Helping individuals, companies, and organizations understand key legal and practical considerations for promoting compliance and making better business decisions in these types of federal, state, and local government contracting matters MORE

The AbilityOne Program, established by the Javits-Wagner-O’Day (JWOD) Act in 1971, requires federal government agencies to procure certain products and services from community-based nonprofit agencies that employ individuals who are blind or have significant disabilities.

Facts

In a recent U.S. Court of Federal Claims decision, SEKRI, Inc. (SEKRI), a Kentucky nonprofit textile and apparel manufacturer that employs severely disabled individuals, filed a pre-award bid protest, claiming that the Defense Logistics Agency (DLA) and the United States Ability One Commission violated the JWOD Act by proposing to award 50% of the solicitation for Advanced Tactical Assault Panels (ATAP) competitively to a commercial supplier.  SEKRI argued that 100% of the award should go to SEKRI, the nonprofit agency that AbilityOne had designated to be the mandatory source of supply for 100% of the Department of Defense’s ATAP requirements.  Further, SEKRI claimed that DLA could not negotiate a more favorable contract price for ATAP.

Holding

The U.S. Court of Federal Claims agreed with SEKRI finding that AbilityOne’s designation of a nonprofit agency as a mandatory source for only 50% of the requirement was unlawful.  The Court found that no statutory or regulatory exception allows AbilityOne to limit the scope of ATAP on the procurement list.  The nonprofit agency was available to produce the entire quantity of ATAP for DLA within the required time.  Moreover, DLA had not issued any purchase exception, and the Court found that no deletion from the procurement limit was appropriate.  Accordingly, the Court ordered AbilityOne to update SEKRI’s status on the procurement list to indicate that it is the mandatory source for 100% of the ATAP requirement.

Takeaway

This decision makes clear that all federal agencies must comply with the mandatory purchasing requirements under the JWOD Act.  The AbilityOne Commission does not have the regulatory authority to reduce the mandatory source requirement.  In the future, any attempts by agencies participating in the AbilityOne Program to make purchases below the 100% threshold to nonprofit agencies will certainly be scrutinized and will likely be found unlawful.

If you have questions about the AbilityOne Program, government contracts, or investigations, contact the author of this advisory or your Stinson counsel.

Case Citation:  SEKRI, Inc. v. United States, No. 21-778, 2023 WL 2473533 (Fed. Cl. Mar. 13, 2023)

On January 6, 2023, the White House’s Council on Environmental Quality (CEQ) announced new interim guidance for evaluating greenhouse gas (GHG) emissions and climate change under the National Environmental Policy Act (NEPA). CEQ published the guidance in the Federal Register on January 9, 2023, and it is immediately effective for all federal agencies. Nevertheless, the agency is taking comments on the guidance until March 10, 2023 and may revise the guidance thereafter. The guidance’s impact will extend beyond federal projects, though, and include private projects with a sufficient federal nexus.

NEPA’s General Environmental Review Requirements

NEPA requires the federal government to analyze the potential effects of agency actions on the natural and human environment. A federal agency action subject to NEPA review involves direct department actions such as constructing a highway, providing funding for projects conducted by non-governmental entities, managing federal lands, and approving permits for private projects. The type of NEPA review depends on the size and scope of a proposed action. Major federal actions require the development of an environmental impact statement. Agencies may also conduct environmental assessments and categorical exclusion determinations for activities with smaller impacts. In any case, a NEPA analysis should identify and assess the direct and indirect effects that a proposed federal action will have on the environment and consider appropriate mitigation measures.

NEPA’s environmental review requirements are procedural, and the existence of adverse impacts do not themselves forestall a federal decision when appropriate mitigation measures are implemented. However, NEPA’s reviews can be time consuming, financially burdensome, and may disclose sensitive information to the public. Evaluating GHG emissions in the NEPA process could add to these delays and expenditures.

Analyzing Greenhouse Gas Emissions Under NEPA

CEQ’s guidance directs agencies to quantify the reasonably foreseeable gross GHG emission increases or decreases for proposed federal actions. This quantification must be compared to the emissions that would result from no federal action being taken or any reasonable alternatives over their projected lifetime. Agencies are directed to identify and evaluate project alternatives with the fewest resulting GHG or the greatest net climate benefits, although the guidance does not mandate that any one alternative be selected over another.

GHG data should be calculated to determine direct and indirect emissions per CEQ’s guidance. Direct GHG emissions will be relatively easy to determine for smokestacks and other visibly apparent GHG sources. However, calculating indirect GHG will involve consideration of land use changes, changing behavioral patterns, and other foreseeable emissions from a project. CEQ has not identified a “significant” emissions threshold, resulting in a broader scope of potential GHG for consideration.

The guidance also notes that emissions should be reflected in terms of carbon dioxide-equivalence (CO2-e). Federal projects or decisions may accordingly have greater overall GHG emissions portfolios if the relevant emissions are determined to have larger global warming potential than carbon dioxide. Specifically, the use of an equivalence factor will be relevant when addressing the climate change impacts of methane and nitrous oxide sources.

CEQ’s guidance further states that, when “helpful,” NEPA environmental reviews should detail how a proposed federal action undermines or improves the ability for government entities to meet relevant climate change goals. In making that determination, CEQ directs agencies to apply a “rule of reason” when construing “science-based GHG reduction policies” and assessing covered projects. The guidance refers to the United Nations’ Framework Convention on Climate Change, as well as United States’ commitments under the Paris Climate Accord, as areas for consideration in making these assessments and ultimate determinations.

CEQ Guidance Gives Explicit Preference to Certain Industries

The guidance will impact all projects with a federal nexus, but language in the Federal Register reflects that certain industries will not be subject to increased scrutiny. CEQ’s published notice states that:

“Absent exceptional circumstances, the relative minor and short-term GHG emissions associated with construction of certain renewable energy projects, such as utility-scale solar and offshore wind, should not warrant a detailed analysis of lifetime GHG emissions.”

Presumably, the rationale underlying this exclusion is that renewable energy projects will produce little emissions over the life of the assets. It also conversely implies that federal agencies should take a harder look at their decisions involving fossil fuel resources. For example, Federal Energy Regulatory Commission proceedings for natural gas pipelines must still evaluate and document all foreseeable and cumulative GHG figures.

Infrastructure Investment and Jobs Act and Inflation Reduction Act

The interim guidance specifically calls for the use of these environmental assessments in identifying and carrying out projects under the Infrastructure Investment and Jobs Act and the Inflation Reduction Act. Given the time required to conduct some NEPA assessments, environmental reviews will undoubtedly add to the duration of funding timeframes.

Public Comments Accepted until March 2023

CEQ is accepting public comments on its guidance through March 10, 2023. Federally regulated industries, entities, and individuals subject to federal contracts should review the guidance and consider its impacts on future projects. If there are concerns with the implementation of the guidance as it is currently written, such as the standards and costs of compliance, comments should be submitted. Affected businesses should also reevaluate their environmental compliance protocols in light of this guidance.

Contact Us

For more information on the new greenhouse gas emissions guidance, please contact one of the authors of this blog or the Stinson LLP contact with whom you regularly work.

    More Time to Claim Tax Credits

    The Inflation Reduction Act (IRA) is one of the most ambitious pieces of legislation yet aimed at combating climate change and promoting energy independence. Its proponents claim that it will reduce carbon emissions by 40%, relative to 2005 levels, over the next decade by incentivizing new infrastructure developments such as electrification and expanding renewable energy supply-side resources. Incentives under the IRA include extending and promoting tax credits in the renewable and biofuels sector. Below is a brief rundown of some of the more significant new and existing ways in which you may be able to earn tax credits and other incentives under the IRA.

    Direct Support for Alternative Fuel Producers and Blenders

    The most apparent incentives for biofuels within the IRA are the legislation’s direct support for alternative fuel producers and blenders. For instance, the IRA extends the preexisting alternative fuel tax credit, alternative fuel mixture tax credit, biodiesel and renewable diesel tax credit, and biodiesel mixture tax credit until December 31, 2024. These credits were otherwise scheduled to expire at the end of 2022. The extension means that alternative fuel producers and users can continue to claim credits of 50 cents per gallon sold for the alternative fuel and alternative fuel mixture credits. They can also claim $1.00 per gallon of biodiesel used for the biodiesel and renewable diesel and biodiesel mixture tax credits.

    Qualifying alternative fuels include liquefied petroleum gas, compressed natural gas and compressed or liquefied fuels made from biomass. “Biodiesel” under the biodiesel and renewable diesel and biodiesel mixture tax credits includes diesel derived from vegetable and seed oils as well as animal fats. Potential claimants should note that the alternative fuel and alternative fuel mixture tax credits can be claimed as an excise tax credit or received as an outlay, while the biodiesel and renewable diesel and biodiesel mixture tax credits can both be claimed as an immediate excise tax credit against the blender’s motor and aviation fuels excise taxes. Any credits in excess of excise tax liability may be refunded.

    Extension of Existing Second Generation Biofuel Producer Tax Credit

    The IRA also extends the second generation biofuel producer tax credit until 2025, which was set to expire in 2022. This credit provides a $1.01 per gallon income tax credit for second generation biofuel producers. “Second generation biofuel” refers to liquid fuel made from certain feedstock, such as lignocellulose or hemicellulose, that meets the registration and emission requirements of the Clean Air Act. The air emissions restrictions may make this credit more difficult to obtain than other incentives, but that added qualification presents the opportunity to enhance the relatively limited commercial value of secondary agricultural products like grass stalks and associated biomass.

    New Sustainable Aviation Fuel Credit

    Beyond supporting ethanol and biodiesel for motor vehicles, the IRA incentivizes the production of alternative fuels for airlines by establishing the sustainable aviation fuel credit. This credit attaches to both the sale and use of qualifying aviation fuel and entitles claimants to a $1.25 per gallon credit. Claimants may also increase the credit amount up to $1.75 per gallon by using sustainable aviation fuel that reduces greenhouse gas emissions beyond the requisite 50% reduction compared to traditional aviation fuel. To qualify, alternative aviation fuels will need to meet certain engineering specifications and be created from biomass like fats, oils and greases.

    Because the sustainable aviation fuel market is still emerging, this tax credit may be available to expand commercial opportunities for agricultural producers as well entities involved in the creation and shipping of biofuels. The sustainable aviation fuel credit will be available through the 2024 calendar year.

    New Qualified Advanced Energy Project Tax Credit

    The IRA authorizes an additional $10 billion to fund the qualified advanced energy project credit. In contrast to the aforementioned credits which attach directly to the sale or use of biofuels, the qualified advanced energy project credit incentives the reestablishment of energy infrastructure production facilities, which may involve ethanol and other biofuels. The total credit amount is 30% of the qualified investment into a qualifying advanced energy project such as capital improvements that enable a fuel manufacturing facility to reduce greenhouse gas emissions by at least 20%.

    Note, however, that receiving the full tax credit is contingent on meeting the IRA’s prevailing wage and apprenticeship requirements. The credit is also not allowed under this section for investments when any of several other renewable facility credits are available, including the carbon sequestration tax credit discussed below.

    New Clean Fuel Production Tax Credit

    Another new tax credit created under the IRA is the clean fuel production tax credit for the sale and production of qualifying fuels from 2025 through 2027. Qualifying fuels, such as biofuels, are subject to specified emissions rates and must also be produced in qualifying facilities. For example, qualifying transportation fuels must have an emissions rate no greater than 50 kilograms of CO2-equivalent per one million British thermal units, and claimants must meet prevailing wage and registered apprenticeship requirements to receive the maximum credit amount. Biofuel manufacturers that adopt new technologies to improve their emissions efficiencies will be best positioned to capitalize on this credit.

    Total potential tax credits amount to $1.00 per gallon of transportation fuel, or $1.75 per gallon of sustainable aviation fuel, multiplied by an emissions factor. The emissions factor depends on the clean fuel’s emissions performance relative to 50 kilograms of CO2-equivalent per one million British thermal units. Of cautionary note though, the clean fuel production tax credit is unavailable for fuel produced at facilities that may be subject to other tax credits such as the tax credit for carbon sequestration discussed below.

    Continued Carbon Sequestration Tax Credit

    Although not directly benefiting biofuel producers, another tax incentive which supports the biofuel industry altogether is the IRA’s extension of tax credits for carbon sequestration activities. The energy and land requirements to produce biofuel can undercut the fuel alternative’s environmental potential because more carbon may be released into the atmosphere over a fuel’s lifecycle than compared to carbon emissions while burning. Carbon sequestration presents a potential solution to this lifecycle problem by enabling ethanol producers to effectively remove a substantial portion of their carbon emissions from lifecycle emission calculations. If successful, carbon sequestration can lower a biofuel’s carbon intensity score and, in turn, make it more attractive in a low-carbon fuel standard market like California or Oregon.

    The IRA supports carbon sequestration efforts by extending the existing tax credit until December 31, 2032, and lowering annual emission requirements. Claimants previously seeking a tax credit under Section 45Q were required to capture 100,000 metric tons (mt) of carbon oxide annually. Now, per the IRA’s revisions, carbon capture facility owners may claim credits up to $180 per mt if they capture at least 12,500 mt/year and the facilities started construction prior to January 1, 2033. However, the total credit amount will depend on the type of carbon capture process, and potential claimants need to consider that the carbon capture tax credit is now subject to the IRA’s prevailing wage and apprenticeship programs. Failing to meet these requirements reduces potential credits by 80% in accordance with the IRA.

    The IRA supports two general carbon capture processes: source capture, which involves carbon capture equipment installed directly on an emissions source, such as a fuel refinery or a power plant; and direct air capture (DAC), which involves equipment that removes carbon oxides from the atmosphere. For source capture, assuming the IRA prevailing wage and apprenticeship requirements are satisfied, an entity can obtain a tax credit up to $85 per mt for sequestered carbon ($60 per mt for reused carbon) as long as the facility captures 12,500 mt annually (18,750 mt for power plants). For DAC, again assuming the IRA prevailing wage and apprenticeship requirements are satisfied, an entity can obtain a tax credit up to $180 per mt for sequestered carbon ($130 per mt for reused carbon), with DAC facilities required to only capture 1,000 mt annually to qualify for the credit.

    Other Investment Opportunities May Be Available

    This article highlights the IRA’s provisions most likely to support biofuel facilities. However, application of these IRA provisions is complex and should not be considered in a vacuum. These tax incentives may be impacted by other federal infrastructure programs. Consult with counsel to address these programs in light of your specific circumstances.

    Contact Us

    If you have questions about this alert, or would like assistance addressing how to take advantage of the IRA’s incentives, please reach out to Stinson’s Infrastructure Task Force, or the Stinson LLP contact with whom you regularly work.

    On December 1, 2022, the Federal Acquisition Regulatory Council (comprised of both the civilian and military acquisition regulatory councils) issued the final FAR rule on “Effective Communication between Government and Industry.” The final rule becomes effective on December 30, 2022. This final rule is a long time coming.

    Dan Gordon, the Office of Federal Procurement Policy (OFPP) Administrator during the Obama Administration back in 2011, began the laudatory efforts to engage government and industry in achieving a better understanding of what they could say, to whom, and when in procurements in a series of three “Myth-Busting” memoranda, starting with “‘Myth-Busting‘: Addressing Misconceptions to Improve Communication with Industry during the Acquisition Process.” Lesley Field, Acting OFPP Administrator after Mr. Gordon, issued a fourth “Myth-Busting” memoranda in 2019, “‘ Myth-Busting #4’ – Strengthening Engagement with Industry Partners through Innovative Business Practices.” Those memoranda provided excellent information to the procurement community on the whys and hows of communications that should take place during the acquisition cycle.  One wonders why it took so much time to issue a final rule that reflects this long understood intent that fair and open communications are beneficial to competition.

    As summarized in the Federal Register announcement, the final rule is issued “to implement a section of the National Defense Authorization Act for Fiscal Year 2016. … [to clarify] that agency acquisition personnel are permitted and encouraged to engage in responsible and constructive exchanges with industry, so long as those exchanges are consistent with existing law and regulation and do not promote an unfair competitive advantage to particular firms.” In finalizing the rule, the FAR Council appears to retreat from expressing the affirmative concept that open communication is encouraged to promote competition as expressed in the earlier draft of the rule, and instead provides that open communication cannot be used to promote unfair competitive advantage:

    1.102–2 Performance standards.

    (a) * * * (4) The Government must not hesitate to communicate with industry as early as possible in the acquisition cycle to help the Government determine the capabilities available in the marketplace. Government acquisition personnel are permitted and encouraged to engage in responsible and constructive exchanges with industry (e.g., see 10.002 and 15.201), so long as those exchanges are consistent with existing laws and regulations, and do not promote an unfair competitive advantage to particular firms.

    In issuing the final rule, the Council makes clear that “The rule is not a mandate, allowing contracting officers the discretion to use business judgment and best practices.” It also states that it distinguishes this rule from FAR 10.002, as the communications exhortation in the new FAR rule 1.102 is intended to go beyond a procurement official’s market research communications.  However, the actual language of the rule does not make that intent as clear as the rulemaking history states.

    Additionally, the final rule does not provide specific examples of the kinds of effective and appropriate communications that would provide more clear guidelines on who procurement officials should engage with, what they should discuss, and when.  Nor does the final rule require that the OFPP or individual agencies provide more or specific types of training for federal acquisition officials on how to implement and engage in effective communications.  It leaves such matters to the OFPP and the agencies to decide.

    The final rule however does impose more requirements on industry when it states that “It is incumbent on industry to ensure their workforces are educated in the rules and processes involved with communicating with the Government.” The takeaway? If you’re a member of industry and haven’t already done so, you need to develop policies and conduct training to establish the parameters of what your personnel can and should discuss with government personnel during the procurement lifecycle.  A word to the wise, document your efforts in this regard to establish your good faith intent to do this the right way.

    While government procurement personnel may not be rushing to engage industry to a greater extent now that the rule is issued, contractors should be thinking about what they can do to encourage communications.  While no government-industry working group has been established to better develop an understanding of the parameters of these discussions, the Dan Gordon “Myth-Busting” memoranda are still around and still a very useful resource.

    If you have questions about this advisory, or other government contracting compliance matters contact the author, or your Stinson counsel.

    Fiscal Year 2023 started on October 1 and, without a final set of Department of Defense (DoD) authorizations and appropriations, the DoD currently is operating under continuing resolution.  A version of the National Defense Authorization Act (NDAA) for Fiscal Year 2023 bill passed the House of Representatives and has been sent to the Senate for its consideration.  The House version, H.R. 7900, in addition to authorizing the procurement of various items, would provide for further environmental and equity initiatives, such as providing for (i) electric vehicle charging stations at commissary stores and military exchanges, (ii) a pilot program to facilitate the transition of certain nontactical vehicles to electric vehicles, (iii) a temporary prohibition on cost-sharing requirements for contraceptive prescriptions and related services, (iv) imposition of data standards for certain agencies, (v) development of “gender-neutral fitness standards” for certain military occupational specialties, as well as (vi) prohibition on barring a veteran from federal employment solely because the veteran consumes or has consumed cannabis, and more.

    Continue Reading National Defense Authorization Act for Fiscal Year 2023 Bill Passes House and Moves to Senate Where Amendments Are Being Proposed