DHS Issues New SAFETY Act Application Kit

DHS Issues New SAFETY Act Application Kit By J. Michael Littlejohn, Esq. michael.littlejohn@akerman.com O n August 17, 2006, DHS published a new, streamlined application kit for businesses seeking to protect their products and services under the SAFETY Act. The SAFETY Act allows a company to obtain liability protections for products and services that are approved by the Department of Homeland Security as Qualified Anti-Terror Technologies. Enacted by Congress in 2002 as part of the Homeland Security Act, the SAFETY Act encourages companies with anti-terror solutions to sell their products and services without fear of potentially unlimited tort liability in the case of a terror attack. The revision to the application kit comes after Please route this issue to: industry complaints that the initial application process was overly burdensome and requested more information than anticipated by the statute. The new application kit is much simpler and leaves more discretion to the Seller applying for coverage to formulate answers. For instance, in the original application, a Seller would have to fit its technology or risks into certain categories provided by DHS. The application now provides more freedom for the Seller to describe its product and the risks that may be involved in putting the product on the market without SAFETY Act coverage. In addition, the new kit defers requests for detailed contractor financial data until after an initial determination of the application and whether DHS believes the insurance coverage will distort the price of the product. This change is a far cry from the application s previous requirement that a company initially provide detailed financial information on the product and the company. Further, the new application package provides application kits for other categories of designations. For example, a Seller can seek a DT&E (Development Testing & Evaluation) Designation for products that have not yet been deployed operationally but for which a company wants protection. The Seller can use a shortened application for obtaining protection for a product that fits in the category of Block designations made by the Secretary -- i.e., groups of products and services that the Secretary has deemed should be covered by the Act. INSIDE Board Sanctions Agency for Refusing to Produce Documents... 2 COFC Has No Jurisdiction Over Task Order Protests... 2 You Can t Always Get What You Want... 3 Iraq Contractor Escapes False Claims Liability... 3 Test Claim Doesn t Limit Court s Jurisdiction.. 5 Upcoming Events... 6 1

Board of Contract Appeals Sanctions Agency for Refusing to Produce Documents By J. Michael Littlejohn, Esq. michael.littlejohn@akerman.com A recent case at the Agriculture Board of Contract Appeals tested the board s authority to require the government to provide documents and comply with the orders of the board. In Mountain Valley Lumber, Inc., AGBCA No. 2003-171-1, 2006 BCA ---- (July 18, 2006), the agency (the Forest Service) refused to produce relevant documents that were in the possession of the Department of Justice. The board issued orders requiring production, and, when those were ignored, issued a subpoena to the Forest Service for the documents. When the agency did not comply with the subpoena, the board judge requested that the Attorney General file a motion to enforce the subpoena with the district court consistent with 41 USC 410. The Attorney General refused to file the motion requiring the Forest Service and Justice Department to comply with the subpoena. The agency and the DOJ argued that the documents sought were privileged, but would not provide the documents for the board to review to determine the validity of that assertion. The DOJ argued that the agency could not be compelled by the board to provide documents because the Contract Disputes Act, 41 USC 610, gives the board the power only to require a person to comply with a subpoena. According to the Forest Service and DOJ, an agency is not a person, and therefore cannot be compelled to comply with a discovery subpoena in a board case. The board disagreed, finding that it was only logical that Congress intended for the board to have the authority to seek to enforce a subpoena against a government agency to provide the parties with due process in board proceedings. The board concluded that it would impose sanctions in the form of adverse inferences against the agency if it did not produce the documents or a privilege log within 14 days of its decision. This case gives some hope to contractors that the boards will enforce discovery obligations of the government in contract litigation. COFC Has No Jurisdiction Over Task Order Protests By Steven Koprince, Esq. steven.koprince@akerman.com The Court of Federal Claims again confirmed that it does not have jurisdiction over a bid protest regarding an individual task order issued pursuant to an Indefinite Delivery-Indefinite Quantity ( IDIQ ) contract, even when the award of the task order suffers from potentially serious irregularities. A&D Fire Protection, Inc. v. United States, 2006 U.S. Claims LEXIS 237 (Ct. Cl. 2006). In 2004, A&D Fire Protection, Inc. ( A&D ) was awarded a GSA IDIQ contract for various repair, renovation, and construction-related services in Arizona, Nevada, or California. The IDIQ master contract provided that multiple awardees might be considered for the award of each task order issued under the contract. In 2005, GSA solicited offers from seven IDIQ holders, including A&D, to complete the fire alarm replacement project in California. A&D submitted the lowest bid at a total price of approximately $1.64 million. GSA, however, awarded the contract to Hernandez Construction ( Hernandez ), the second-lowest bidder, whose total price was approximately $1.74 million. Explaining its award decision, GSA stated that A&D s proposal suffered from technical flaws and that Hernandez offered the most technically beneficial proposal, justifying its higher price. After a debriefing with A&D, GSA agreed to re-evaluate A&D s proposal. The re-evaluation resulted in a higher technical score for A&D, but Hernandez was still rated technically superior. A&D then filed a postaward bid protest with the Court of Federal Claims, seeking a declaratory judgment voiding the contract awarded to Hernandez and a preliminary injunction prohibiting Hernandez from proceeding with performance of the contract. The Court held that federal law prohibited it from hearing bid protests regarding individual task orders issued under an IDIQ and dismissed A&D s protest for lack of jurisdiction. The Court s decision was based on the Federal Acquisition Streamlining Act ( FASA ) passed in 1994, which was designed to reform and simplify the Government s procurement activities. FASA provides that awards of individual task orders under 2

multiple award IDIQ contracts are not subject to bid protests except for a protest on the ground that the order increases the scope, period, or maximum value of the contract under which the order is issued. 41 USC 253j(d). Under FASA, a contractor s only formal recourse to protest the award of a task order is to contact the awarding agency s task and delivery order ombudsman. The Court rejected A&D s argument that FASA only barred protests brought to GAO, holding that FASA more broadly prohibits contractors from bringing protests based on task orders to the Court of Federal Claims. The court also held that the FASA bar applies to contracts for construction services, such as the installation of the fire alarm system, when those contracts are awarded as task orders under master IDIQ contracts. The Court expressed concern that FASA s limitations on bid protests could allow unfair procurement decisions to go uncorrected, writing [t]he streamlining of federal procurements allowed by the ban on protests of task order contracts may be abused when the principles of fair competition are subverted. The Court was troubled that FASA did not allow it to examine the alleged irregularities in the contract awarded to Hernandez. Nevertheless, the Court concluded that its hands were tied the language and intent of FASA prohibited it from hearing A&D s bid protest, and none of the exceptions identified in 41 USC 253j(d) applied. Accordingly, the court dismissed the protest. You Can t Always Get What You Want: Agency Must Solicit in Accordance With Needs, Not Desires By Sarah Graves, Law Clerk sarah.graves@akerman.com If an agency cannot justify the inclusion of specific solicitation criteria that operate to exclude potential bidders, it will have to amend the criteria in strict accordance with stated needs according to GAO s decision in MadahCom, Inc., B-298277, 2006 U.S. Comp. Gen. LEXIS 126 (Aug. 7, 2006). In MadahCom, the Army Corps of Engineers issued an RFP for the installation of emergency mass notification systems (MNSes) in Germany that included several requirements for potential offerors. MadahCom argued that the requirements excluded it and others from the competition and were not related to the agency s actual needs. For instance, the RFP required all wireless transmissions and equipment to comply with the "APCO 25" standard for land mobile radios (LMRs). MadahCom claimed that this compliance criteria was not required because an offeror could meet the agency s needs without meeting the standard. The GAO agreed, noting that the government s Unified Facilities Criteria (UFC) did not require that the solicitation include the APCO 25 standard. The agency included the requirement only because the UFC noted that APCO 25 compliance was a possible future improvement. Accordingly, GAO found that there was no evidence in the record that APCO 25 compliance was required. It also rejected the agency s argument that APCO 25 compliance was properly included in the solicitation because the requirement would ensure future compatibility with other systems and would not commit the agency to proprietary technology. The agency argued that the original statement of work required that the system provided must support expansion and be easily expandable, and modular. GAO did not accept this statement as a justification for inclusion of the APCO 25 standard, noting that the requirement did not clearly relate to interoperability that would occur from the APCO 25 standard. Iraq Contractor Escapes False Claims Liability for Work with CPA By J. Michael Littlejohn, Esq. michael.littlejohn@akerman.com As we noted in our August 2005 issue, the Custer-Battles case in the Eastern District of Virginia is a closely watched False Claims Act matter involving whether a contractor doing work in Iraq could be found liable under the False Claims Act for work performed for the Coalition Provisional Authority. Last year, in a summary judgment motion, the court found that a contractor can be liable under the False Claims Act as long as the contractor knowingly submits, or causes to be submitted, to a government officer a claim for payment of U.S. funds. The district court found that the CPA funds came from four different sources: (1) 3

funds appropriated by Congress; (2) confiscated Iraqi funds, or vested funds; (3) seized Iraqi assets, or seized funds; and (4) funds from the Development Fund for Iraq ( DFI ). Vested funds were those that the United States Government had frozen after the Gulf War. Seized funds included the millions of dollars in cash that U.S. troops found in Saddam s palaces in 2003. The court found that the False Claims Act applied to any funds over which the U.S. Government could exercise dominion and control -- which included both seized and vested funds in addition to appropriated funds. Accordingly, the court determined that if the relator could prove at trial that the contractor had knowingly presented or caused to be presented to a government officer a false claim for payment from U.S. controlled funds, false claims liability would attach. The court did not believe it was necessary to determine at that time whether the CPA was a United States instrumentality because the key question was whether the contractor had caused the CPA to draw on U.S. government funds. After trial, a jury found the contractor guilty of false claims -- namely that it had received an advance payment of $3 million that was supported later by the submission of false invoices. After the verdict, the contractor filed a motion for judgment as a matter of law, arguing that the relators never proved that the contractor had presented any claims to a government officer. In response to the motion, the court conceded that the $3 million advance payment came from U.S. funds to which the false claims act liability could attach. However, the court questioned whether the contractor had knowingly present[ed], or cause[d] to be presented, to an officer or employee of the United States Government a false or fraudulent claim for payment as required by 31 USC 3729(a)(1). The court concluded that the relators had to show that the contractor presented a false claim, or false records supporting the claim, to a government officer working in their official capacity. If the court found that the CPA was a U.S. government entity, it believed the presentment requirement could be easily met. On the other hand, if the court determined that the CPA was not a U.S. Government entity, then the relator had to prove that in submitting the claims to the CPA, the contractor caused them to be ultimately submitted to a U.S. government official, in his official capacity, for payment. The court found that there was no evidence that the CPA had submitted invoices or other documents outside the CPA to a U.S. Government official for payment. Accordingly, as to presentment, the case turned on whether the CPA was a U.S. Government entity. The Court reasoned that the CPA is not a U.S. Government entity. It found that it was staffed by U.S. Government officials and substantially funded with U.S. Government funds, but that the United States did not exercise the level of exclusive control needed to qualify it as an instrumentality of the U.S. Government. Accordingly, since the CPA was not an instrumentality of the U.S. Government, then the U.S. employees working for the CPA were not working in their official capacity as employees of the U.S. Government. Accordingly, showing that a false claim or false documentation was presented to a U.S. CPA employee would not satisfy the presentment requirement. Moreover, the court found that the CPA did not pass through the contractors invoices to the U.S. Government so that the contractor would have caused the false statement to be presented to the U.S. Government. In the summary judgment decision, the court found that the CPA s standard practice was to obtain invoices from contractors and then certify to the United States Army that the amounts in the invoices should be paid. In other words, the invoices would cause the CPA to present to the U.S. Army a request for payment. This procedure would probably have met the presentment test. However, as it related to the $3 million advance payment, the court found that the CPA s practice was different and did not result in a presentment to the U.S. Government. Because it was an advance payment, the CPA was not required to submit the invoices to the Department of the Army for payment. As the court found, by the time the contractor submitted the invoices, the money had already been disbursed and, as such, there was no evidence that the contractor caused to be presented any invoices for disbursement to the U.S. Government. Based on those conclusions, the court overturned the jury s decision against the contractor. The decision is sure to be appealed by the relator to the Fourth Circuit Court of Appeals and, potentially, the Supreme Court. At this point, the Department of Justice has refused to intervene in the case and, even when asked by the district court judge, deferred addressing directly whether the CPA was a U.S. Government instrumentality. In the coming months and years, it should be interesting to see how the courts and the Justice Department address this case and others involving claims arising out of the Iraq War and dealing with the Coalition Provisional Authority. 4

Test Claim Doesn t Limit Court s Jurisdiction to One Contract By Pavan I. Khoobchandani, Esq. pavan.khoobchandani@akerman.com In ATK Thiokol, Inc. v. United States, No. 99-440C (filed July 31, 2006), the Court of Federal Claims held that it could properly exercise jurisdiction over multiple contracts in a case involving the disallowance of indirect costs even though only one test contract was litigated at the court. The court found that it could enter judgment on amounts disallowed on all affected contracts because the claim addressed all the contracts and because the final decision disallowed costs pertaining to all the contracts. ATK entered into multiple contracts with the Government pertaining to the provision of a launch vehicle motor used in the Space Shuttle and other missile programs. ATK allocated some of the research and development costs for an update of the motor for the commercial market as indirect costs to multiple contracts, including its contracts with the Government. The Government disallowed $8,149,888 in R&D costs pertaining to four contracts, taking the position that the costs should have been charged as direct costs to the specific commercial contract for which they were incurred, rather than across ATK s business base. After the Government and ATK realized that the matter could only be resolved by litigation, ATK and the Contracting Officer agreed to a process whereby ATK would submit a test case claim which would be denied by the Government and appealed to the Court of Federal Claims. Of the four contracts under which costs were disallowed, ATF identified one contract in its claim and sought to recover $730,615 in disallowed R&D costs on that contract. ATK stated in the claim that the contract was the test contract, but that its right of recovery existed not only for the test contract but for all contracts performed during the relevant time period. The Contracting Officer issued a final decision disallowing the costs relating to all four contracts and stating that, notwithstanding the identification of a test contract, the four contracts that received costs allocations governed the dispute. ATK filed a Complaint in the Court of Federal Claims pertaining solely to the test contract, alleging that the disallowance of the entire $8,149,888 was improper. The Complaint did not, however, allege what portion of the total amount should have been allowed under the test contract. Both parties moved for summary judgment and, as for entitlement, the Court held that the disallowance was improper. The Court directed the parties to determine the amount due to ATK based on the entitlement decision. The parties agreed on the methodology but could not agree that ATK should be paid the full amount on all of the contracts. The Government took the position that the measure of damages should only take into consideration the test contract, because that was the only contract addressed in the Complaint, and, therefore, was the only contract for which the Court had jurisdiction under the Contracts Dispute Act. ATK maintained that its claim and the final decision pertained to all four contracts and that, since the contract identified in the claim was a test contract, it would not be practical to limit relief solely to that contract. The Court noted that the scope of the final decision determined the jurisdiction of the Court. It found that while the final decision was based upon the test contract, its expressed intent was to cover all contracts subject to allocation of the R&D costs. The Court also noted that the Government s position would force needless litigation and did nothing more than postpone the inevitable. The court, however, noted that in order to exercise jurisdiction, the claim must have been a claim for the entire amount disallowed. The Court found that even though the claim only identified one test contract, the final decision and the claim both pertained to the entire amount disallowed. The CDA does not define the term claim but the FAR does. A claim under the FAR is a written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to the contract. 48 C.F.R. 2.101. The court did not directly address the fact that the FAR definition of claim deals with a singular contract, as in the language arising under or relating to the contract. However, the boards have consistently found that a single claim can apply to several contracts as long as the claim addresses them. Harbert International, ASBCA NO. 44873, 97-1 BCA 28,719. See Eaton Contract Services, Inc., ASBCA Nos. 52888, 53069, 2002-2 B.C.A. 32,023. And, the boards have noted that the Government often uses the same approach of asserting one government claim to apply to several 5

contracts, especially in cases involving cost allowability or cost accounting issues. See, e.g., General Dynamics Corp., ASBCA No. 39866, 94-1 BCA P26,339 (defective pricing by subcontractor under several contracts). Indeed, it is not unusual for the government to agree to litigate test cases with contractors to establish rights under contract provisions. In most cases, after the decision the government will settle all other related matters based on the court or board decision. In this case, other factors may be driving the arguments. DOJ and DCAA have expressed their disagreement with the court s entitlement decision. Accordingly, the DOJ s position is likely related to its intention to appeal the Court s entitlement decision. For that reason, instead of entering a settlement on all the contracts, DOJ is probably attempting to limit the judgment to one contract for appeal. Nonetheless, the DOJ s litigation position poses interesting questions for contractors who take the test case approach because of the strict jurisdictional limitations and time for filing requirements of the Contract Disputes Act. Contractors need to be certain to make the claim apply to all affected contracts. Upcoming Events Criminal Enforcement in Government Contracting Pitfalls, Roadblocks & Land Mines Encountered When Allegations Arise Government Contracts Breakfast Briefing Thursday, September 21, 2006 Tysons Corner, VA Plan to join us for this complimentary breakfast program on one of the hot topics in government contracting! This program will educate general counsel on how to properly respond to the challenges that arise during federal investigations, parallel proceedings, or when criminal allegations are discovered independently. For more information, please contact Beth Hughes at beth.hughes@akerman.com. Doing Business with the U.S. Postal Service Thursday, October 12, 2006 Marriott Hotel at Tysons Corner Tysons Corner, VA A special one-day seminar providing essential information for all postal contractors presented by recognized industry experts. For more information or to receive a seminar brochure, please contact Beth Hughes at beth.hughes@akerman.com. Trial Practice Seminar October 25, 2006 George Washington University School of Law Washington, D.C. Mike Littlejohn and Steve Hurlbut are scheduled to participate in the Board of Contract Appeals Bar Association s Trial Practice Seminar. Mike will moderate the event and Steve will be a member of a panel of board judges and trial attorneys to discuss effective trial techniques in litigating cases at the boards of contract appeals. For more information, please contact Mike at michael.littlejohn@akerman.com. 6

About Our Government Contracts Group The Government Contracts Group at Akerman Senterfitt Wickwire Gavin assists large and small businesses with all types of federal government contracts issues. To do business with the federal government, contractors must deal with a unique and complicated series of statutes, regulations and procedures. We help clients work with this system to maximize contracting opportunities with federal government agencies. We provide counseling and representation to clients in the areas of contract compliance issues, bid protests, Small and Disadvantaged Business matters, contractor and subcontractor claims administration, construction contracts, information technology contracts, and international contracts. In addition, we are uniquely qualified to advise and assist contractors who provide goods or services to the U.S. Postal Service. Members of our Government Contracts Group can be reached by telephone at (703) 790-8750 or by email at the following addresses: Daniel J. Donohue: daniel.donohue@akerman.com Michael Gatje: mike.gatje@akerman.com Donald G. Gavin: donald.gavin@akerman.com Claude P. Goddard, Jr.:claude.goddard@akerman.com David P. Hendel: david.hendel@akerman.com Stephen B. Hurlbut: steve.hurlbut@akerman.com Steven J. Koprince: steven.koprince@akerman.com J. Michael Littlejohn:michael.littlejohn@akerman.com Hal J. Perloff: hal.perloff@akerman.com Brian P. Waagner: brian.waagner@akerman.com For more information on issues addressed in this newsletter, or on services provided by our Government Contracts Group, please contact Claude P. Goddard, Jr., or J. Michael Littlejohn, Shareholders, at (703)790-8750 or by email at claude.goddard@akerman.com or michael.littlejohn@akerman.com. We also invite you to visit our web site at www.akerman.com. Information contained in this newsletter is for the general education of our readers. It is not designed to be and should not be the sole source of information when analyzing and resolving a legal problem. It does not create an attorney-client relationship. If you have specific questions regarding a particular issue or if you have questions or comments relating to the Roundup or other Government Contract matters, please consult with competent legal counsel. 2006 Akerman Senterfitt Wickwire Gavin 7