, agency, etc.

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www.usaspending.gov


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www.usaspending.gov

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www.fbo.gov

Federal Business Opportunities– Web-based system for posting solicitations and other

procurement-related documents to the Internet (e.g., solicitations, amendments, and award notifications)

– Designated by the FAR as the mandatory government wide point of entry for posting government business opportunities greater than $25,000

– Advanced search capability by agency, NAICS code, place of performance, etc.


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www.fbo.gov

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http://business.usa.gov

On October 28, 2011, President Obama directed the creation of BusinessUSA, a centralized, one-stop platform to make it easier for businesses to access services to help them grow and hireProduct of the collective input from many different agenciesResource for locating government agencies and government points of contact


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http://business.usa.gov

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www.sba.gov

Small Business Administration– Certification of 8(a) and HUBZone small business

concerns– Information on small business loans and grants– Contains size standard charts based on NAICS

codes– Locate SBA offices and Procurement & Technical

Assistance Centers near you


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www.sba.gov

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www.gao.gov

U.S. Government Accountability Office– Browse reports and testimonies– Locate information about bid protests, including

rules, dockets and decisions– Access the Principles of Federal Appropriations

Law (Red Book)


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www.gao.gov

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www.foley.com

Foley & Lardner LLP– Over 850 attorneys in 21 different offices in the U.S. and

in Brussels, Shanghai, and Tokyo– Search for attorneys by office, practice area, and/or

industry team– Extensive bios for every attorney, including speaking

engagements, publications, and past experience– Foley’s Government Procurement attorneys — nationally

recognized by Chambers USA (2012) in the area of government contracts


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www.foley.com


GLOSSARY OF ACRONYMS

ACO Administrative Contracting Officer

ADR Alternative Dispute Resolution

AO Area Office

APA Administrative Procedures Act

ASBCA Armed Services Board of Contract Appeals

BAA Buy American Act

BCA Budget Control Act

CAS Cost Accounting Standards

CCR Central Contractor Registration

CDA Contract Disputes Act

CFR Code of Federal Regulations

CLIN Contract Line Item Number

CO Contracting Officer

C/o/C Cost of Components

COFC Court of Federal Claims

COTS Commercial Off The Shelf

CPARS Contractor Performance Assessment Reporting System

DCAA Defense Contract Audit Agency

DFARS Department of Defense Federal Acquisition Regulation Supplement

DLA Defense Logistics Agency

DNAD Domestic Non-Availability Determinations

DoD Department of Defense

DoJ Department of Justice

DRC Democratic Republic of Congo

E-Verify Employment Eligibility Verification


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EICC Electronic Industry Citizenship Coalition

EPLS Excluded Parties List System

FAPIIS Federal Awardee Performance and Integrity Information System

FAR Federal Acquisition Regulation

FCA False Claims Act

FFP Firm Fixed Price

FSS Federal Supply Schedule

FY Fiscal Year

GAO Government Accountability Office

GeSI Global e-Sustainability Initiative

GFP Government Furnished Property

GIDEP Government-Industry Data Exchange Program

GSA General Services Administration

GSAM General Services Acquisition Manual

GWAC Governmentwide Acquisition Contracts

HUBZone Historically Underutilized Business Zone

IDIQ Indefinite Delivery Indefinite Quantity

IFB Invitation For Bid

IG Inspector General

JV Joint Venture

LPTA Low Price Technically Acceptable

MAS Multiple Award Schedule

MILSPEC Military Specification

MOU Memorandum of Understanding

NAICS North American Industry Classification System

NATO North Atlantic Treaty Organization

NDAA National Defense Authorization Act


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NMF Non-Manufacturer

OCM Original Component Manufacturer

OEM Original Equipment Manufacturer

OHA Office of Hearings and Appeals

OIG Office of Inspector General

OMB Office of Management and Budget

ORCA Online Representations and Certification Application

PPIRS Past Performance Information Retrieval System

R&D Research & Development

REA Request for Equitable Adjustment

RFP Request for Proposal

RFQ Request for Quotation

SAM System for Award Management

SAT Simplified Acquisition Threshold

SB Small Business

SBA Small Business Act

SBC Small Business Concern

SBIR Small Business Innovative Research

SBJA Small Business Jobs Act

SDVOSB Service Disabled Veteran Owned Small Business

SEC Securities and Exchange Commission

TINA Truth in Negotiations Act

USC United States Code

USG U.S. Government

UUL Underground Utility Location

VC Venture Capital

WARN Worker Adjustment and Retraining Notification

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PARTNER [email protected] 313.234.7147 ONE DETROIT CENTER 500 WOODWARD AVENUE SUITE 2700 DETROIT, MI 48226-3489

George W. Ash is a partner and member of the Automotive Industry Team as well as the Privacy, Security & Information Management Practice. He is the chair of the firm’s Government Procurement Practice, which was recognized by Chambers USA (2011) as one of the top practices in the nation. Mr. Ash is former chair of the Government & Public Policy Practice and previously served as chair of the firm’s former Regulated Industries Department.

Mr. Ash’s practice focuses on government procurement law. He counsels clients on the preproposal, proposal, negotiation and performance of the U.S. government prime contracts and subcontracts, and on resolving contract disputes. He also has an extensive background in other types of procurements such as grants, cooperative agreements, CRADAs and other transactions, and assists companies with state and municipal contract issues.

Mr. Ash has successfully litigated bid protests; negotiated contracts and subcontracts; submitted, negotiated and litigated claims; advised clients concerning audits and compliance issues and the preservation of intellectual property rights; and appeared before various Federal Boards of Contract Appeals and Courts.

In recognition of the work of Mr. Ash and key attorneys in Foley's Detroit office, U.S. News Media Group and Best Lawyers recently ranked this office as a Tier 1 provider of government relations counsel in its 2010 "Best Law Firms" Rankings Report. Mr. Ash leads this area of practice for the firm.

Mr. Ash was named one of the 2011 Leaders in the Law by Michigan Lawyers Weekly, a recognition bestowed upon only 25 attorneys in the state. In addition, he has been recognized as a leader in the field of government relations numerous times over, most recently by DBusiness magazine which listed him in its 2011 list of Top Lawyers in the area of government relations law. Mr. Ash also has been Peer

George W. Ash

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George W. Ash

Review Rated as AV® Preeminent™, the highest performance rating in Martindale-Hubbell's peer review rating system. He was selected by his peers for inclusion in the 2008–2013 editions of The Best Lawyers in America® in the area of government relations law and was ranked as one of the top government attorneys in the nation in 2007 by Chambers USA. In 2006, Mr. Ash was named in the list of Michigan Super Lawyers.

A retired United States Air Force (USAF) Lieutenant Colonel, Mr. Ash spent his 20 years of active duty as a judge advocate, an associate professor of law at the USAF Academy, serving as assistant general counsel for the SDI (Star Wars) Program and was responsible for international and arms control issues. He also served as an advisor to the strategic arms reductions talks in Geneva with the former USSR.

Mr. Ash authored "Practical Negotiation of Government Contracts," Federal Publications (1996).

Mr. Ash obtained his B.S. from the United States Air Force Academy (1972) where he was named "The Cadet Who Best Exemplifies the Highest Ideals of Loyalty, Integrity and Courage." He earned his J.D. from the University of Denver (1975), where he was elected to the Order of St. Ives. He received an LL.M. in international law from the University of London (1985), and a diploma in Air and Space law from the London Institute of World Affairs (1985).

His professional associations include memberships in the USAF Academy Association of Graduates, American Bar Association (Public Contract Law Section, current Michigan chair), Detroit Metropolitan Bar Association, Michigan and Iowa Bar Associations, and the Retired Air Force Judge Advocate Association.

He is admitted to practice in Michigan and Iowa.

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SENIOR COUNSEL [email protected] 202.295.4163 3000 K STREET, N.W. SUITE 600 WASHINGTON, D.C. 20007-5109

Frank Murray, Jr. is senior counsel with Foley & Lardner LLP where he focuses his practice on issues related to government procurement. Mr. Murray advises government contractors and commercial clients seeking to do business with the federal government on wide-ranging procurement law issues, including both pre-award and post-award bid protests, Buy American and related domestic preference and sourcing issues, supply chain management, data rights and intellectual property issues, false claims, defective pricing, organizational conflicts of interest ("OCIs"), contractor claims, contract administration issues, debarment/suspension, commercial item procurements, contractor codes of business ethics and conduct, small business subcontracting, small business set aside issues and protests of small business size status, and cost accounting matters. He has been particularly active in matters concerning U.S. domestic content laws, such as the Buy American Act, the Federal Transit Administration’s "Buy America" Regulations, the Berry Amendment, the Trade Agreements Act, and "Buy American" provisions in the American Recovery and Reinvestment Act of 2009.

Mr. Murray has drafted and negotiated government contracts and subcontracts for clients, including the negotiation of two sole-source multi-year contracts with the Department of Defense worth a combined total of approximately $50 million.

In his role as counselor to clients on government procurement issues, Mr. Murray has also conducted internal investigations for various clients to assess contract and statutory compliance issues and make recommendations regarding appropriate corrective action. These internal investigations have encompassed issues under the Truth In Negotiations Act ("TINA"), False Claims Act, and Trade Agreements Act/Buy American Act. He has also assisted clients by reviewing their contract administration practices and providing advice regarding process improvements and internal compliance systems. Mr. Murray has also developed training materials for clients on contract

Frank S. Murray Jr.

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Frank S. Murray Jr.

compliance issues, particularly with respect to supply chain management/domestic content requirements and contractor codes of business ethics and conduct, and has provided in-person or remote training to client personnel on government procurement issues.

Mr. Murray has represented clients in state and federal courts, before administrative agencies, and in alternative dispute resolution proceedings. He also has substantial experience in construction law, and has represented contractors, subcontractors, and sureties in all aspects of public and private construction projects. Mr. Murray is a member of the firm’s Government & Public Policy and Business Litigation & Dispute Resolution Practices as well as the Automotive Industry Team.

Prior to joining Foley, Mr. Murray served for over four years in the Judge Advocate General’s Department of the United States Air Force. In this role, he was lead prosecutor in several felony cases and administrative hearings. In addition to his prosecution work, he reviewed government contracts between the Air Force and private corporations and advised Air Force contracting officers on legal issues regarding such contracts. During his deployment in Kuwait for the Air Force in 2001, Mr. Murray served as sole legal advisor to a detachment of over 1,100 U.S. military members, which was then the Air Force’s most forward-deployed base located only 39 miles from Iraq.

Mr. Murray is a graduate of the University of Virginia School of Law (J.D., 1995), where he served on the editorial board for the Virginia Environmental Law Journal. He received his Bachelor of Arts degree in English from Yale University (magna cum laude, 1992).

Mr. Murray is admitted to practice in Virginia, the District of Columbia and Florida. He is also admitted to practice before the U.S. Court of Appeals for the First and Fourth Circuits, the U.S. Court of Federal Claims, and the U.S. District Courts for the Eastern District of Virginia, the District of Columbia, and the District of Maryland.

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PARTNER [email protected] 202.295.4097 3000 K STREET, N.W. SUITE 600 WASHINGTON, D.C. 20007-5109

David T. Ralston, Jr. is a partner in the Washington, D.C. office of Foley & Lardner LLP where his practice focuses on government contract litigation and counseling; rail and air transportation; national and homeland security. He chairs Foley’s Government & Public Policy Practice.

Mr. Ralston has handled virtually all aspects of government contracts, including bid and small business size protests, claims, defective pricing, intellectual property, qui tam litigation, and Cost Accounting Standards matters. He has successfully brought and defended dozens of bid protests, has defended government contractors against fraud and bribery charges, including coordinating corporate investigations, voluntary disclosures to the Justice and Defense Departments, and represented firms in debarment/suspension proceedings at numerous federal agencies. Mr. Ralston frequently lectures and writes on government contracts matters. He is the lead author of "The Foley & Lardner Guide to Federal Procurement Protests (second edition)," available in the Intelligence section on Foley.com and published as part of "Inside The Minds: The Impact of Recent Changes in Government Contracts," Aspatore Books, 2011.

In rail transportation, Mr. Ralston represents a leading Class I railroad, a major commuter rail carrier and shortline railroads on federal regulatory, legislative and compliance matters. In aviation, he has represented and advised a number of major U.S. airports on federal regulatory and grant assurance requirements, particularly in the security arena, and serves as vice-chair of the Federal Bar Association’s Transportation and Transportation Security Law Committee.

Mr. Ralston has been Peer Review Rated as AV® Preeminent™, the highest performance rating in Martindale-Hubbell's peer review rating system. In 2011 and 2012, he was named one of America’s Leading Lawyers in the area of government contacts by Chambers USA, and in 2010 Legal 500 cited him for

David T. Ralston Jr.

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David T. Ralston Jr.

his knowledge of government contracts issues and client availability.

In recent years, besides bid protests, Mr. Ralston has been particularly active in contracts claims resolution, and matters concerning US domestic content laws, such as the Buy American Act, the Berry Amendment, the Trade Agreements Act, and international trade areas. He has also been active in matters where government contracts and intellectual property issues intersect, having led multi-year litigation opposing Department of Defense efforts to compete with the private sector in publishing military standards and specifications over the Internet. In 2011, he presented to European procurement leaders at the EU Parliament in Brussels on US perspectives concerning innovation in government procurement during the ScienceIBusiness Policy Bridge conference Power of the Purse: Can Europe use procurement power to stimulate innovation?

Virginia Governors George Allen and James Gilmore appointed Mr. Ralston to the board of the Metropolitan Washington Airports Authority. He was elected as chairman of the board from 1997-2000, and has served as vice-chairman and chair of several committees. In 2010, Governor Robert McDonnell appointed him to the board of trustees of the Southern Growth Policies Board, a non-partisan public policy think tank focused on advancing effective economic development policies in 13 Southern states.

From 1980 to 1984, Mr. Ralston served on active duty with the U.S. Army as a prosecutor and appellate attorney, handling over 100 courts-martial, including more than 30 contested cases. From 1984 to 1994, he served as a military judge in the U.S. Army Reserves.

A law graduate of Georgetown University (J.D., 1979, cum laude), Mr. Ralston received his B.S.F.S. degree from Georgetown University – School of Foreign Service (1976). He is a graduate of the Army War College National Security Seminar (2007).

Mr. Ralston is admitted to the bars of the District of Columbia, Virginia and New York, and served from 2008-2011 on the Litigation Section Committee of the D.C. Bar. He is the chair of the Federal Circuit Bar Association's Government Contracts Committee and the Federal Bar Association's Transportation and Transportation Security Law Committee. He is admitted to practice before the U.S. Courts of Appeal for the Armed Forces, the Federal, Fourth, Sixth and District of Columbia Circuits. He is also admitted before the U.S. District Courts for the Eastern District of Virginia, the District of Columbia, the District of Maryland, and the U.S. Court of Federal Claims.

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SENIOR COUNSEL [email protected] 313.234.7138 ONE DETROIT CENTER 500 WOODWARD AVENUE SUITE 2700 DETROIT, MI 48226-3489

Erin L. Toomey is senior counsel with Foley & Lardner LLP, where she is a member of the Government & Public Policy Practice and the Automotive Industry Team.

Ms. Toomey's practice focuses on counseling clients in all areas of government procurement, including reviewing solicitations; drafting proposals; drafting contracts and subcontracts; assisting with the development of negotiation positions; protecting contractors' intellectual property rights; submitting, negotiating, and litigating claims; representing contractors during bid protests; and performing government contract due diligence for mergers and acquisitions.

Ms. Toomey’s practice also includes assessing contractors’ compliance programs, assisting contractors in developing and implementing compliance programs, counseling contractors during government investigations, performing internal investigations, advising contractors regarding avoiding suspension and debarment, and defending clients accused of healthcare related fraud.

In recognition of the work of Ms. Toomey and key attorneys in Foley's Detroit office, U.S. News Media Group and Best Lawyers recently ranked this office as a Tier 1 provider of government relations counsel in its 2010 "Best Law Firms" Rankings Report. She was named one of the 2011 Up and Coming Lawyers by Michigan Lawyers Weekly, a recognition bestowed upon only 20 attorneys in the state. She was also selected for inclusion in the 2012 Michigan Super Lawyers – Rising Stars® edition for her work in government contracts. In 2010, she won the Detroit Metropolitan Bar Association’s Barrister’s Pro Bono Award.

Ms. Toomey served an externship for the Honorable Wayne R. Andersen of the Northern District of Illinois and also is a certified mediator by the Center for Conflict Resolution.

Erin L. Toomey

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Erin L. Toomey

Ms. Toomey graduated cum laude from Northwestern University School of Law (J.D., 2004), where she was selected for the Order of the Coif and served as membership editor of the Northwestern University Law Review in 2003-2004. She was a member of the National Moot Court Team and was a semi-finalist in the Julius Minor Moot Court Competition, where she was honored with Best Brief. Ms. Toomey received her undergraduate degree from the University of Michigan, Ann Arbor with high distinction (B.A., 2000).

Ms. Toomey co-authored the article, "Selling Goods and Services to the Federal Government with Reduced Risk through Commercial Item Contracting," featured in the Spring 2011 issue of the Michigan Business Law Journal. Additionally, Ms. Toomey co-authored the article, "Lawyers Don’t Look Good in Stripes: Lawyers, The New Target of Federal Prosecution," featured in the December 2007 issue of the Michigan Bar Journal. Ms. Toomey has also co-authored various other publications and spoken at government procurement seminars.

Ms. Toomey is admitted to practice in the State of Michigan, the Sixth Circuit, the Eastern District of Michigan, the Western District of Michigan, the Northern District of Ohio, and the United States Court of Federal Claims.

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