Friday Flash, 12.21.12

Comment of the Week

As I reflected on 2012 and the potential the topic of this year’s forty-eighth “Comment of the Week” for 2012, it became obvious to me what I should write about.

Thank you

Thank you to our members for your support and participation in our collective effort to bring common sense to Government procurement.  It has been an interesting and challenging year for the procurement community.  Now more than ever we need to engage in a positive dialogue across the procurement community to improve the efficiency and effectiveness of the procurement system for the American taxpayer.  The Coalition looks forward to continuing the dialogue in 2013 with key stakeholders from OFPP, DoD, DHS, GSA, and the VA.

Thank you to our men and women in harm’s way protecting our freedom. Thank you to our wounded warriors and all those who have fallen in defense of our country.  Please keep them all in your prayers.

Thank you to all those in public service and the contractor personnel who support them.

Thank you to the Coalition staff for a job well done this year.  Thank you for your dedication, professionalism, hard work and good humor!   You make the Coalition work for the members!

I wish everyone Happy Holidays!  Be safe in all your travels and enjoy your families!

Please keep the victims and families of Newtown in your thoughts and prayers.

GSA’s Commitment to Returning Vets

In a blog post this week, GSA highlighted the agency’s commitment to hire returning veterans.  GSA’s Northwest Arctic and Rocky Mountain Regions, in particular, have been making strides to place veterans.  They have done so through the U.S. Army’s Wounded Warrior and Department of Defense Operation Warfighter programs which help returning service members on medical hold transition to the workplace.  To date, the Northwest Arctic and Rocky Mountain Regions have placed seven veterans with GSA. To learn more about these service members and their work at GSA, visit http://gsablogs.gsa.gov/gsablog/2012/12/18/gsa-helps-veterans-transition-back-into-the-workforce/.

DHS Releases $6B RFQ for Continuous Monitoring Tools

The Department of Homeland Security (DHS) issued an RFQ last week for Continuous Diagnostics and Mitigation (CDM) tools and continuous monitoring as a service.  DHS estimates the BPA to be worth $6 billion over the next five years.  In the RFQ (posted by Fed News Radio), DHS states that the CDM program will “provide Federal agencies, and state and local governments, with the ability to enhance/automate their existing continuous network monitoring capabilities, correlate and analyze critical security-related information, and enhance risk-based decision making at the agency and Federal enterprise level. Information obtained from the automated monitoring tools will allow for the correlation and analysis of security-related information across the Federal enterprise”. While the scope of the CDM program is primarily for civilian “.gov” networks, they anticipate use of the BPA by any Federal entity including the Department of Defense.  In addition, they will make the BPA available to state and local government through cooperative purchasing.  Responses to the RFQ are due January 28.

Don’t Miss the GSA Expo Forum Jan 9!

GSA Expo is the signature annual training and marketing event of the General Services Administration. It is the place where industry meets the marketplace to display the incredible array of commercial services and products available through the GSA Schedule program.

Do you want to know GSA’s vision for Expo in May 2013? Should you expect changes in attendees, the theme, or overall logistics of the conference? Join us in a dialogue with Tamela “Tami” Riggs, Assistant Commissioner, Office of Customer Accounts and Research General Services Administration, Federal Acquisition Service to find out what’s new for Expo 2013. This is a fantastic opportunity to engage in a myth-busting dialogue directly with GSA to ensure that your company has the most cost-effective and engaging plan to market your Schedule services and products.

GSA will begin booth sales in mid-January. At this forum, Tamela “Tami” Riggs and the GSA Expo team will share their plans and answer questions to help you develop your marketing strategies for Expo. Our Myth-Buster Planning Forum is just in time to position your company to get the most out of this year’s GSA Expo.

All GSA Schedule contractors should plan to attend this forum on January 9th at 8:00am at the Crystal Gateway Marriott. We look forward to seeing you there!

To Register, Click Here!

Effective Date for Labor Nondisplacement Rule Announced

The Department of Labor (DOL) announced today that the effective date of the Nondisplacement of Qualified Workers Under Service Contracts final rule is January 18, 2013. This means that Executive Order 13494 Nondisplacement of Qualified Workers Under Service Contracts will apply to solicitations on or after January 18.  According to the DOL Wage and Hours Division, “the Order and the final rule require contractors and subcontractors who are awarded federal service contracts to provide the same or similar services at the same location to offer employment to the predecessor contractor’s employees in positions for which they are qualified”. Successor contractors may reduce the size of the workforce and to give first preference to certain current employees.

The Wage and Hours Division also advises that:

• the Order and the final rule do not apply to certain types of contracts and employees
• the Department will offer additional guidance on the provisions of the final rule once the Federal Acquisition Regulatory Council produces its regulations and the final rule is effective

The Coalition will continue to monitor developments on the rule, especially additional guidance on the final rule by the department.

Deloitte CEO Talks About Sequestration on Off the Shelf

This week on Off the Shelf, Robin Lineberger, CEO of Deloitte Federal Government Services joined host Roger Waldron to discuss how agencies and contractors are preparing for the possibility of sequestration. Lineberger noted that there could be a “significant slowing of procurement” if sequestration takes place and that agencies are probably “managing their cash right now so that if sequestration were to happen they wouldn’t have over-committed”. Lineberger is also concerned that the drive to find cost savings could negatively impact innovation. To listen to the program, click here.

GSA Launches “How to Attend a Conference” Training

GSA announced the launch of a new web-based training program focused on educating federal employees across government on conference etiquette. According to Lauren Concklin, a marketing analyst with GSA, the first training course “Travel Basics” is set to start in January and additional course “How to Attend a Conference” will go live in February or March. GSA also is trying to push a capability that will establish more uniform tracking of training courses for federal employees, said Concklin. More information on GSA’s virtual training courses can be found here.

Small Business Accelerated Payments Proposed Rule

A proposed rule was released this week to amend the FAR to require accelerated payment to small business subcontractors. This temporary policy is scheduled to end on July 10, 2013. The requirement for prime contractors to pay their small business subcontractors as promptly as possible was originally outlined in an Office of Management and Budget (OMB) policy memorandum to agencies released on July 11, 2012.  The proposed rule establishes a FAR clause which will require “the prime contractor, upon receipt of accelerated payments from the government, to make accelerated payments to small business subcontractors, to the maximum extent practicable, after receipt of a proper invoice and all proper documentation from small business subcontractors.” Comments on the proposed rule are due February 19, 2013.

Legal Corner 

Budget Sequestration, the WARN Act and Compliance Costs—Implications for Contractors

Jim Schweiter, Partner, McKenna Long & Aldridge LLP

Last August, Congress passed the Budget Control Act of 2011 (Pub. L. 112-25). This law authorized raising the debt ceiling, established caps on discretionary spending, and put in place a process known as sequestration to implement a total of $1.2 trillion in automatic spending cuts through fiscal year 2021, unless Congress passes a bill which the president signs to avert such a result. Sequestration is a process of automatic, largely across-the-board spending reductions under which budgetary resources are permanently canceled in order to achieve compulsory deficit reduction.

Much has been written about the draconian effects sequestration will have on the programs, projects and activities of executive branch agencies.   Senior executive branch officials, members of Congress and industry leaders all predict catastrophe if sequestration is implemented.  In the case of government contractors, the decline in new government work caused by funding reductions, or the truncation of existing government work through contract terminations, changes, or other mechanisms, may cause employers to consider terminating or laying off employees.  As a result, it is important for employers to understand their rights and obligations under the Worker Adjustment and Retraining Notification (WARN) Act.[1]

Notification Requirements under the WARN Act

The primary purpose of the WARN Act is to require certain employers to provide at least 60 days advance notice to employees who are impacted by a “plant closing” or “mass layoff.” Each of these terms has a lengthy statutory and regulatory definition but, in brief, a “plant closing” refers to a shutdown of a site of employment resulting in an employment loss for at least 50 employees, while a “mass layoff” means a reduction in force at a single site of employment impacting at least (1) 50 employees and 33 percent of the active employees at that site, or (2) 500 employees.

As a general rule, whenever an employer foresees that 50 or more employees could lose employment at a site of employment within a 90-day period, that employer should carefully analyze whether the definition of a “plant closing” or “mass layoff” may have been met, and thus whether WARN notice requirements have been triggered.  If the WARN notice requirements are triggered, the employer must provide written notice of the anticipated employment loss to (1) the affected employees (or to their representative if unionized), (2) a designated state official, and (3) the chief elected official of the unit of local government within which the layoff or plant closing will occur.  If the employer provides less than 60 days’ notice before the employment action, it may be subject to paying wages and benefits to the affected employees for the portion of the 60-day period in which notice was not given, in addition to other potential penalties.

The WARN Act recognizes that plant closings and mass layoffs cannot always be anticipated months in advance, and certain exceptions to the 60-day notice requirement exist.  The “unforeseeable business circumstances” exception is the relevant exception that would be associated with layoffs or plant closings resulting from the January 2, 2013 onset of sequestration.  This exception encompasses a “sudden, dramatic, and unexpected action or condition outside the employer’s control.”[2]  The Labor Department’s interpretive guidance[3] noted that although budget sequestration can be seen months in advance, the actual impact on a particular contractor may be unknown until much later.  Therefore, an abrupt termination of a particular contract might qualify under the “unforeseeable business circumstances” exception.  If contractors must lay off or separate their employees in less than 60 days, such announcements would be sudden and dramatic and therefore consistent with the WARN Act.  According to the Labor Department, in such cases employers would not have to provide the full 60-day notice.

Contractor Costs and the WARN Act

The Office of Management and Budget (OMB) just issued new guidance that certain liability and litigation costs associated with WARN Act compliance will be allowable costs under government contracts.[4]  Under the OMB memorandum, if sequestration occurs and an agency terminates or modifies a contract which causes the contractor to order a plant closing or layoffs subject to the WARN Act’s notification requirements, and that contractor has followed the Labor Department’s guidance, then any resulting court-determined, WARN Act-based employee compensation costs, attorneys fees and other litigation costs would qualify as allowable costs which would be reimbursable by the contracting agency, regardless of the litigation outcome.  Such costs would also have to be both allocable to the contract in question and reasonable in accordance with existing FAR principles.

This new OMB memorandum has prompted several large defense contractors to announce that they will not issue WARN Act notices before January 2, 2013.[5]  However, the guidance has exacerbated partisan tensions.[6]  Senators Charles Grassley (R-IA) and Kelly Ayotte (R-NH) announced jointly that they had sent a letter of inquiry “asking under what authority the administration is using to say it is okay to disregard the law,” and then promise contractors “a taxpayer funded bailout for their legal expenses if they do so.”[7]

Regardless of the seemingly inevitable partisanship that accompanies the run up to a presidential election, there are several points about the most recent OMB memorandum for contractors to bear in mind.  First, the implementation of sequestration alone does not portend layoffs or plant closings triggering WARN Act notice requirements.  There must be some adverse contract action flowing from sequestration’s funding reductions which affects an employer.  In addition, the OMB guidance clearly contemplates a court determination of both employee compensation costs, as well as attorneys fees and other litigation costs.  However, employers may incur substantial costs associated with the publication and dissemination of WARN Act notices or employee negotiations and settlements not resulting in litigation.  Under the OMB guidance, these costs would not seem to be allowable.  Contractors who anticipate potential WARN Act liability should seek guidance from contracting officers about the extent to which their WARN Act-related costs will be allowable.  Awareness of the OMB memorandum by DCAA and DCMA personnel will almost certainly also take time, and ignorance of the OMB guidance could complicate audits.  Finally, before allowable costs may be reimbursed, the Government must have funds available to do so.  If sequestration occurs, agencies may not have sufficient funding to reimburse WARN Act-related costs.  Even if litigation resulted from a WARN Act dispute, the Judgment Fund[8] would not be available for such purposes because the litigation would not involve the United States.

Prudent employers should prepare for various scenarios and have contingency plans in place to provide appropriate notice as soon as it becomes clear that a particular contract action will cause a WARN-triggering employment loss. Some companies are considering “provisional notices,” which communicate to all employees that federal budgetary issues could result in an employment loss.  However, because they do not indicate which specific employees will be impacted and the specific date on which the employment loss will occur, such provisional notices may be “better than nothing” (and may show the employer’s good faith efforts to try to comply with WARN) but are still unlikely to fully satisfy the requirements of WARN.  Finally, employers should be aware that several states have their own plant closing laws (sometimes referred to as “mini-WARN” statutes), and some of these laws have more stringent requirements that the federal law. Employers should thus analyze relevant state laws in states in which a significant employment loss may occur.