Friday Flash 09/16/22

Reversing the Slow, Painful Death of Commercial Item Contracting

With the enactment of the Federal Acquisition Streamlining Act (FASA) in 1994, there was hope that a new era of streamlined acquisition would allow the government to access rapidly the commercial technology and services needed to permit it to meet the challenges of a new century.  FASA requires that agency procurement officials, to the maximum extent practicable, acquire commercial products, services, and nondevelopmental items that are not commercial products, to meet the needs of the agency.  As such, FASA provided the government with a framework to capitalize on the research and innovation of the private sector by leveraging streamlined access to the competitive, commercial marketplace.  In implementing FASA, Congress required that commercial item contracts include, to the maximum extent practicable, clauses that were consistent with customary commercial practices or otherwise required to implement laws or executive orders.

Although FASA’s implementation started out with promise, 27-years on we have witnessed regulatory, operational, and procedural steps backward.  In 1995, there were 28 Federal Acquisition Regulation (FAR) clauses that could be included in a commercial item contract, with only six of the clauses required.   Today, 94 FAR clauses can be included in commercial item contracts, with 34 of the clauses required.  Regarding FAR clauses that flow down in subcontracts for commercial items, in 1995 there were only four, and today there are 22 clauses that must flow down.

The Advisory Panel on Streamlining and Codifying Acquisition Regulations (the “Section 809 Panel”), in 2018, looked at FAR and DFARS requirements for clauses in contracts for commercial products and services and arrived at similar findings.  It identified 109 clauses (54 FAR and 55 DFARS) applicable to those contracts that do not meet the FASA statutory criteria for inclusion in commercial item contracts.  The Section 809 Panel, to its credit, recommended that these 109 clauses be removed from FAR Clause 52.212-4, FAR 52.212-5, and DFARS 212.301. Removing these clauses from applicability to commercial item contracts would go a long way toward restoring commercial item contracting to the original intent laid out in FASA.

Considering the intense effort that went into acquisition reform in the 1980s and 1990s (for example, the “Section 800 Panel” review of laws affecting defense procurement and its subsequent report; multiple hearings leading up the drafting and enactment of FASA and the Clinger-Cohen Act; and subsequent efforts to modernize information technology acquisition), this turn of events is disheartening.  It is as if the institutions of government have exerted the equivalent of a gravitational force, pulling the system back decades.  In its wake, this retreat leaves a nation at risk from near-peer adversaries unencumbered by our self-imposed processes.  Undoubtedly, there are many factors at play here, but for the purposes of this discussion, we focus on the following:

Government fundamentally does not understand how private firms operate in the market.  As evidenced by the delays in processing modifications to address inflation on Multiple Award Schedule (MAS) contracts (and the loss of orders for tens of thousands of products as a result) despite government policy changes to expedite those modifications, there is a gap in the government’s understanding of the pace of business; the rapidity of change that can and does occur in supply chains, and the need for business to cover its costs.   The impact of these delays is the proverbial “straw that broke the camel’s back.”  MAS contractors, especially small businesses, are focusing on alternative market activities that lead them to avoid the government market or utilize different government channels, like open market purchases outside typical government contract channels.  If the government wishes to capitalize on the benefits of competition for commercial products and services, it needs to understand its contractor-partners in this effort and recognize that, in the global market, its market power to drive unnecessary terms and conditions is limited.

Government is increasingly focuses on process and regulatory compliance over capability and contractor performance.  Under this paradigm, government relies on a set of processes purported to support achieving its ends.  Unfortunately, however, processes become less about achieving ends as much as an end unto themselves.  Discretion is reduced, as is collaboration with industry partners, and in the end, with checklists met, basic compliance is achieved, but procurement results in meeting customer agency needs are sub-optimal.  It is akin to what Professor Steve Schooner has called, “the tyranny of low price,” where the long-term best interests of agencies, industry partners, and the nation are not met.

The foregoing problems have been facilitated, at least in part, by a systematic re-regulation of commercial products and services contracting.  With compliance or rule-based processes and reduced discretion and dialog, the only way to address market changes is through an increase in rules (more points to review on the checklist).  Coupled with the foregoing increase in the number of contract clauses over time, the government continues a march backward to the over-bureaucratized environment that existed before acquisition reform.  It restricts access to innovation driven by the commercial market, and it fundamentally harms small business access to the federal market.

Much has been made of the shrinking industrial base supporting the federal government, especially the falling number of small businesses in the federal market.

  • According to the SBA, the number of small business prime contractors decreased by 6% from 69,400 in 2021 to 65,428 in 2021.
  • According to GAO, from FY2011 to FY202, the number of small businesses receiving DoD contract award decreased by 43%, despite obligations increasing by 15%.
  • The number of large businesses receiving contract awards fell by on average by more than 7% annually over the same period.

GAO and SBA did not articulate what is causing this drop in industry participation in the government-wide industrial base. Much of the decrease, we believe, can be attributed to the re-regulation of commercial item contracting.

The answer to these challenges has driven reform efforts in the past and needs to be reinvigorated now.  Rather than retreat into the bureaucratically sclerotic system of the past, the government can recommit to streamlining commercial products and services procurement by de-regulating the process; training program and contract personnel and enhancing their discretion; and facilitating the dialog that allows it to collaborate with its industry partners.  The Myth-Busters campaign remains the seminal policy statement regarding positive collaboration/communication between government and industry.  Its guidance for contracting personnel is more vital than ever in ensuring the procurement system delivers best value customer agency mission support for the American people.

The government can also seek new ways to utilize tools that facilitate access to the commercial market, like e-commerce, for broad commercial contracting, and it can access real data using Transactional Data Reporting. The benefits of competition and the commercial market are game changing.  By so doing, the government can leverage market competition to drive down pricing and incent market participation by the innovators it needs to address the global challenges our nation faces.

Decline is not inevitable here.  The government simply needs to act, and when it does, the Coalition and its members will be here to assist it in any way we can.

DoD Releases Memorandum on Inflation Relief for Firm-Fixed-Price Contracts

Defense Pricing and Contracting at the Department of Defense (DoD) released a memorandum to manage the effects of inflation on existing contracts. The memo responds to feedback from industry on the impacts of inflation on the performance of firm-fixed-price-contracts. According to the memo, the pricing of firm-fixed-price contracts is meant to reflect the risk of cost increases. However, relief may be provided under circumstances involving acute impacts on suppliers. Under extreme circumstances, adjustments can be sought for firm-fixed-price contracts as a response to economic conditions. The memo notes that under Public Law 85-804, as implemented by Part 50 of the Federal Acquisition Regulation (FAR) and the Defense FAR Supplement (DFARS), the Secretaries of Defense, Army, Navy, and Air Force have the authority to grant Extraordinary Contractual Relief. The department will consider vendor requests for the application of these powers and continues to work to meet the Department’s requirements as economic challenges continue.

GSA Releases Updated Guidance Addressing Inflation in Contracts

Federal News Network reported on GSA’s updated guidance to address delays processing Economic Price Adjustments (EPAs) in response to inflation. The letter, which is signed by GSA Senior Procurement Executive Jeff Koses and Assistant Commissioner of Policy and Compliance Mark Lee, states that contracting officers do not need additional approvals in order to invoke the EPA clause in contracts “whether [the adjustment is] above or below the ceiling percentage established in the solicitation.” The guidance was initially released in March 2022, but was updated after concerns from industry over delays processing EPAs. The updated guidance extends the flexibilities through March 31, 2023. In an Acquisition Alert discussing the memo, Koses discussed the various means that are available to address the impacts of inflation on GSA contracts. The alert also included sample EPA clause language as well as examples of upward and downward adjustments.

Coalition President Roger Waldron praised the guidance. He shared the following on the update: “The impact of memo will be to provide customer agencies with continued choice and access to the commercial market through schedules. Companies will be in position to compete and have sound business opportunities. In many cases, companies were put in position to have to sell at a price that was below their acquisition costs. This also will help small businesses who have been particularly challenged by inflation and supply chain delays. They have fewer resources to absorb the change in prices.”

The Coalition submitted a letter to Federal Acquisition Commissioner Sonny Hashmi on August 29 regarding the EPA process.

Defense Industry Raises Concerns about Decreased DoD Buying Power Due to Inflation

The National Defense Industrial Association (NDIA) released a white paper this week concluding that the Department of Defense (DoD) will lose at least 110 billion dollars in buying power from FY2021 to 2023 due to inflation. With inflation hitting 8-9 percent over the past year, simply maintaining current levels of spending through FY2023 will require a defense budget of 815 billion dollars, 42 billion dollars more than the President’s budget submission. Should Congress choose to pass a continuing resolution that maintains FY22 funding levels, DoD is estimated to lose 6 billion dollars in buying power each month in FY23.

NDIA emphasizes that the loss of spending power is not only a future issue, but is currently affecting the DoD, contractors in the defense industrial base and service members. Current spending outlays are determined by budgets from prior years, which were made when inflation was projected to be much lower.  The DoD has already lost 50 billion dollars in spending power over FY21 and 22. Consequently, firms on fixed price contracts effectively receive less compensation for projects than planned. If inflation is not addressed, firms will exit the defense industrial base in favor of the commercial market, accelerating ongoing consolidation. For DoD, the current loss of spending power means that training and maintenance will likely be cancelled or reduced in scale, and service member compensation for housing, food and other benefits will also likely suffer. (Service member pay may also decline in real terms, but the report did not estimate this because of uncertainty surrounding member pay raises.)

Based on the above findings, the report makes five recommendations to Congress:

  • Expand the defense budget by at least 42 billion dollars to prevent loss of buying power,
  • Should a CR be passed for FY2023, set it to adjust for inflation and “allow for new starts and procurement quantity changes to avoid creating further program delay,”
  • Direct the Pentagon to adjust current contract prices for inflation,
  • Improve the fuel working capital fund “so it is better able to handle future price shocks,” and
  • Direct the Pentagon to provide regular reporting on inflation and issues arising from it.

Defense Department Issues Deviation to Cope with Entity Validation Issues in SAM

Federal News Network reports that the Department of Defense (DoD) has issued a deviation to the FAR to mitigate ongoing issues with the System for Award Management (SAM). DoD contracting officers may now award contracts when offerors prove that they “initiated or attempted to start the SAM registration process” but still do not yet have an active SAM registration. Contractors may then remain unregistered for 30 days or until the date of their first invoice, whichever comes first. The deviation requires that the contracting officer take seven steps to ensure contract performance, including submitting the contractor’s ticket with SAM’s service desk to their agency’s SAM lead so that it is prioritized. At present, the deviation is set to run through October 31.

The current delay in SAM registrations arises from the transition away from Data Universal Numbering System (DUNS) to the new Unique Entity Identifier (UEI), which concluded this April. With the end of DUNS, GSA has put in place a new system for entity validation that has led to a “marked increase in entity validation failures.” Entities have been unable to register due to minor discrepancies between their submissions and the information that SAM uses to validate registrations, such as state-level formation records; some new joint ventures report that the validation system has been unable to find their organizations at all. The large volume of organizations seeking UEIs has meant that many UEI tickets go unaddressed for weeks or months, and as a result, contractors have been unable to perform work, respond to solicitations or be paid due to a lack of a SAM registration. In response, GSA has reported that it continues to reduce the backlog and suggested that entities experiencing issues reach out to the GSA ombudsman for further support.

GSA Looks to Expand Commercial Platforms Program

FCW reported that GSA has released a draft Request for Proposal (RFP) on its Commercial Platforms (CP) program and is currently looking for feedback from commercial online providers who are interested in joining the e-commerce program. The CP pilot was first established in 2018 and includes 25 agencies with 40,000 participants. GSA is seeking information on providers’ ability to accommodate the government’s requests on supply chain risk management, cybersecurity requirements, and third-party supplier management. According to a draft RFP issued on September 8, GSA plans to award several awards to platform providers for the program. Agencies can buy up to the micro-purchase threshold of $10,000 for “routine, commercial items” with purchasing cards through the program. GSA noted that feedback from government participants has been positive and has led to time savings. The pilot program has received a 90 percent customer satisfaction rating along with a 92 percent rating for savings to date. Interested platform providers must submit their feedback on the RFP by September 30.

Executive Order Released to Implement Energy Provisions in Inflation Reduction Act

The President has released an executive order entitled on the Implementation of the Energy and Infrastructure Provisions of the Inflation Reduction Act of 2022 (IRA). The IRA’s goals are “to accelerate United States global leadership in clean energy innovation, manufacturing, and deployment in a way that cuts consumer energy costs, creates well-paying union jobs and sustainable and equitable economic opportunity, advances environmental justice, and addresses the climate crisis.” The executive order issues a mandate to implement the goals of the act by prioritizing efficient investment of public dollars,  advancing environmental and climate justice, investing in green energy for both infrastructure and jobs, reduce energy costs, accelerating innovation and prepare communities for the effects of the changing climate. In addition the order specifically sets the goal for the United States to reduce greenhouse gas emissions 50-52 percent below 2005 levels by 2030, create a carbon pollution-free electricity sector by 2035, and reach net-zero emissions by 2050 at the latest.

President Announces ARPA-H Director Appointee

On September 12, the President announced his intent to appoint Dr. Renee Wegrzyn as the first Director of the Advanced Research Projects Agency for Health (ARPA-H). ARPA-H was established in March 2022 “to drive biomedical innovation that supports the health of all Americans.” The agency will utilize experts from government, academia, and industry. Dr. Wegrzyn’s responsibilities as Director will include managing ARPA-H’s research portfolio and budget. The budget is expected to go towards several programs that will develop capabilities to prevent, detect, and treat diseases such as cancer. Currently, Dr. Wegrzyn serves as the Vice President of Business Development at Ginkgo Bioworks and Head of Innovation at Concentric by Gingko. Prior to this, she worked as a Program Manager in the Biological Technologies Office of the Defense Advanced Research Projects Agency (DARPA). Before joining DARPA, she led industry teams in the areas of biosecurity, gene therapies, emerging infectious disease, neuromodulation, and synthetic biology.

GSA Extends Polaris Deadline to September 23

Fedscoop reported that GSA has extended the bid submission deadline for offerors in the first two Small Business and Woman-Owned Small Business pools of its Polaris contract solicitation to September 23. Polaris will be a small business governmentwide acquisition contract (GWAC) for information technology (IT) and IT services-based solutions. This marks the fifth deadline extension since the solicitation resumed in May following a pre-award protest. In August, contractors reported experiencing difficulties in submitting necessary information to SAM.gov due to the transition to the Unique Entity Identifier (UEI). Due to these difficulties, GSA initially extended the deadline for bid submissions through September 9.

GAO Recommends GSA Share Data on Office Space Utilization

Remote work trends that began during the COVID-19 pandemic left many federal facilities underutilized with many agencies reconsidering their workplaces. Among these agencies, GSA has begun collecting data as they consider how to construct their workplaces going forward. The Government Accountability Office (GAO) released a report requesting that GSA share the data it gathered so other agencies have the opportunity to learn from its fact findings.

From March 2020 to March 2022, GAO surveyed 24 major federal agencies on their future plans for office space. Of these 24 agencies, 17 saw reductions in office space as a result of uncertainty in office plans moving forward with most agencies expecting to reduce the square footage of their real estate portfolio with the emergence of telework. GSA has supported federal efforts to plan the future of office space through their planning services and by collecting information. These collection efforts include testing technologies for collecting office utilization data (see figure below) and gathering information at their own leased and owned facilities.

As all 24 agencies surveyed by GAO expressed concern about the costs of collecting data, GAO believes that by sharing this information widely GSA will be able to show the potential benefits of reexamining office-space usage including the potential cost reductions for facilities. GSA agreed with the recommendation and stated it will communicate lessons learned from pilots and other data collection activities.

DoD IG Releases Audit of Other Transactions and Nontraditional Contractors

The Department of Defense Office of Inspector General (DoD OIG) released a report detailing the results of its audit on DoD’s business involving other transactions (OT) to provide assurance that the award process followed applicable laws and procedures. The DoD’s OTs cover business outside of procurement contracts, grants, or cooperative agreements for basic, applied, or advanced research. The United States Code (U.S.C.) requires at least one of the following conditions to be met for these projects:

  • At least one nontraditional defense contractor (NDC) or nonprofit research institution participates to a significant extent.
  • All significant participants are small businesses or NDCs.
  • Non-Government sources pay at least one-third of the total cost of the prototype project (resource share).
  • The agency senior procurement executive determines in writing that exceptional circumstances justify the use of an OT.

To be an NDC an entity must have not performed or be performing any DoD contract or subcontract subject to full cost accounting standards for at least a year before solicitation. A guide to OT released by the Office of the Under Secretary of Defense for Acquisition and Sustainment states that a great quantity of contractors are classified as NDCs because of exemptions to full cost accounting standards.

The DoD OIG reviewed 34 prototype OT awards and found instances of agreement officers who failed to:

  • verify the status of NDCs because there is no requirement for agreement officers to do so;
  • validate NDCs participating in prototype awards to a significant extent actually completed the significant work because there is no requirement for the agreement officers to validate the work performed by the NDC throughout the project; or
  • approve costs incurred prior to award or appropriately award resource share OTs because the agreement officers did not comply with the U.S.C. and compliance with the OT Guide is not a requirement.

The DoD OIG expressed that without verifying the NDC status of vendors, conducting proper oversight for NDC performance, and validating award resource contributions, the conditions of the U.S.C. may not be met. In addition, the DoD OIG expressed concerns about cost overruns and ineligible vendors receiving improper awards due to a lack of oversight.

The DoD OIG recommends that the Principal Director, Defense Pricing and Contracting:

  • Require agreement officers to validate the NDC status prior to award and include documentation of the verification in the OT file.
  • Implement guidance or best practices for agreement personnel to consider when validating NDC significant participation throughout the duration of the project.
  • Reinforce the requirements in the U.S.C. and require agreements officers to ensure the OT files for resource sharing clearly document contractor contribution, approval of costs incurred before the effective date, and contractor contribution verification procedures.

The Defense Pricing and Contracting Principal Director agreed with the recommendations, stating that Defense Pricing and Contracting will develop and implement additional guidance to address the recommendations in the OT Guide update.

Legal Corner: Just When You Thought It Was Safe To Go Back In The Water . . . The 11th Circuit Revives Executive Order 14042

By Jonathan Aronie & Ryan Roberts; Sheppard Mullin

With apologies to Jaws II, just when you thought it was safe, the U.S. Court of Appeals for the 11th Circuit has released a shark back into the EO 14042 waters.

On Friday, August 26, the 11th Circuit published a 66-page decision affirming the injunction against the Federal Government’s Code-19 Vaccine Mandate issued by the U.S. District Court for the Southern District of Georgia, but limiting the previous nationwide scope of the injunction. To quote the decision:

“We agree that the plaintiffs’ challenge to the mandate will likely succeed and that they are entitled to preliminary relief. Even so, because the injunction’s nationwide scope is too broad, we vacate it in part.”

What this means is that the 11th Circuit injunction, which previously applied to every contractor everywhere across the U.S., now applies only to the plaintiffs in this particular case: Seven states and the members of one industry association (Associated Builders and Contractors). Putting it in the affirmative, EO 14042 may be back in play for Federal contractors that, until last week, likely believed compliance with the federal vaccine mandate was behind them.

We should note at the outset, though, that following the issuance of the 11th Circuit’s opinion, the Office of Management and Budget announced its view that the injunction was still in place. As reported by Government Executive Magazine, OMB said

“At this time, the nationwide injunction remains in effect, and thus agencies should continue not to take any steps to enforce Executive Order 14042.”

As a factual matter, OMB is wrong. The nationwide injunction does not remain in effect. We assume what OMB meant to say is that the Administration will continue voluntarily not to enforce the Executive Order for the time being. This should come as some comfort to contractors trying to navigate the new enforceability map, which we affectionately call the SheppardTracker (see below). But unlike an injunction, a voluntary non-enforcement decision can disappear overnight.

In any event, now that the 11th Circuit has narrowed the scope of the District Court’s injunction, let’s discuss the question you all are asking: What does the decision mean to me?

The Current State Of 14042 Vaccine Mandate (Notwithstanding OMB’s Non-Enforcement Statement)

Most importantly, EO 14042 no longer is enjoined nationwide. In other words, the Federal Government could begin enforcing EO 14042 (via FAR 52.223-99 and agency deviations) in more than half of the United States (35 states to be exact). As a refresher, FAR 52.223-99, Ensuring Adequate COVID-19 Safety Protocols for Federal Contractors is a clause developed by the FAR Council to support agencies in meeting the applicability requirements and deadlines set forth in EO 14042.

In the absence of a nationwide injunction, the scope of each individual district court injunction once again has become relevant. Here’s a high-level summary of the existing injunctions.

  • Georgia Injunction (clarified by 11th Circuit Decision): The injunction now applies only to the state plaintiffs acting as contractors, and, therefore, has no impact on private companies. Accordingly, the Federal Government now is permitted to enforce FAR 52.223-99 against Federal contractors in Georgia, Alabama, Idaho, Kansas, South Carolina, Utah, and West Virginia (the plaintiff states). (See blue states on the map below.)
  • Kentucky Injunction (appeal pending in the 5th Circuit): The Federal Government is enjoined from enforcing FAR 52.223-99 “in all covered contracts in Kentucky, Ohio, and Tennessee.” (See red states on the map below.)
  • Florida Injunction (appeal pending in the 11th Circuit): For now, the Federal Government is enjoined from enforcing FAR 52.223-99 “within Florida.” However, given the 11th Circuit’s decision on the Georgia injunction, we suspect this injunction, too, will be narrowed, to permit the Federal Government to enforce FAR 52.223-99 against Federal contractors in Florida. (See red states on the map below.)
  • Missouri Injunction (appeal pending in the 8th Circuit): The Federal Government is enjoined from enforcing FAR 52.223-99 “for federal contractors and subcontractors in all covered contracts in Missouri, Nebraska, Alaska, Arkansas, Iowa, Montana, New Hampshire, North Dakota, South Dakota, and Wyoming.” (See red states on the map below.)
  • Louisiana Injunction (appeal pending in the 5th Circuit): The injunction applies only to the state entities acting as contractors, and therefore has no impact on private companies. The Federal Government is permitted to enforce FAR 52.223-99 against Federal contractors in Louisiana, Mississippi, and Indiana. (See green states on the map below.)

We also have updated our SheppardTracker to reflect what we believe to be the current state of play:

In short, the Federal Government may choose to begin enforcement of FAR 52.223-99 against contractors performing in the 35 states NOT shaded red.

Also, do not forget, at least one state has passed anti-vaccination-mandate legislation the enforceability of which hinges to some extent on the viability of the various federal injunctions. With the nationwide injunction no longer in place, the Preemption Doctrine could dictate that EO 14042 overrides contradictory state law.

Whether the Federal Government chooses to resume incorporating FAR 52.223-99 into contracts, or begins enforcing its requirements, however, is yet to be determined; although OMB’s recent statement to Government Executive Magazine provides at least some clue to this mystery in the short term. We suspect the Task Force will publish updated guidance shortly detailing the path forward. The Biden Administration has rolled back many COVID-19 initiatives and restrictions in recent months, and, therefore, its appetite to restart enforcement of EO 14042 is an open question. Time will tell.

In the meantime, there are additional threats circling in the 14042 waters. For instance, other district courts still have not ruled on the Motions for a Preliminary Injunction originally filed in their jurisdictions back in 2021 (e.g., the judge in the Southern District of Texas stayed litigation there once the nationwide injunction was issued by the Southern District of Georgia). Additionally, the other Circuits with appeals pending could overturn the preliminary injunctions previously granted by the lower courts (or severely limit their scope, as the 11th Circuit did), which would add to the 35 states in which the Federal Government could enforce EO 14042. We’ll continue tracking the various pieces of litigation and alert you of any notable developments.

While we eagerly await updated Task Force Guidance, for now, it seems many Federal contractors may be back to having to comply with the requirements of EO 14042 to some extent. Accordingly, everyone should keep a close eye on the Task Force website, the OMB website, the GSA 14042 page, and the specific terms of your solicitations and contracts.

Finally, we would be remiss if we did not point out two confusing points in the 11th Circuit’s decision:

  • Who Are The Plaintiffs? According to the 11th Circuit, the injunction now is limited to “the seven plaintiff States and their agencies” (and members of the plaintiff industry association). This language is not a model of clarity regarding whether the Court is referring to the States themselves (e., situations in which the state is a federal contractor) or whether the Court is referring to all contractors within those states. While the Court’s explicit language seems to limit the injunction to the state agencies only – and that’s how we read it – the fact that several of the states brought the suit on behalf of their citizens (and presumably their contractors) could mean that those citizens and contractors could be considered plaintiffs. As we said, we think the better reading is that the injunction applies to the states as contractors only (and not all contractors in those states), but we have to acknowledge the possibility of a contrary interpretation.
  • How Does It Apply To Solicitations? The decision includes an interesting statement about the Federal Government including FAR 52.223-99 in solicitations. The 11th Circuit stated: “we leave the injunction in place to the extent that it bars federal agencies from considering the enforceability of the mandate when deciding who should receive a contract, if any plaintiff belongs to the pool of bidders.” Unless every Federal contractor in the United States becomes a member of the Associated Builders and Contractors overnight, this exception appears to be very limited in scope, but the Task Force’s interpretation here will be key. More on this topic below.

Now, let’s take a deeper dive into the 11th Circuit’s decision.

Georgia v. Biden In Greater Detail

Let’s begin with a bit of history.

On December 7, 2021, the U.S. District Court for the Southern District of Georgia enjoined enforcement of EO 14042 nationwide (discussed previously here). This decision resulted a complaint by the states of Georgia, Alabama, Idaho, Kansas, South Carolina, Utah, and West Virginia. The Court permitted the Associated Builders and Contractors, Inc. (ABC), a nationwide trade association, to intervene as a plaintiff. ABC’s intervention proved to be of particular importance because the Court relied on ABC’s national membership as the basis for applying its injunction nationwide.

District Court Judge Baker’s decision focused on preserving the rule of law and ensuring “all branches of the government act within the bounds of their constitutionally granted authorities,” even in times of crisis. In order to do so here, Judge Baker determined that granting plaintiffs motion for a preliminary injunction was necessary. After determining that the plaintiff States and ABC all had standing to challenge EO 14042, Judge Baker focused his decision on the likelihood of success on the merits prong of the injunctive relief standard. Judge Baker noted that plaintiffs “need only show a substantial likelihood of success on the merits on one claim” (emphasis added), and went on to examine the plaintiffs’ contention that EO 14042 exceed the authority granted to the President by the Procurement Act (40 U.S.C. § 101, the Federal Property and Administrative Services Act).

According to Judge Baker, the question before the Court was whether Congress “clearly” authorized the President to use the Procurement Act to issue the directives contained in EO 14042. Judge Baker answered that question in the negative, finding the actual purpose of the EO to be the “regulation of public health.” As explained by Judge Baker, the purpose of the Procurement Act is to promote economy and efficiency in the federal procurement process. Although the Procurement Act affords the President significant deference to achieve this goal, Judge Baker found there was an insufficient nexus between the Procurement Act and EO 14042 and concluded that the Procurement Act “did not clearly authorize the President to issue the kind of mandate contained in EO 14042, as EO 14042 goes far beyond addressing administrative and management issues in order to promote efficiency and economy in procurement and contracting, and instead, in application, works as a regulation of public health, which is not clearly authorized under the Procurement Act.” Because substantial likelihood of success on a single claim was enough, according to Judge Baker, the Court did not examine the other challenges raised by the plaintiffs, such as arguments centered on the Administrative Procedure Act and the Non-Delegation Doctrine.

Regarding the remaining prongs of the injunctive relief standard, Judge Baker found that plaintiffs likely were to be irreparably harmed if the EO was permitted to remain in force and found the balance of harms favored plaintiffs. As such, Judge Baker granted injunctive relief in favor of plaintiffs and ordered the United States enjoined “during the pendency of this action or until further order of this Court, from enforcing the vaccine mandate for federal contractors and subcontractors in all covered contracts in any state or territory of the United States of America.”

The Court’s decision subsequently was appealed to the 11th Circuit. During the pendency of the appeal, the United States Government moved the district court to clarify whether the injunction applied to the entire EO or just the vaccine mandate. The Court clarified that its injunction was intended to enjoin only the vaccine mandate, meaning it did not enjoin the masking or physical distancing requirements of EO 14042 (discussed previously here).

The Court of Appeals Decision

The three-judge 11th Circuit Panel began its analysis by identifying the two questions before it:

  • First, whether the challenge to the vaccine mandate is likely to succeed.
  • Second, whether the scope of the district court’s injunction was too broad, which would suggest an abuse of discretion by the lower court.

Notably, the language of the 11th Circuit’s decision strongly suggests the Court is considering only the vaccine mandate, and not the entirety of EO 14042.

Likelihood of Success

The core question before the Court, in its view at least, was whether Congress, in vesting the President with broad procurement powers under the Procurement Act, authorized the President to improve efficiency through a vaccine mandate. Put another way, did Congress delegate to the President “the power to require widespread vaccination through the Procurement Act.” As the Court put it, “the question is not whether Congress could authorize the President to make procurement agreements continent on COVID-19 vaccination. It is whether Congress did so in the Procurement Act.”

While acknowledging that the Procurement Act confers broad authority on the President, the Court – like the District Court below it – emphasized that the Procurement Act’s delegation to the President is not unlimited. “The Act confers broad but not unbounded authority.”

Limiting its analysis to the Procurement Act (as apparently the Federal Government’s lawyers did before the Court), the Court noted that “the President cannot issue policies that require [federal officials] to take steps outside the Act or contrary to the Act – however useful such steps may appear.” Citing Supreme Court precedent, the Court emphasized that the Procurement Act empowers “the President to carry out the Act’s specific provisions – but not more.” In a more poetic moment, the Court put it this way: The Procurement Act “is not an ‘open book’ to which contracting agencies may ‘add pages and change the plot line.’”

In the end, the 11th Circuit agreed with the District Court that nothing in the Procurement Act confers upon the President the power to mandate vaccines for all federal contractors: “Nothing in the Act contemplates that every executive agency can base every procurement decision on the health of the contracting workforce.” The Court emphasized that the power to create and maintain an “economical and efficient” procurement system is “worlds away” from establishing health standards for all contractors’ employees. “No statutory provision contemplates the power to implement an across-the-board vaccination mandate. It follows that the President likely exceeded his authority under the Procurement Act when directing executive agencies to enforce such a mandate.”

The Court founded its view upon a well-settled principle of statutory interpretation: Congress is expected to “speak clearly when authorizing an agency to exercise powers of vast economic and political significance.” In other words, if Congress had wanted to give the President the power to use its procurement powers to set health policy, Congress would have said so.

Interestingly, reading between the lines, the Court implied that a given Agency could employ a vaccine mandate if it had a compelling reason to do so. “We cannot say that when Congress passed the Procurement Act, it meant to delegate authority to set baseline health and safety qualifications for contractors – standards that would apply regardless of the specific needs in a given project.”

Scope of Injunction

After concluding that the Administration likely would lose its case against the seven plaintiff states (and trade association), the Court set about evaluating the scope of the District Court’s injunction. Remember, the District Court enjoined enforcement of the vaccine mandate “against any contractor, anywhere in the United States, plaintiff or not.” The 11th Circuit began its analysis by commenting “we are both weary and wary of this drastic form of relief.”

The Court then undertook a cogent discussion of the advantages of differences of opinion coming from the various lower courts and the dangers of judicial overstepping that puts those advantages at risk. The Federal court system was designed to “allow courts to reach multiple answers to the same legal questions,” wrote the Court. A nationwide injunction, the Court continued, “gives a single district court an outsized role in the federal system.” “By cutting off parallel lawsuits, nationwide injunctions frustrate foundational principles of the federal court system.”

Against this background, the 11th Circuit found the lower court’s injunction “overbroad.” Accordingly, the Court vacated the lower’s courts injunction “to the extent that it bars enforcement of the mandate against nonparty contractors through new and existing contracts.” In contrast, the Court affirmed the injunction to the extent it “blocks federal agencies from enforcing the mandate in contracts with any plaintiff State or member of the plaintiff trade association.” “As a result,” wrote the Court, “plaintiffs need not comply with the vaccination requirement in their capacity as contractors, and they are not responsible for including that requirement in lower-tier subcontracts.”

One Complicating Factor

While the Court clearly was bothered by the nationwide scope of the injunction, it recognized a complication regarding solicitations. “Unlike procurement contracts, solicitations are generally issued by the federal government to many bidders, who are then expected to comply with the solicitation’s terms to remain eligible for the contract award.” Because a plaintiff could be prejudiced by an agency’s consideration of who is subject to the mandate and who is not, the Court decided to leave “the injunction in place to the extent that it bars federal agencies from considering the enforceability of the mandate when deciding who should receive a contract, if any plaintiff belongs to the pool of bidders.”

This carve-out presents quite a logistical hurdle for procuring agencies that now will have to change the rules of their procurements based upon who is bidding on those procurements. Although unlikely, perhaps we’ll see bidders convincing members of the plaintiff industry association to submit bids simply to knock the EO 14042 provisions out of the solicitation. . . . unlikely, but interesting to think about.

Conclusion

As we continue to monitor how the Administration and Task Force decide to proceed in light of the 11th Circuit’s decision, it likely makes sense to dust off your preexisting EO 14042 compliance plans. Our existing resources are linked below.

Resources

About The Authors

Jonathan and Ryan are Governmental Practice partners in Sheppard Mullin’s DC office. Jonathan leads the firm’s Governmental Practice and co-founded the firm’s Organizational Integrity Group. Ryan leads the Governmental Practice’s Commercial Products & Services Team and the Group’s EO 14042 Task Force. Jonathan can be reached at jaronie@sheppardmullin.com. Ryan can be reached at reroberts@sheppardmullin.com.

Important Note

This blog is provided for information purposes only and does not constitute legal advice and is not intended to form an attorney client relationship. As you are aware, things are changing quickly. This blog does not reflect an unequivocal statement of the law, but instead represents our best interpretation of where things currently stand. This blog does not address the potential impacts of the numerous other local, state, and federal orders that have been issued in response to the Covid-19 pandemic, including, without limitation, potential liability should an employee become ill, requirements regarding family leave, sick pay, and other issues.

SBA’s Potpourri Proposed Rule

On September 9, 2022, SBA issued a proposed rule titled “Ownership and Control and Contractual Assistance Requirements for the 8(a) Business Development Program.” 87 FR 55642. The proposed rule addresses many issues beyond the 8(a) program. The comment period closes November 8, 2022. The final rule will probably be issued in the Spring of 2023.

With respect to joint ventures, the proposed rule spells out SBA’s long-standing policy that orders under IDIQ contracts do not violate its rule with respect to a joint venture’s ability to receive contract awards within a two-year period after the first contract award. Under SBA’s rules, a joint venture cannot be populated, but SBA is proposing to allow populated joint ventures for a set-aside if the partners are similarly situated and the parties collectively do not exceed the size standard. SBA is also proposing that for size purposes the receipts or employees of a populated joint venture must be distributed to the owners based on ownership percentage. SBA is requesting comment on whether a firm can be part of multiple joint venture offers for the same multiple award contract.

With respect to the ostensible subcontractor rule, where a proposed subcontractor is an ineligible incumbent, SBA is proposing to codify that an offeror’s reliance on the incumbent’s management and experience are factors that could lead to affiliation. SBA also proposes ostensible subcontractor reviews to determine whether an ineligible concern will perform the primary and vital requirements of a socioeconomic set-aside contract.

SBA proposes to clarify that recertification is required when there is sale of a portion of a firm that results in change of control or negative control. SBA proposes to clarify that a joint venture can recertify if both parties are small or the protégé is small, and that a joint venture’s recertification for an option period is not a contract award for purposes of the joint venture rule. SBA proposes that compliance with the limitations on subcontracting should apply at the order level where multiple agencies can award orders under the contract. SBA requests comment on whether non-compliance with the limitations on subcontracting should result in a negative past performance evaluation.

SBA proposes that for 8(a) sole source orders, a firm must be small at the time of the order. SBA is proposing to allow entity-owned concerns to acquire graduated 8(a) concerns through the change of ownership process, instead of the waiver process. SBA has extended its moratorium on the bona fide office requirement for 8(a) construction contracts through September 30, 2023. Unfortunately, SBA proposes to continue to require a bona fide place of business for 8(a) sole source construction contracts, even though the procuring agency has the option of using another socioeconomic program or issuing the solicitation unrestricted if the proposed 8(a) contactor does not have a bona fide office. SBA proposes to address situations where an agency intends to award a follow-on to an 8(a) contract as an order under a multiple award 8(a) contract where the incumbent is not an awardee. SBA also proposes to harmonize procedures for 8(a) order set-asides under the Schedule. SBA requests comment on whether there should be a limitation on an agency’s ability to award a follow-on to a competitive 8(a) contract as a sole source 8(a) contract. SBA is requesting comment on whether a request for a waiver in connection with the sale of an 8(a) concern should be submitted to the head of the 8(a) program instead of the district office (Answer: Yes). SBA is requesting comment on entity-owned concern benefit reporting. SBA proposes to create an SDB status review process, even though SDB procurement mechanisms do not exist.

SBA is requesting comment on whether it should issue contract specific waivers of the nonmanufacturer rule for contracts that exceed five years, or whether it should require the agency to request a new waiver prior to the sixth year of a long-term contract. SBA proposes that a contract specific waiver of the nonmanufacturer rule will expire if the contract is not awarded within one year and to clarify that a waiver does not apply to follow-on contracts or modifications outside the scope of the contract.

Finally, SBA proposes to put into regulation its long-standing policy prohibiting an agency from issuing a set-aside requiring two or more socioeconomic categories, e.g., an 8(a)/HUBZone set-aside or an SDVO/WOSB set-aside.

Register Now – The IT Category: Creating Opportunities for Small Business, Oct. 6

Mark your calendars for October 6, and join the Coalition for Government Procurement for a hybrid event for the IT contractor community in conjunction with GSA, The IT Category: Creating Opportunities for Small Business, held in Tysons, Virginia. This forum, open to members and non-members, will bring together acquisition experts from government and industry to share the latest on programs and key policies impacting small businesses in the IT sector.

The day will begin with opening remarks from Laura Stanton, Governmentwide IT Category Manager and Assistant Commissioner of GSA’s IT Category.  Laura will bring her unique perspective to the governmentwide and GSA-focused efforts to support small businesses in the federal IT market.  Laura will discuss the overarching strategy for the IT Category in creating additional opportunities for small businesses.

Following Stanton’s remarks, there will be a 60-minute panel made up of program managers from NASA SEWP, NIH CIO-SP, and GSA’s MAS and AAS programs. These panelists will discuss contracting opportunities and how their respective programs engage with and support small businesses. We will then move to a second panel that will focus on crucial policies and legal issues that affect IT small businesses. In addition to these sessions, the event will provide a great networking opportunity for IT professionals.

Registration for the event is available here. Both in-person and virtual attendance are offered to Coalition members and the IT contractor community at large.

The full agenda, along with speaker bios, can be found below.

The IT Category: Creating Opportunities for Small Business

Location: Holland & Knight – 1650 Tysons Blvd., 16th Floor, Tysons, VA 22102

8:00-9:00 am: Registration Opens, Networking

9:00-9:30 am: Opening Remarks

Laura Stanton, Governmentwide IT Category Manager, Assistant Commissioner, Information Technology Category, GSA

9:30-10:30 am: Governmentwide Contracting Opportunities through NASA, NIH and GSA

Jim Ghiloni, Group Manager, IDIQ Labs/Innovation Sector, GSA

Joanne Woytek, SEWP Program Director, NASA

Ricky Clark, Deputy Director, NITAAC

Cheryl Thornton-Cameron, Executive Director, Office of Acquisition Operations, GSA

10:30 am: Break

10:45-11:45 am: Small Business Policy and Legal Update

John Shoraka, Co-Founder and Managing Director, GovContractPros

David Black, Partner, Holland & Knight

Ken Dodds, Government Contracting Industry Expert, Live Oak Bank

Jon Williams, Partner, PilieroMazza

GSA Releases Request for Comments on Transactional Data Reporting
GSA released a request for comments regarding an extension to an existing OMB clearance. The agency is looking to continue to collect information from contractors that have opted to conduct transactional data reporting. The total estimated annual public cost burden for this information collection is $18,104,484.46 and 281,344 hours. Public comments are requested on if the collection of this data continues to be necessary, along with its practical utility; whether GSA’s estimate of the cost of collection for the data is accurate and based on valid assumptions and methodology; and ways to enhance the quality, utility, and clarity of the data to be collected. Comments are due by October 21 and can be submitted here.

OMB Releases Agency Guidance on Software Supply Chain Security

The Office of Management and Budget (OMB) released a memorandum this week responding to Executive Order 14028, Improving the Nation’s Cybersecurity.  The order directs the National Institute of Standards and Technology (NIST) to issue guidance “identifying practices that enhance the security of the software supply chain.”  The NIST Secure Software Development Framework (SSDF), SP 800-218, and the NIST Software Supply Chain Security Guidance provide direction to agencies about secure software development.

The order requires all Federal agencies to comply with the NIST guidance while using third-party software that interacts with anything touching agencies’ information. Under the OMB guidance, the following conditions apply:

  • These requirements apply to agencies’ use of software developed after the effective date of this memorandum, as well as agencies’ use of existing software that is modified by major version changes (e.g., using a semantic versioning schema of Major.Minor.Patch, the software version number goes from 2.5 to 3.0) after the effective date of this memorandum.
  • These requirements do not apply to agency-developed software, although agencies are expected to take appropriate steps to adopt and implement secure software development practices for agency-developed software.
  • An agency awarding a contract that may be used by other agencies is responsible for implementing the requirements of this memorandum.

In addition, the NIST guidance explains what actions must be taken in order for agencies to be in compliance with SP 800-218. First, the agencies are required to obtain a self-attestation from the creator of the software before the product can be used. The self-attestation must either assert that all NIST practices can be met or alternatively provide a mitigation plan to ensure that the risk is mitigated. Second, in instances depending on the criticality of the software as determined by the agency, a Software Bill of Materials (SBOMs) will be required to show conformance with SP 800-218 and the . In lieu of a SBOM the company may provide other information to show the contents of the software. However, information will be required to demonstrate that the original source code has not been modified.

Agencies are required to incorporate the requirements of the memorandum within the following timeframe:

  1. Within 90 days of the date of the memorandum, agencies shall inventory all software subject to the requirements of the memorandum, with a separate inventory for “critical software.”
  2. Within 120 days of the date of the memorandum, agencies shall develop a consistent process to communicate relevant requirements to vendors, and ensure attestation letters not posted publicly by software providers are collected in one central agency system.
  3. Agencies shall collect attestation letters not posted publicly by software providers for “critical software” subject to the requirements of this memorandum within 270 days after publication of this memorandum.
  4. Agencies shall collect attestation letters not posted publicly by software providers for all software subject to the requirements of this memorandum within 365 days after publication of this memorandum.
  5. Within 180 days of the date of this memorandum, agency CIOs, in coordination with agency requiring activities and agency CAOs, shall assess organizational training needs and develop training plans for the review and validation of full attestation documents and artifacts.
  6. Agencies may submit an extension request to the Director of OMB which must be transmitted 30 days before any relevant deadline in the memorandum and accompanied by a plan for meeting the underlying requirements.

CISA Seeking Feedback on Reporting Requirements for Critical Infrastructure

FCW reported that the Cybersecurity and Infrastructure Security Agency (CISA) is requesting public feedback while developing mandatory incident reporting requirements for critical infrastructure owners and operators. CISA is interested in hearing from the public on proposed regulations that were included in the Cyber Incident Reporting for Critical Infrastructure Act of 2022 (CIRCIA). Specifically, the agency is looking for input on “definitions for and interpretations of the terminology to be used in the proposed regulations, as well as the form, manner, content, and procedures for submission of reports required under CIRCIA.”  The agency plans to host 11 listening sessions across the country through November. Additionally, CISA released a request for information (RFI) on September 12. Comments on the RFI are due by November 14. CIRCIA includes reporting requirements for covered cyber incidents and ransom payments. Under the legislation, all covered cyber incidents must be reported within 72 hours, and ransom payments within 24 hours. The agency is also seeking input on potential enforcement procedures and protection policies to make sure that critical infrastructure owners are complying with the reporting requirements.