Government Contracts, Investigations & International Trade Blog : Government Contracts Lawyer & Attorney : Sheppard Mullin Law Firm : Bids, Licenses, Awards, Conflict of Interest.

By: David S. Gallacher

Just in time for the end-of-year push to fund the Government and to "create more jobs," members of Congress and President Obama had a rare moment of consensus when they unanimously(!) repealed an extremely unpopular withholding requirement that has been haunting recipients of federal funds since 2005. The "3% Withholding Repeal and Job Creation Act" was signed into law on November 21, 2011 (Pub. L. No. 112-56, Title I), eliminating a requirement to withhold 3% on most payments to contractors and grant recipients. While there are many in Government and industry alike who are ecstatic at the passage of the Act, the Ghost of Christmas Future warns that this specter of "withholding" may not have yet fled the scene. Like poor, chained Jacob Marley from Dickens' A Christmas Carol, industry may yet find itself captive, bound, and double-ironed by future Congressional plots to confiscate funds from government contractors. Miserly grasping for every penny, one can almost hear the federal Government grumbling, "Bah! Humbug!"

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By David S. Gallacher

Those familiar with Government contracting know at least a little bit about the elusive and fickle regulatory requirements for Independent Research and Development (“IR&D” or “IRAD”) costs. IR&D is a means by which the U.S. Government supports a Contractor’s independent R&D efforts. By reimbursing a Contractor’s independent R&D costs, the Government long has hoped to advance the state of the art without stifling a contractor’s innovation under the weight of a federal bureaucracy, while simultaneously banking on the fact that the U.S. Government also will benefit from the technology advancements. But two recent developments may change the essential nature of IR&D, making it less “independent” and more “dependent” on Government rights and oversight. To quote Bob Dylan – “the times they are a changin’.” 
 

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By: John W. Chierichella and W. Bruce Shirk

We previously noted DCAA’s hasty implementation of the Court of Appeals for the Federal Circuit’s (“CAFC’s”) decision in Gates v. Raytheon Co., 584 F.3d 1062 (Fed. Cir. 2009), requiring daily compounding of interest on adjustments made to rectify Cost Accounting Standards (“CAS”) noncompliances. DCAA Implements Federal Circuit Decision Requiring Interest Compounded Daily on Adjustments for CAS Noncompliances (June 14, 2010). We say “hasty” because – while noting that its holding was required by Canadian Fur Trappers v. United States, 884 F.2d 563 (Fed. Cir. 1989) – the panel expressed reservations regarding that decision’s validity, commenting that appellee’s (Raytheon’s) arguments “may support the proposition that Canadian Fur Trappers was erroneously decided.” Not surprisingly, Raytheon accepted this implicit invitation to petition for rehearing en banc, and that petition is currently pending. Nonetheless, the FAR Councils are now rushing to mimic DCAA by proposing in equally hasty fashion to extend the holding to overpayments under the Truth in Negotiations Act (“TINA”). 75 Fed. Reg. 57719-57721 (Sept. 22, 2010).
 

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By Alexander W. Major

Effective October 1, 2010, the final rule amending FAR subpart 15.4 expands government contracting officers’ ability to obtain cost or price-related data for all contracts, including currently exempted commercial-items contracts. The amended rule is intended to clarify the FAR’s definition of “cost or pricing data” and to make the definition consistent with that used in the Truth in Negotiations Act (“TINA”) (10 U.S.C. §2306a and 41 U.S.C. §254b). The final rule’s effect, however, may increase both a government contractor’s disclosure requirements and its False Claims Act vulnerability.
 

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By W. Bruce Shirk

Albert Einstein supposedly said that “the most powerful force in the world is compound interest.” Whether or not the great man actually said that, DCAA is now prepared to show contractors just how powerful compounding can be.
 

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The Obama Administration is now planning yet another spending plan, this time in the form of a policy that actively encourages federal contractors either to increase the pay and benefits extended to their workforces, or to face an evaluative disadvantage in competing for federal contracts. This so-called "High Road Procurement Policy" includes an evaluative reward for "potential Federal contractors that pay wages or provide benefits above those required by our laws," including the Service Contract, the Davis-Bacon, the Walsh-Healey, and the Fair Labor Standards Acts.
 

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In Teknowledge Corp. v. U.S., Fed. Cir., No. 2009-5053, 11/03/09, the U.S. Court of Appeals for the Federal Circuit affirmed a decision by the Court of Federal Claims (COFC) that software development costs were not allocable to the Government because the Government did not receive a benefit from the costs.  Earlier this year we wrote about the potential implications of the COFC's decision.
 

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With the elimination of the IR&D and B&P ceiling a decade or so ago and the recognition of “dual use” technologies as appropriate subjects of IR&D, contractors have tended to place questions relating to the allocability of IR&D on the back burner. True, the old concurrency issue remained, but allocability seemed to be relatively non-controversial. Based upon a COFC decision issued earlier this year -- and to quote Bob Dylan -- “The times they are a changin.’”
 

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In November 2002, the FAR Councils eliminated the so-called "paid cost" rule from the FAR, which had previously prevented federal prime contractors other than small businesses from recognizing incurred subcontractor costs for purposes of progress billing until "payment by cash, check, or other form of actual payment" had actually been made. See 67 Federal Register 70520 (Nov. 22, 2002). The Government form used to request progress payments, the Standard Form (SF) 1443, Request for Progress Payments, implemented the paid cost rule by requiring large contractors to identify "paid costs eligible under progress payments clause" (Line 9) and "incurred costs eligible under progress payments clause" (Line 10). See FAR 53.301-1443 (2008) (last updated in October 1982). Bizarrely, however, when the paid cost rule was eliminated in 2002, the SF 1443 was not updated to remove these two lines. Now -- a mere six years and eight months since the elimination of the paid cost rule -- the FAR Councils have finally issued a revised SF 1443, removing Lines 9 and 10 and thereby eliminating the last vestiges of the long-defunct rule. See 74 Federal Register 28430 (Jun. 15, 2009).
 

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On May 19, 2009, the Federal Circuit in Secretary of the Army v. Tecom upheld the contracting officer’s disallowance of a contractor’s legal costs and settlement expenses in a sexual harassment and retaliation action brought under Title VII. The opinion is sweeping, and appears to extend the holding in Boeing North American, Inc. v. Roche, 298 F.3d 1272 (Fed. Cir. 2002) to almost every instance in which the contractor elects to settle in lieu of litigating cases to a conclusion.
 

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On December 19, 2008 DCAA issued new guidance for audit of and reporting on internal controls that -- in two short pages of sometimes cryptic text -- (a) redefines the agency's approach to the critical concepts of "significant deficiency" and "material weakness" in internal controls and (b) establishes new criteria for auditor reports of deficiencies in large contractor internal control systems, and recommendations as to the adequacy of the contractor systems, including recommendations that the Contracting Officer pursue suspension of progress payments on reimbursement of costs. 

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Effective October 17, 2008, the Cost FAR Councils will implement revisions to the policies and procedures for contract debts under FAR Subpart 32.6.  The changes cover all contract debts to the Government resulting from contractor’s compliance or failure to comply with contract terms, and irrespective of how, or by whom, the debt is identified.  The revisions grew out of DoD’s recommendations published on May 26, 2005, and are being applied Government-wide “to improve contract debt controls and procedures, and to ensure consistency within/between existing regulations.”  73 Fed. Reg. 53997.

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By John W. Chierichella and Marko W. Kipa
Legal Times
10-08-2007

Reform is not always popular among those who enjoyed the old regime. The current push to strip away protections afforded to contractors participating in commercial-item acquisitions illustrates this struggle - and why the reforms were valuable in the first place.

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