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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

The civil False Claims Act (FCA) prohibits entities from fraudulently inducing the Government to contract, take or refrain from taking action, or make payment.  Under the FCA, contractors that falsely certify their compliance with contract specifications can be assessed a civil penalty for each false claim in addition to treble damages.  In USA v. Honeywell International Inc., the Court of Appeals for the District of Columbia Circuit was asked to determine the appropriate measure of damages arising from allegedly false claims made about the ballistic performance of Z Shield material made from Zylon fiber purchased from third parties and sold by Honeywell to Armor Holdings for the production of bullet proof vests, which were then sold to the federal Government and federally-funded state and local government entities. In the case, the Government sought approximately $35 million in damages for the full amount paid for the vests, trebled.  During the proceedings, the Government recovered $36 million in settlements with Armor Holdings and the Zylon providers for their role in the manufacturing and supply of the vests. Honeywell, which had not settled, moved for summary judgment to apply a pro tanto approach to the calculation of damages that would be owed in light of these settlements. Specifically, Honeywell argued that since the Government only sought $35 million in damages, its recovery of $36 million in settlements should preclude the Government from recovering any damages from Honeywell even if the facts alleged in the case were true.  The Government sought to recover a proportionate share of damages from Honeywell under its proposed offset standard, which would allow for the Government to recover more than the $35 million sought in the case.

Continue Reading DC Circuit Sets FCA Offset Standard to Limit What the Government Can Recover in USA v. Honeywell International Inc.

On August 18, 2022, the Office of Federal Contract Compliance Programs (“OFCCP”) issued “Advancing Pay Equity Through Compensation Analysis,” a revision to Directive 2022-01, “Pay Equity Audits.” The revised Directive states that in order to determine that a contractor has satisfied its obligation to conduct a compensation analysis under 41 CFR § 60-2.17(b)(3), OFCCP requires certain documentation. Although the original Directive used the phrase “pay equity audit” to refer to contractors’ obligations under 41 CFR § 60-2.17(b)(3), this revised Directive instead uses the term “compensation analysis” to avoid any confusion regarding the nature of a contractor’s obligations.

Three things to know about the revised Directive:

Continue Reading OFCCP Revises Directive on Pay Equity Audits / Compensation Analysis

Traditionally, a fixed price government contract is one in which the contractor absorbs the risks and costs of performance.  Absent an economic price adjustment (EPA) clause in the contract, an unforeseeable event, such as a force majeure, or government imposed contract change, the contractor is stuck with the benefit or lack of benefit of the particular contractual bargain. In a cost reimbursement contract, while actual allowable, allocable and reasonable costs will be captured and paid, any fee contemplated to address the risks of performing that commitment are typically low.

However, the current landscape is not a normal one.  It may be due to the COVID-19 pandemic sickness, restrictions and lockdowns, the war in Ukraine, China’s belt and road initiative, US spending of trillions of public dollars on entitlement programs, or something else, however, we see the impact in growing workforce, materials and product shortages.  Economic theory aside, we know that so long as there is a continuing demand for limited services and supplies inflation will continue to grow.  And, if price controls are instituted, they will not aid existing product shortages, and in fact may compound them.

Continue Reading Growing Issue of Inflation in Government Contracts Supply Chain Leads to DoD Clarification on Potential for Relief