Eckland and Blando LLP

This week, the Supreme Court handed down its highly-anticipated decision in the decades-old "A-12" case. See General Dynamics Corp. v. United States, 2011 WL 1936073 (May 23, 2011). In a unanimous decision written by Justice Scalia, the Court held that where a government contractor establishes a prima facie superior knowledge defense to a contract termination to which the Government asserts the state secrets doctrine, the remedy is to place the parties in the position they were in when the suit was filed.

The dispute arose from a $4.8 billion fixed-price contract for the research and development of the A-12 Avenger stealth aircraft awarded by the Navy in 1988 to General Dynamics Corp. and McDonnell Douglas (later purchased by Boeing). Due to difficulties in designing and manufacturing the stealth aircraft, the contractors fell behind schedule and far exceeded their original budget. The Navy terminated the contract for default in 1991 after the government had made progress payments of nearly $2.7 billion and the contractor had expended over $3.8 billion.

The contractors filed suit in the Court of Federal Claims, alleging that the Government withheld its "superior knowledge" of information that was vital to the completion of the contract. During the discovery process, the Government granted select members of the petitioner's litigation team access to closely-guarded information regarding the design and manufacture of two prior stealth aircraft. However, in response to the release of such information through depositions and court filings, the Acting Secretary of the Air Force asserted the state secrets privilege in order to bar discovery of certain military secrets.

The Court, in addressing whether the need to protect military secrets precluded discovery on the contractors' superior knowledge defense, held that where the determination of such a defense would "inevitably lead to the disclosure of state secrets," the traditional common law approach is to leave the parties in the position they were in immediately prior to the filing of the suit. The Court essentially found the claims of both the Government and the contractors nonjusticiable. However, it limited its decision to cases where a contractor can establish a prima facie superior knowledge defense and stated that courts should only find government contracts unenforceable under the state secrets doctrine as a last resort. Such a situation arises only where both sides have enough evidence to survive summary judgment but too many of the facts relevant to the determination of liability are obscured by state secrets. Based on this holding, the Court remanded the case back to the Federal Circuit for a rehearing, thus continuing one of the longest-running government contract disputes on the books. On remand, the Federal Circuit will determine whether the Government had an obligation to share its superior knowledge regarding stealth technology and whether the issue can be litigated without endangering state secrets.

Government contractors, and in particular military contractors, should be aware of the risks when entering contracts requiring access to classified and highly sensitive information. Where the protection of state secrets prevents the adjudication of otherwise valid government contract claims and defenses, the Court's ruling may prohibit judicial relief to either the contractor or the Government.

For advice or assistance in protecting your rights when contracting with the government, please contact Tim Connelly at (612) 236-0160 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it or anyThis e-mail address is being protected from spambots. You need JavaScript enabled to view it any of the government contracts attorneys at Eckland & Blando LLP.

This week the Government Accountability Office (GAO) issued two decisions dealing with a disappointed bidder's right to recover its costs - including attorneys' fees - when it prevails in a bid protest action.  Under the GAO's Bid Protest Regulations at 4 C.F.R. § 21.8(e), the GAO may recommend that an agency pay a prospective contractor the reasonable costs of filing and pursuing a protest where the agency decides to take corrective action in response to the protest.  The decisions issued this week affirmed the general rule that the GAO will recommend that the agency reimburse the protester for its costs only where the record shows that (1) the agency took some corrective action in response to the protest, and (2) the agency unduly delayed taking corrective action in the face of a clearly meritorious protest, thereby causing a protester to expend unnecessary time and resources in order to obtain relief.  It is important to note in applying this standard that "corrective action" may include a cancellation of or change to the solicitation in a pre-award bid protest or the cancellation of an award in a post-award protest.  In addition, the GAO considers a protest to be "clearly meritorious" when a reasonable agency inquiry into the protester's allegations would have shown that the agency lacked a defensible legal position, as explained more fully below.

In Symvionics, Inc.-Costs, B-403230.6 (May 16, 2011), the protester alleged that the Air Force had not properly evaluated Symvionics' past performance in awarding the contract.  After the government submitted the agency report and the protester filed its comments, a GAO attorney advised the Air Force in ADR proceedings that the protest would likely be sustained.  In evaluating the contractor's claim for cost reimbursement, the GAO found that the agency's final rating was inconsistent with the solicitation and that a reasonable inquiry would have demonstrated the absence of a defensible legal position. As such, and given the agency's unreasonable delay in correcting the action, the GAO recommended that the Air Force reimburse the costs and fees Symvionics incurred in pursuing the protest.

Similarly, in Greentree Transportation Company, Inc.-Costs , B-403556.4 (May 16, 2011), the protester alleged that a solicitation for transportation services was ambiguous because one section stated that award would be made on a "best value" basis and another provided that the lowest priced technically acceptable proposal would be selected. The Army issued an agency report, received comments from the protester, and was advised in an ADR proceeding that the GAO likely would sustain the protest.  In recommending the reimbursement of protest costs, the GAO agreed with Greentree's claim that the solicitation was ambiguous and found that corrective action was unduly delayed in that the Army should have recognized and addressed the ambiguity earlier.

The Federal procurement system's bid protest procedures play an important role in ensuring the fairness and efficiency of government contracting processes and award decisions.  Basic fairness requires that a contractor be reimbursed for its costs in pursuing a meritorious case.  These decisions show how a well-taken bid protest can result in both a re-solicitation of the government requirement and reimbursement for costs incurred by the protestor in pursuing the protest.  For further information regarding these decisions, or advice regarding a potential bid protest, please contact Mark Blando at (612) 236-0160 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

New Rules of the Armed Services Board of Contract Appeals (ASBCA) Expand the Availability of Simplified and Expedited Claims Resolution Procedures

Earlier this week, the Department of Defense (DOD) issued a final rule updating the Rules of the Armed Services Board of Contract Appeals (ASBCA). The final rule updates the ASBCA Rules to conform to changes in the Contract Disputes Act (CDA), the statute that permits government contractors to sue federal agencies for breach of contract. The final rule implements the increases in several important dollar thresholds for claims procedures under the CDA. The rule also updates statutory references to reflect the recent reorganization and renumbering of the CDA in the United States Code. Specific changes include the following:

• Statutory references to the CDA reflect the changes made in Public Law 111-350, 124 Stat. 3677 (2011), which recodified the CDA from 41 U.S.C. §§601-613 to 41 U.S.C. §§7101-7109.
• Rule 1 (b) and (c) reflect the increase in threshold for the certification requirement for presenting claims to the Contracting Officer from $50,000 to $100,000.
• Rule 12.1 (a) reflects the increase in the maximum amount for small claims appeal procedures before the ASBCA from $10,000 to $50,000 and implements the alternative maximum amount for small claims procedures of $150,000 for small businesses.
• Rule 12.1 (b) reflects the increase in the maximum amount for the applicability of accelerated procedures at the ASBCA from $50,000 to $100,000.

Interim DFARS Rule Aimed at Accelerating Payments to Small Businesses

Today, the Department of Defense, General Services Administration, and National Aeronautics and Space Administration, acting as the FAR Council, published a proposed rule to amend the Federal Acquisition Regulation ("FAR") Organizational Conflicts of Interest ("OCI") provisions. Today's proposed regulatory revisions differ from the proposed DFARS OCI revisions (2009-D015) and thereby provide the public with an opportunity to compare the two options and provide comments on which proposal is preferable. Comments are due by June 27, 2011.

The purpose of OCI regulations is to identify and address those situations in which a Government contractor may not be able to objectively performits duties or may have an unfair advantage as a result of unequal access to information or prior involvement in the particular acquisition. Despite the substantial changes to the acquisition process and participants in the past few decades, the FAR's OCI provisions have remained essentially unchanged since the FAR's initial publication in 1984. Today's proposed revisions include substantial changes to the existing OCI rules.  Among these important changes are the following:

• Relocating the OCI provisions to FAR Subpart 3.12. Concluding that OCI issues are more closely related to business practices issues than contractor qualifications, the Council proposes moving the OCI provisions from FAR Subpart 9.5 to new FAR Subpart 3.12, Organizational Conflicts of Interest.

• Extracting regulations governing the unequal access to nonpublic information from the OCI provisions. Concluding that the issue of unequal access to nonpublic information and any advantage arising out of that access is often unrelated to OCIs, the Council proposes extracting this issue from the OCI regulations and addressing it separately in FAR Subpart 4.4 which will be re-titled "Safeguarding Information Within Industry."

• Introducing new solicitation provisions and contract clauses. Determining that it would be beneficial to have standard language that could be tailored if appropriate, the Councils propose revising the requirements of FAR § 9.506 and FAR § 9.507 to include specific fill-in provisions for Contracting Officers to complete and appropriately tailor the clauses.

The proposed revisions to the OCI regulations will be applicable to profit and non-profit organizations.  However, these regulations will not be applied across the board to all contracts.  Instead, the proposed rule gives the Contracting Officer discretion to use the OCI clauses only in those solicitations where there is the potential for an OCI issue to arise.  Accordingly, while acquisitions of COTS items are not categorically excluded from the OCI regulations, the FAR Council does not foresee frequent application of the OCI regulations to contracts for COTS items.

For more information about the substantial changes proposed to the OCI regulations and how to submit comments regarding the FAR Council's proposal - or the DFARs proposed changes to the OCI regulations - please contact Tim Connelly at (612) 236-0160 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

OMB Publishes Last-Minute Guidance to Federal Agencies in Anticipation of a Government Shutdown

Yesterday, the Office of Management and Budget ("OMB") sent a memorandum to the heads of executive departments and agencies addressing various procedures, legal  issues, and policy matters to prepare for operations in the event of a lapse in government funding (i.e., a government shutdown). See Memorandum from J. Lew (April 7, 2011). At this hour, there is a real and imminent threat that Congress will not reach an agreement on continued funding when the current Continuing Resolution expires at Midnight tonight.  Following is a brief summary of some of the more important points in the OMB memorandum.

The Antideficiency Act prohibits government agencies from incurring an obligation in advance of, or in excess of appropriated funds.  As a general rule, agencies must cease all operations during a government shutdown.  A limited number of exceptions to the general rule apply where a statute expressly authorizes the appropriation.  For example, the Civil War-era Feed and Forage Act allows the DoD to contract for necessary "clothing, subsistence, forage, fuel, quarters, transportation or medical and hospital supplies" for the military.  A statutory exemption also allows the Army to contract for fuel.  Another exception allows an appropriation of funds in emergency circumstances--where there is a threat to the safety of human life or the protection of property.  Government activities that are "necessarily implied" to carry out other funded or excepted activities are also allowed to continue in the event of a lapse in funding.  For example, administrative activities to distribute social security benefits are allowed to continue because of the indefinite nature of the appropriation that provides funding for entitlement programs.

Government contractors should be aware of several important issues directly impacting their rights and obligations in the event of a lapse in funding.

First, an agency may not incur any new obligations (award new contracts, extend an existing contract, or renew an existing contract) where the funding source for the appropriation has lapsed.  However, an agency may incur new obligations under one of the above-mentioned exceptions or where the agency has already obligated funds for the entire amount of a contract.

Second, where a contract has been previously awarded and performance is ongoing, any Federal employees who supervise or support the performance of the contract will likely be prevented from continuing such actions.  This would include performance of routine oversight, inspection, and administration by contracting officers, technical representatives, and contract administration personnel.  If such supervision or support is not necessary for the contractor's continued performance (i.e., where funds have been obligated for the entire price of a good or service), the contractor may continue performance under the contract.  However, if the agency makes a determination that continued performance would be wasteful, the agency may take contractual action to modify the terms or conditions of the contract.  If this is the case, contractors should carefully review any proposed modifications and consult with legal counsel to ensure the contractor's rights are preserved and protected.

Lastly, where payment is due under a previously awarded contract, the lapse of government funding usually prohibits the agency from making such payments.  Even if interest penalties will be incurred by the government under the Prompt Payment Act or other law, invoices for work already performed will likely not be payed if submitted during the duration of the shutdown.

Also keep in mind that contractors who incur costs as a result of a government shutdown are not guaranteed to be reimbursed upon the enactment of an appropriation; therefore, contractors should carefully document all costs associated with bringing work to a halt and restarting operations.  Upon the passage of an appropriation and the resumption of government functions, contractors should promptly seek reimbursement of their costs through an appropriate change to the contract.

For advice or assistance on protecting your rights in the event of a government shutdown, please contact Tim Connelly at (612) 236-0165 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it or any of the experienced government contract attorneys at Eckland & Blando LLP.

The Court of Federal Claims Clarifies Standards

for Evaluating the Timeliness of Electronically Submitted Proposals

As the oft-quoted standard on submitting government contract bids and proposals goes, "Late is Late."  See 48 C.F.R. § 52.215-1(c)(3)(ii)(A); see also Geo-Seis Helicopters, Inc. v. United States, 2007 WL 2206855 (Fed. Cl. July 30, 2007).  The  U.S. Court of Federal Claims recently addressed the interesting question of how that standard applies in the context of electronically-submitted proposals.  In Watterson Construction Company v. United States, No. 10-587C (March 29, 2011), the Court entered judgment in favor of a contractor after determining that its proposal, submitted by email, was wrongly rejected as late.  As email is being used with increasing frequency as a method for submitting bids and proposals, this decision is highly relevant to all government contractors.

At issue in Watterson was whether the contractor timely submitted a proposal to design and construct barracks for the Army Corps of Engineers.  The Army Corps' Request for Proposals ("RFP") required that all proposals be received by March 16, 2010 at 12:00 p.m.  Watterson sent its proposal by email to the Contracting Officer's ("CO") e-mail address between 11:01 and 11:02 a.m. and it was received by one of the Corps' servers at 11:29 a.m.  The email proposal, however, did not arrive in the CO's email box until 12:04 p.m.  The CO determined that because he did not receive the proposal before 12:00 p.m., the proposal was late and was "ineligible for award."  Watterson filed a Complaint with the Court of Federal Claims alleging, among other things, that the rejection of its proposal violated FAR 52.215-1(c)(3), governing the submission, modification, revision, and withdrawal of proposals.

To resolve the issue, the Court asked the following questions:  (1) what government office was designated in the solicitation for receipt of proposals; (2) what time was the proposal due; and (3) did the specified government office receive the proposal by the designated time.  Based on a review of the RFP and its amendments, the Court determined that the designated government office was the CO's email address.  As to the second question, the parties agreed that the deadline was March 16, 12:00 p.m.  Analyzing the third question, the Court noted that, although FAR 52.215-1(c)(3) uses the verbs "reach" and "received" and these words have different meanings, Watterson's "proposal was both reached and received by the Government's email servers before the due date."  However, the Court went further and, quoting the FAR, held that even if the email proposal was late, that defect should have been excused because there was "acceptable evidence to establish that it was received at the Government installation designated for receipt of offers and was under the Government's control prior to the [deadline]."  See FAR 52.215-1(c)(3)(ii)(A)(2).  Indeed, the Court stated:

[I]n cases of non-batch delivered electronic commerce, late proposals may be excused under any of the three exceptions in FAR 52.215-1(c)(3)(ii)(A). It is particularly appropriate that the "Government Control" exception be available to offerors where there is "acceptable evidence" to establish that the offeror's e-mail proposal "was received at the Government installation designated for receipt of offers and was under the Government's control prior to the time set for receipt of offers," as was the case here.

In sum, the Court's decision indicates that the timeliness of an email proposal will be evaluated based upon when the proposal came under "government control."  Here, the email was received by the government's servers by 11:29 a.m., and thus was timely.  At the same time, it is important to note, as evidenced by the facts of Watterson, that the courts do not look at the time the email was sent and that there are delays in the transmission of email. Therefore, contractors should continue to take care in submitting documents electronically and avoid the literal "last minute" submission of email bids and proposals.

For more information on Watterson Construction Company v. United States, please contact Jeff Eckland at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or (612) 236-0160.

Key Interim FAR Rules Issued - Targeted at Wasteful Contracting Practices

The Department of Defense, the General Services Administration, and the National Aeronautics and Space Administration ("DoD", "GSA", and "NASA") jointly issued on March 16, 2011 several interim rules that amend the FAR to implement sections 864, 863 and 811 of the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009.  These sections are aligned with goals enunciated in the Presidential Memorandum issued March 4, 2009 directing the OMB to work with agencies towards reducing wasteful spending on government contracts:

• Proper Use and Management of Cost Reimbursement Contracts (FAR Case 2008-030; Section 864):  provides internal regulatory guidance on the proper use and management of all contracts, specifically cost-reimbursement contracts, by identifying:  (1) circumstances when cost-reimbursement contracts are appropriate; (2) acquisition plan findings required to support the contract type selection; and (3) the acquisition resources necessary to award and manage a cost-reimbursement contract.
• Requirements for Acquisitions Pursuant to Multiple-Award Contracts (FAR Case 2007-012; Section 863):  implements procedures intended to enhance competition for orders placed under multiple-award contracts.  The rule also mandates that if an order over the simplified acquisition threshold does not follow these competitive procedures, there must be a notice and determination of an exception published in FedBizOpps within 14 days following the award.
• Justification and Approval of Sole-Source 8(a) Contracts (FAR Case 2009-038; Section 811):  prohibits award of sole-source contract in an amount over $20 million under the 8(a) program without first obtaining written Justification and Approval (J&A) by an appropriate official and making public the J&A and related information.
• Socioeconomic Program Parity (FAR Case 2011-004):  amends the FAR to implement section 1347 of the Small Business Act, changing the word "shall" to "may" at section 31(b)(2)(B), thereby permitting a contracting officer to use discretion when determining whether an acquisition will be restricted to a small business participating in the 8(a) Business Development Program, the Historically Underutilized Business Zone Program, or the Service-Disabled Veteran-Owned Small Business Program.

In addition, the following interim rule - also aimed at reducing government spending - was adopted as a final rule and will go into effect on April 15, 2011:

• Additional Requirements for Market Research (FAR Case 2008-007):  DoD, GSA and NASA have adopted as final the interim rule, entitled "Market Research," amending the FAR to implement section 826 of the National Defense Authorization Act for Fiscal Year 2008.  This rule requires the head of an agency to take appropriate steps to ensure that any prime contractor of a contract (or task order or delivery order) in an amount in excess of $5 million for the procurement of items other than commercial items engages in market research as necessary before making purchases.

Comments regarding the proposed rules may be submitted through www.regulations.gov and search for "FAR Case 2008-030."  The deadline for submitting comments is May 16, 2011.  For further information regarding the proposed rules, please contact Mark Blando at (612) 236-0160 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it This e-mail address is being protected from spambots. You need JavaScript enabled to view it .