Category Archives: Breach of Contract

Federal Government Contracting and the Subcontractor – How Does Subcontractors Avoid Legal Problems in Public Contracting?

By: Coleman Jackson, Attorney and Certified Public Accountant
February 1, 2022

The first Step in Avoiding Litigation:

The subcontractor must understand the federal market place— the rules and regulations governing federal acquisition of goods and services by the U.S. federal government are codified in the Federal Acquisition Regulations. Subcontractors who fail to understand the Federal Acquisition Regulations (commonly referred to as the FAR) and the related policies, agency memorandums and court decisions interpreting the FAR are flying in the dark. The first step in avoiding legal problems in general is not to make legal mistakes. It is difficult to avoid making legal mistakes when you don’t know the applicable rules, regulations and laws! Subcontractors and their advisors must be skilled in the FAR and the related Cost Accounting Standards applicable to all federal contracts, except defense department contracts which are governed by the Defense Federal Acquisition Regulations otherwise known as the DFARs. The Federal Acquisition Regulations can be found at Chapter 1 of Title 48 of the Code of Federal Regulations, 48 CFR 1 and etc., as amended.

Consider Selling to the Federal Government:

Why bother selling your goods and services to the United States government? The federal procurement market is huge! The United States government is one of the most potent consumers of goods and services in the world. This 500 hundred-billion-dollar industry requires setting aside at least 23 percent of these contracts specifically for small businesses. Set aside policies are built into the federal procurement market for small businesses, historical disadvantaged businesses, veteran owned businesses and more which are all designed to increase the competition and participation of small businesses like yours. Are you feeling a little intimidated by the prospect of jumping right in and selling your expertise and products to the federal government? You don’t have a clue as to how and where to begin? Would you consider an ideal scenario where you can ease into this potentially profitable business of government contracting; take it slow; learn the rules of the road at your pace; and not take on more than your company can handle? Subcontracting is a fantastic way to go slow, learn the rules, learn the players and gradually introduce your business to public contracting.

The FAR expects the federal government to announce the majority of purchases greater than $25,000 at the point of entry for the entire government located in www.fedbizopps.gov. Companies interested in becoming subcontractors for a specific acquisition should contact the agency to obtain a copy of the application and, perhaps most importantly, attend the agency’s proposal conference in person to get additional information about the acquisition and interact with other companies, especially potential prime contractors and higher-level subcontractors.

While most federal procurement is subject to “full and open competition” requirements, whereby all responsible sources must be allowed to compete, these requirements do not apply to subcontracting, giving prime contractors ample leeway in the competition of subcontractors. The only exception is for cost-reimbursement contracts that include the “Competition in Subcontracting” clause in FAR 52.244-5, which requires prime contractors to select subcontractorson a competitive basis to the maximum practical limit. Further under FAR, the prime contractor must determine the availability of subcontractor sources unless the government includes a guarantee of source availability or directs all potential prime contractors to use a specific subcontractor.

Sometimes the government must consent to the placement of subcontracts. If a prime contractor has a government-approved procurement system, the government’s prior consent will be limited only to the subcontracting limitations defined by the Contracting Officer (CO) in the “Subcontracting” clause of the prime contract. If there is no such approval, consent to subcontract is required to reimburse costs, time and materials, labor hours or arrangements by letter, and for uncharged actions under fixed-price contracts that exceed the simplified procurement limit (currently $100,000). For cost-type contracts, the contractor must notify the agency before award of any cost-plus flat rate subcontracts and any fixed-price agreements that exceed the dollar limits specified by regulation.

Rather than getting too deep into government contracting and cost principles in this blog; let me just say that subcontractors or their advisors must be aware of procurement standards, various types of government contracts and standard cost accounting principles applicable to government procurement contracts. These principles and rules are set-forth in the Federal Acquisition Regulations (FAR) and Cost Accounting Standards (CAS).

The Federal Acquisition Regulations is where Subcontractors Should Begin:

Why should you begin with the FAR? The Federal Acquisition Regulations governs federal procurements therefore in order for you to understand your rights and obligations in this market place, you and your advisors must become skilled in the FAR. If you are interested in becoming a federal procurement subcontractor, visit the FAR and read on because you must understand the rules and the various parties:

The government subcontractor is defined by Federal Acquisition Regulation (FAR) 3.502-1 as:

Any person, other than the prime contractor, who offers to furnish or furnish any supplies, materials, equipment, or services of any kind under a prime contract or a subcontract entered into in connection with such a prime contract and included any person who offers to furnish, or a subcontract provides general supplies to the prime contractor or a higher tier subcontractor.

A prime contractor contracts directly with the client, which is the federal government. The subcontractor would agree with the prime contractor (prime) to provide goods and services for them to be able to fulfill the requirements of the original government contract.

The subcontractor to a government prime contractor arrangement is common in public contracting and is an excellent opportunity for the subcontractor to gain valuable experience in government contracting, build their reputation in doing quality work, and meeting quality government contract attorneys and other advisors, contract officers and other government officials in various agencies.

As such, there are lucrative opportunities for both prime contractors and subcontractors coming from a contractual relationship with the US government. Because of this, both need to understand the fundamentals of subcontracting. In the rest of this blog, we provide a brief overview of the central procurement rules that affect subcontracts, especially regarding the legal provisions on the rights or not of subcontractors against termination for convenience in government contracts.

Most of the federal statutes and regulations that apply to prime contractors do not apply to subcontractors because the federal government and subcontractors generally lack “privity of contract”. That simply mean that as a subcontractor to a prime contractor, you do not have a direct contractual relationship with the U.S. government. Subcontractor’s do not have a contract with the government.

Various provisions of the FAR deals with government immunity. Just know for now that prime contractors and subcontractors are not considered governmental agents. State or local tax exemptions may be available to subcontractors pursuant to the rules and guidelines at FAR 29305.

Sometimes subcontracting is not a possibility in government contracting!

Specific regulations or terms of the contract may limit the offeror’s ability to use subcontractors. The public contract clause “Limitations to Subcontracting” which is set-out in FAR 52. 219-14,restricts the amount of subcontracting in service contracts where the principal must use at least 50% of the cost of contract performance incurred with personnel of the employees themselves. Construction contracts generally prescribe specific percentages of work performed. Several clauses strongly encourage major government contractors to subcontract to small businesses and disadvantaged small businesses, and FAR 52.219-10 requires each successful bidder of contracts with a value more than $500,000 ($1 million for construction contracts) to present an acceptable subcontracting plan with monetary incentives for exceptional performance pursuant to FAR 52.219-10 and provides penalties for non-performance in good faith pursuant to FAR 52-219-6. Subcontracting is important in research and development contracts. But note that FAR 35 requires the government agencies know whether proposed subcontractors are qualified and require advanced notification of subcontracts for technical or scientific work. These FAR provisions are but a few that touches on the rules and regulations that applies to subcontracting in federal procurement.

In general, since subcontractor agreements are essentially private matters between prime contractors and subcontractors, aggrieved subcontractors have few rights in a federal forum to challenge alleged violations of procurement rules before contract award.

The Bid Protest:

The General Accounting Office, “GAO” is the usual forum for “protests” – a written objection by an interested party to a request or award. The complaint alleges improprieties in awarding a contract. In the FAR an “interested party” is defined as an “actual or potential bidder or offeror whose direct economic interest would be affected by the award”; therefore, a subcontractor would not meet this definition. A subcontractor cannot file a protest! This stakeholder exclusion also applies to protest efforts in the United States Court of Federal Claims. Note that GAO rules; however, recognizes an exception for subcontractor protests where subcontractor selection is “by” the government. This process occurs when all or most of the significant aspects of the procurement are controlled by federal agency officials, and the prime contractor is merely an agency channel whose primary concern is administrative. In addition, subcontractors may be entitled to monetary relief when their direct contractors prevail in a joint effort protest before the GAO. Successful protesters can recover bid costs, proposal preparation costs, and protest costs.

Termination for Convenience:

Termination for convenience means the exercise of the Government’s right to wholly or partially terminate the performance of work under a contract when it is in the Government’s interest. See Federal Acquisition Regulation (FAR) 2.101. The federal governments right to terminate a procurement contract for convenience is the exercise of the sovereign. The right to terminate is made part of almost all federal government contracts by including the standard Termination for Convenience of the Government clauses into the contract. See FAR 52.249-1 through FAR 52.249-5. The Termination for Convenience clause in commercial item contracts issued under FAR Part 12 can be found in paragraph (l) of FAR 52.212-4. Even when the termination for convenience clause is left out of the government contract, that means nothing because the clause nonetheless is generally read into the contract by the operation of law under the “Christian Doctrine.” See GL Christian & Assoc. v. the United States, 312 F.2d 418 (Ct. Cl. 1963).

FAR 49.104 states, in part, that “the notice and clause applicable to convenience terminations” generally requires that the contractor: “(1) Stop work immediately on the terminated portion of the contract and stop placing subcontracts thereunder; (2) Terminate all subcontracts related to the terminated portion of the prime contract; (…).” The contractor must notify its project team, including suppliers and subcontractors, to stop work immediately on the terminated portion of the contract and stop placing subcontracts thereunder. The contractor must complete all agreements related to the closed part of the contract, preferably through a written notice referencing the flow down clauses and circumstances.

When the government closes a principal contract, the principal terminates the corresponding subcontract, and the provisions of FAR 49 explain the procedures for settling the central contracts and subcontracts. The fundamental principle is that the subcontractor has no contractual rights against the government upon the termination of the main contract. The main contractors and subcontractors are responsible for the prompt settlement of their proposed termination agreement.

FAR 49.105 (Duties of Termination Contracting Officer After Issuance of Notice of Termination), in turn, states that “[c]onsistent with the termination clause and the notice of termination, the TCO shall”: (1) Direct “the action required of the prime contractor;” (2) Examine the prime contractor’s termination settlement proposal and, when appropriate, the settlement proposals of subcontractors; (3) Promptly negotiate a settlement with the contractor and enter into a settlement agreement; and (4) Promptly settle the contractor’s settlement proposal “by a determination for the elements that cannot be agreed on if unable to negotiate a complete settlement” (see FAR 49.105(a)). Moreover, FAR 49.105(c) states that the TCO “should promptly hold a conference with the contractor to develop a definite program for settling.” In addition,

FAR 49.105(c) goes on to state that “[t]opics that should be discussed at the conference and documented include”:

(1) General principles relating to the settlement of any settlement proposal, including obligations of the contractor under the termination clause of the contract;

(2) Extent of the termination, point at which work is stopped, and status of any plans, drawings, and information that would have been delivered had the contract been completed;

(3) Status of any continuing work;

(4) Obligation of the contractor to terminate subcontracts and general principles to be followed in settling subcontractor settlement proposals;

(5) Names of subcontractors involved and the dates termination notices were issued to them;

(6) Contractor personnel handling review and settlement of subcontractor settlement proposals and the methods being used;

(7) Arrangements for transfer of title and delivery to the government of any material required by the government;

(8) General “principles and procedures to be followed in the protection, preservation, and disposal of the contractors and subcontractors’ termination inventories, including the preparation of termination inventory schedules;”

(9) Contractor accounting practices and preparation of SF 1439 (Schedule of Accounting Information FAR 49,602-3;

(11) Accounting review of settlement proposals;

(12) Any requirement for interim financing like partial payments;

(13) Tentative “schedule for negotiation of the settlement, including submission by the contractor and subcontractors of settlement proposals, termination inventory schedules, and accounting information schedules (see [FAR] 49.206-3 and [FAR] 49.303-2)”;

(14) Actions taken by the contractor to minimize the impact upon employees adversely affected by the termination (see paragraph (g) of the letter notice in FAR 49.601-2); and

(15) The “[o]bligation of the contractor to furnish accurate, complete, and current cost or pricing data, and to certify to that effect by FAR 15.403-4(a)(1) when the amount of a termination settlement agreement, or a partial termination settlement agreement plus the estimate to complete the continued portion of the contract exceeds the threshold in FAR 15.403-4.”

The hallmark of subcontracting in government contracts is the requirement to flow-down specific prime contract provisions to subcontractors. The FAR outlines mandatory and suggested flow-downs, but the prime will also want to evaluate with counsel whether to include additional requirements in subcontracts. Subcontractors would want to evaluate with their counsel the implication of flow-down clauses prior to executing any prime contract associated with a government contract. Even without the flow-down clause, subcontractors must be aware of other government contract rules that could place obligations on them.

One example of a government contract provision that can apply to subcontractors even if it’s not mentioned in the four corners of the contract is the termination for convenience provisions of the FAR. As we have said before in this blog, this is an essential aspect of procurement contracting that is not controlled by flow-down clause but will undoubtedly be one of the clauses that everyone would want to include in their subcontracts. If the government terminates the prime contract for convenience and the subcontract does not have a parallel provision, the prime may face opposition from its subcontractor regarding termination. The subcontractor may argue that the government’s termination for convenience is not adequate to cause the prime to terminate the subcontract.

The easy fix (and one I see in most subcontracts) is including a provision that allows the prime to terminate the subcontract for convenience. Subcontractors will want to ensure that the termination for convenience flow-down is based on similar action from the government and that the clause includes the same rights for submitting settlement proposals

Under the Contract Disputes Act, otherwise known as the CDA, a “contractor” has the right to file a contract claim against the federal government. Even if a subcontractor think they have suffered damages through government action, federal procurement law may say no. This is because the CDA and the FAR “Disputes” clause FAR 52.233-1 says “contractor”. Subcontractors generally do not have the right to seek and collect indemnity because they have no privity of contract with the government. Consequently, when the subcontractor seeks government relief, it can proceed indirectly through the prime contractor in one of two ways: first, the prime contractor must sponsor and certify the subcontractor’s claim where the certification reflects the prime contractor’s belief that there is a “good basis” for the claim, and second, a prime contractor filing a lawsuit may include a component of its responsibility to with a subcontractor.

There are rare exceptions to the general rule of “non-direct right of action” for subcontractors in CDA cases:

First, the subcontractor has direct right of action against the United States government when the contract terms provide that the parties give the subcontractor the right of immediate recourse against the government. Still, since the FAR prohibits Contracting Officers from consenting to such an agreement, this circumstance is practically non-existent. Second, privity for CDA purposes will exist when the contract stipulates that the contractor will act as a purchasing agent for the government. Third, subcontracting privity will be present when the government circumvents the contractor’s authority to become a mere agent of the government. For example, the Small Business Administration awards an agency a contract under “Program 8(a).”

Summary of Main Points — Become Familiar with the Federal Procurement Market Place &Know the Federal Acquisition Regulations:

Subcontractors generally do not have a direct contractual relationship – privity of contract- with the federal government and therefore have few contractual rights and responsibilities with each other.
FedBizOps has valuable information for potential subcontractors looking to do business with prime contractors. Potential subcontractors should also be familiar with other possible business paths, such as pre-bid conferences for prime contractors listed on various federal agency’s website.
Protect yourself against inappropriate abatement clauses in the main contract, especially when they conflict with other subcontract clauses. Also, make sure that applicable vital provisions, such as those dealing with contract terms, changes, data rights, adjustment of costs and pricing, and government termination rights, are included in the subcontract. This might require the company to hire experienced government contract counsel either inside or outside counsel.
As prime contract awards are often dependent on the quality of the proposed subcontractor’s technical qualifications and past performance; work closely with your prime contractor to ensure they are in order.
Major contractors must ensure that their proposed subcontractors are not excluded or suspended. Subcontractors must also do appropriate due diligence of the prime and any subcontractors that could impact their work performance or reputation.
Subcontractors generally do not have the right to protest. Still, a restricted exception is the possibility to recover the costs of preparing the subcontract proposal when the main contractor prevails in a protest. Subcontractors should hire their own counsel independent of prime contractor counsel in any dispute matter since prime contractor counsel is obligated to represent their client even at the expense of subcontractors.
Subcontractors have limited rights to obtain assistance from government COs when the main contractors do not pay on time. However, the Miller Act on construction projects offers subcontractors extra protection when a payment bond is available. Counsel representing subcontractors must be independent of prime contractor.
Subcontractors who have a dispute with the government generally do not have rights of direct appeal, so if they believe that government action justifies a resolution, they should try to persuade their prime contractor to “sponsor” a claim or include its costs in the main contractor’s complaint. Also, investigate whether one of the rare circumstances of privity exists. These are legal matters for which appropriate counsel should be advising the subcontractor with respect to its legal rights, if any.
Familiarize yourself with FAR Part 49 if your subcontract is terminated to maximize your recovery.

Subcontracting is an excellent way to begin working with the government and a profitable avenue for profitability for any small business; but, make any company desiring to participate in the federal procurement market place must be well informed with regards to the Federal Acquisition Regulations and the Cost Accounting Standards and other rules applicable to government contracts.

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader. You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432 | Portuguese (214) 272-3100

Strategies for Responding to Bid Protests in Government Contracting

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By: Coleman Jackson, Attorney & CPA
October 20, 2021

Suppose your company is an unsuccessful bidder for a government contract or has won an award, and an unsuccessful bidder is protesting your prize. In that case, it is essential to defend your rights vigorously. In the federal market, bid protests are an integral oversight mechanism, ensuring that procurement statutes and regulations carry out federal acquisitions policy goals. Or Suppose a company believes the federal government failed to comply with the terms of a solicitation (i.e. IFB, RFP, RFQ, etc.) or applicable laws or regulations in a procurement transaction. In such instances as these, the company (bidder) must follow strict rules or face losing the right to protest. What is a bid protest? A bid protest is a legal challenge to the government’s actions during the procurement phase, including evaluating bids/proposals and the award of a government contract. The how, when, and where of bid protests are controlled by various laws and regulations.

Bid protests can be brought in different forums and are subject to strict timelines that must be followed appropriately. Whether defending a protest as a successful awardee, or prosecuting a protest as a disappointed bidder, all government contractors must understand the bid protest process to defend their contract awards from protest successfully or vindicate their rights to full and open competition as a protester. First of all, let’s clear up some confusion and doubts about the bid protest process.

Bid Protest Overview

Bid protests are legal challenges brought by bidders against the way the Government has conducted a procurement transaction.

An interested party may protest to the agency, the Government Accountability Office (GAO), or the United States Court of Federal Claims (COFC).

Which venue is best to bring a bid protest will depend upon various facts. Primary considerations include the value of the procurement to your company, the cost of pursuing a protest in the particular venue, whether the protest would be timely in the venue (i.e. a protest that is untimely in the GAO may be timely in the COFC), and whether the protest will involve information that requires a protective order (i.e., competitive communication is limited to the attorneys, and not disclosed to the companies involved). In recent years, most bid protests are filed with the GAO, so in our blog, we will focus on the GAO bid protest process.

GAO has defined the basic standard of its review of a bid protest as follows:“ The evaluation of an offeror’s proposal is a matter within the agency’s discretion. A protester’s mere disagreement with the agency’s judgment in its determination of the relative merit of competing proposals does not establish that the evaluation was unreasonable. While we will not substitute our judgment for that of the agency, we will question the agency’s conclusions where they are inconsistent with the solicitation criteria and applicable procurement statutes and regulations, undocumented, or not reasonably based.”

How many days you have to file a protest will depend the basis for the protest to begin with. In general, if a protest is based on an obvious problem with the solicitation documents, the protest must be filed before the date the bid or proposal must be submitted. The purpose of this rule is to prevent a contractor from sitting on their rights to challenge what they believe to be an unfair solicitation, rolling the dice to see if they win, and then, if unsuccessful, filing a protest.

The time requirements for other protests, such as a challenge to the government’s decision to award the project to another company, will depend on the protest venue. At the GAO, a protest must be filed within ten days after the basis for the protest is known or should have been known. If a debriefing is requested, and the government is required to provide the debriefing (i.e., negotiated procurement under FAR Part 15), then the protest may be filed within ten days after the debriefing.

However, there are benefits to filing the protest even earlier because of automatic stay rule. An automatic stay (i.e., the government is required to withhold award and suspend contract performance) if the protest is filed with the GAO within five days of the offered mandatory debrief date or within ten days of contract award. A stay of performance can be very consequential since it can impact your remedy or ultimate relief. Without auto stay, the contract will continue to be performed, and there may not be any contract requirement left to award to you even if your protest is successful.

Once your protest is filed with the GAO, the agency has 30 days to provide the agency report (AR). The AR will include documents responsive to your protest arguments, including documents requested explicitly in your protest. The AR will consist of a statement by the contracting officer regarding the grounds of the protest and a legal memorandum from the agency’s lawyer. In addition, the AR will show what the agency did during the procurement process, which may bolster the initial protest or provide additional grounds for protest. Sometimes the agency refuses to provide certain requested documents, and the dispute has to be settled by the GAO attorney assigned to the protest.

The agency or an intervening awardee may request that all or part of your protest be dismissed. Such requests by the agency or intervenor are often based upon arguments of timeliness, standing, ripeness, and lack of prejudice. If a request for dismissal is filed, the protestor will have to file a response opposing the bid. If a dismissal request is submitted, it is often before the 30-day deadline for filing the AR. This AR should be reviewed carefully and with skill because it often is a source of very helpful historical information pertaining to the government officials actions in award of government contracts under open and fair competition laws.

Once the AR is provided, the protestor has ten days to file comments responding to the agency’s arguments. If the protestor fails to address any ground of protest in its words, the GAO will deem the omitted environment as abandoned by the protestor. The protestor must be meticulous when marshaling the facts; and the bid protestor must cogently and thoroughly apply relevant government contracting legal principles when challenging government contract awards at the GAO or any other legal forum.

In addition to comments, as I mentioned in pasting before, a protestor often discovers additional grounds of protest upon reviewing the AR. Review the AR right away; because time is of the essence. These different protest grounds have to be filed within ten days of receiving the AR (i.e., within ten days of knowing the basis for the protest ground). The agency will be required to file a supplemental AR in response, and the protestor will have to file additional comments. The process for supplemental protests is truncated (e.g., the GAO may require the supplemental AR to be filed within ten days instead of the 30 days allotted for the initial AR).

The agency may take corrective action at any point in the process. Remedial action by the agency is a recognition that they failed to comply with some part of the procurement process, and they are therefore correcting that mistake. The agency has broad discretion in corrective action, and it often includes a reevaluation of proposals or amendments to the solicitation. If the agency takes corrective action, the GAO will dismiss the portion of the protest related to the corrective action.

The GAO will issue its decision within 100 days of the filing of the protest. The GAO may deny or sustain the protest, in whole or part. If the protest is supported, the GAO will direct the agency to remedy the problem. If the GAO denies a protest, the protestor may refile the protest with the Court of Federal Claims.

Understandably, clients often want to know the likelihood that their protest will be successful. However, the possibility of success or failure is fact-specific to each protest. Moreover, many successful protests are based upon the supplemental protest, which is not available to the protestor until the AR is filed. Statistically, however, the GAO has reported that the effectiveness rate of protests in the last several years is between 42% to 45%. That means nearly half of the protests filed result in the GAO sustaining the protest or the agency taking corrective action to remedy the mistakes cited in the protest.

You should promptly speak with an attorney and counselor if you believe the government has not abided by the terms of a solicitation or applicable government contracting laws and regulations. Timely guidance and evaluation of your potential bid protest are essential to meeting the stringent requirements for protesting government contract awards. This is merely an overview of Strategies for Responding to Bid Protests in Government Contracting; knowledge and skill in government contract law, and proper evaluation of all the facts and circumstances are extremely important when pursuing legal strategies.

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader. You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432 | Portuguese (214) 272-3100

A GOVERNMENT CONTRACTS LAWYER’S OVERVIEW OF BID PROTEST

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By: Coleman Jackson, Attorney & CPA
March 12, 2021

What is a bid protest?

A bid protest is a challenge to the award or proposed award of a contract for the procurement of goods and services or a challenge to the terms of a solicitation for such a contract.

What kinds of bid protests can be filed at GAO?

Protests may be filed against procurement actions by federal government agencies.

What kinds of protests cannot be filed at GAO?

Protests may not be filed against procurement actions by non federal government agencies, such as state, local, or foreign governments, or actions by certain exempted federal agencies, such as the Postal Service. For more information, see Bid Protest Regulations (4 C.F.R. § 21.5) and Bid Protests at GAO: A Descriptive Guide.

Who can file a bid protest at GAO?

Only “interested parties” may file protests. In the case of a solicitation challenge, an interested party is generally a potential bidder for the contract. In the case of a contract award challenge, an interested party is generally an actual bidder that did not win the contract. In addition, other factors, such as the bidder’s standing in the competition and the nature of the issues raised may affect whether it qualifies as an interested party. For more information, see Bid Protest Regulations (4 C.F.R. § 21.0(a)) and Bid Protests at GAO: A Descriptive Guide.

When must a protest be filed?

In general, a protest challenging the terms of a solicitation must be filed before the time for receipt of initial proposals. A protest challenging the award of a contract must be filed within 10 days of when a protester knows or should have known of the basis of the protest (a special case applies where, under certain circumstances, the protester receives a required debriefing). Please be aware that the regulations regarding the timely filing of protests depend on all facts and circumstances of each case and are strictly enforced. For more information, see Protest Regulations (4 C.F.R. § 21.2) and Bid Protests at GAO: A Descriptive Guide.

How is time calculated for filing deadlines?

“Days,” under GAO’s regulations, means “calendar days.” In the event a deadline falls on a weekend, federal holiday, or other day when GAO is closed, the deadline is extended to the next business day. For more information, see Bid Protest Regulations (4 C.F.R. § 21.0(e)) and Bid Protests at GAO: A Descriptive Guide.

I was awarded a contract and was told that the award has been protested – what must I do, and what am I allowed to do?

Parties that have been awarded a contract are permitted to participate in a protest as an intervenor. They are not required to do so, however, as it is the agency’s responsibility to respond to the protest and defend the award of the contract.

Are employee unions or representatives allowed to file protests or participate as intervenors?

Government employees and their representatives may participate as protesters and intervenors in protests involving competitions conducted under Office of Management and Budget Circular A-76. For more information, see Bid Protest Regulations (4 C.F.R. § 21.0(a)(2), (button) (2)) and Bid Protests at GAO: A Descriptive Guide.

Do I need an attorney to file a protest or participate as an intervenor?

No. Parties may file a protest or participate as an intervenor without being represented by an attorney. However, only attorneys are permitted to have access to material subject to a protective order. Bid protest rules, procedures and practices are governed by the rule of law(The Federal Acquisition Regulations (FAR) for federal contracts); therefore, an understanding of relevant statutes, regulations and case law would be extremely helpful for framing and presenting a credible bid protest.

Federal Bid Protest Jurisdiction and Filing Deadlines:

This reference lays out the filing deadlines, jurisdictional requirements, stay rules, and appeal processes for each place a bid protest can be filed: the Government Accountability Office,the U.S. Court of Federal Claims, and the procuring agency.

The rules differ by type of procurement. Chart 1 lists the rules for protesting contracts awarded under FAR Parts 13, 14, and 15. Chart 2 lists the rules for protesting task and delivery orders issued under most IDIQ contracts. Chart 3 lists the special rules that apply to protests of task orders issued under the General Service Administration’s Federal Supply Schedule contracts.

GAO Procedures:

Over the years, GAO’s decisions on federal contract awards have created a uniform body of law applicable to the federal procurement process upon which the Congress, the courts, agencies, and the public all rely.

Automatic Stay?

For pre-award protests, the agency must suspend award of the contract once it receives notice from GAO that a protest has been filed. FAR 33.104(b).For post-award protests, the agency must suspend performance if it receives notice of the protest from GAO within 10 days after contract award or within 5 days after the debriefing date offered to the protester for requested and required debriefings under FAR 15.505 or 15.506, whichever is later. FAR 33.104(c). (Note: Debriefings are not “required” for procurements under FAR Part 13 (FAR 13.106-3(d)), or Part 14 (except 14.5 (two-step sealed bidding) FAR 14.503-1(g))).In DoD procurements, for debriefings requested and required under FAR 15.506(d), contracting officers must provide an opportunity for unsuccessful offer or to submit additional questions within 2 business days of receiving a debriefing. The agency then has 5 business days to respond in writing. See10 U.S.C. § 2305(b)(5). The 5-day filing period to trigger an automatic stay does not start until after the agency delivers the written responses. See31 U.S.C. § 3553(d)(4).

Jurisdictional Timelines:

A pre-award protest based on alleged improprieties in the RFP that are apparent prior to receipt of proposals must be filed prior to the time set for receipt of proposals. Improprieties subsequently incorporated into the solicitation must be protested by the next closing time for receipt of proposals following incorporation. See 4 C.F.R. § 21.2(a)(1). Where a basis for challenging the terms of a solicitation does not arise until after proposal submission, a protest is due 10 days after the basis of protest is known or should have been known. See 4 C.F.R. § 21.2(a).
An offer or excluded from the competitive range before award must request a debriefing in writing within 3 days after receipt of notice of exclusion to obtain a “required” debriefing. See FAR 15.505(a)(1). The offer or then must file its protest not later than 10 days after the date on which the debriefing is held. See 4 C.F.R. § 21.2(a)(2).
For competitions where a debriefing is requested and required, post-award protests must be filed not later than 10 days after the debriefing is held, but not before the offered debriefing date. See 4 C.F.R. § 21.2(a)(2), for DoD, 10 days run from when DoD answers timely “additional questions.”
For all other protests not covered above, the protester must file its protest within 10 days after the basis of protest is known or should have been known, whichever is earlier. See 4 C.F.R. § 21.2(a)(2).

Subject Matter Jurisdiction Limits:

Only an “interested party” may protest improprieties in an RFP or award or termination of a federal contract. See 4 C.F.R. § 21.1(a). An “interested party” is an actual or prospective offer or whose direct economic interest would be affected by the award of a contract or the failure to award a contract. See 4 C.F.R. § 21.0(a)(1).

Note: An alleged Procurement Integrity Act violation must be brought to the Agency’s attention within 14 days of discovery, or it cannot be raised in a GAO protest. See FAR 33.102(f); 41 U.S.C. § 2106.

Process for Appealing Unsuccessful Decision:

A Request for Reconsideration may be filed at GAO not later than 10 days after the basis for reconsideration is known or should have been known, whichever is earlier. See 4 C.F.R. § 21.14.

A protester may “appeal” a GAO decision to the Court of Federal Claims by filing suit alleging that the agency’s procurement was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law” in violation of the Administrative Procedure Act, 5 U.S.C. § 706(2)(A). 28 U.S.C. § 1491. There is no strict timeline for filing such an “appeal.”

A contractor may also file suit in the Court of Federal Claims alleging that an Agency’s proposed or actual corrective action, even if recommended or approved by GAO, is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.

Readers interested in following our blogs on government contract law, such as, relevant federal, state and local public contract decisions should visit our website at www.cjacksonlaw.com where we post our most recent blogs. Our blogs in government contracting covers relevant decisions issued by the GOA, case decisions issued by the Court of Federal Claims and various state court decisions on public contract law. Readers can also subscribe to our taxation, government contract litigation and immigration law Legal Thoughts Podcast where ever they listen to their podcast.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432 | Portuguese (214) 272-3100

Some Things About Contracts While Sheltering from the Unknown Virus like Covid-19

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By: Coleman Jackson, Attorney & Counselor
April 29, 2020

What is a Contract? A contract is an enforceable promise under the law. That means that if you agree to do something for consideration and the other party either performs or changes their position in any material way, the law will compel you to do what you promised to do or demand that you pay the performing party compensation of some kind. Usually the compensation is going to tailor the party’s expectations at the time they agreed to do such-and-such. In a nutshell, that is what the term contract means.

What about when Covid-19 says go home, stay there and I will let you know when you can come out again? Contracts are based on expectations; or put another way, a contract is a bargained for outcome. Sometimes parties insert a clause into their contracts that is called a ‘force majeure’ cause. Don’t get lost in the foreign language… force majeure is French. First thing you really need to know is that force majeure clauses in contracts are enforceable in Texas. Texas will make the parties to contracts perform in accordance to what the force majeure clause says. That is simply in keeping with the fundamental contract law in Texas; which is, consenting parties can pretty much agree to do or not do any lawful thing in the State of Texas. So be careful about what you agree to do or not do in Texas. What about enforcement of force majeure clauses in Texas: first they are enforceable contract provisions; your contract must contain language that a court can construe as a force majeure event excusing your performance of your obligations under the contract. Parties to contracts in Texas can define or describe situations, occurrences, or events that constitute a force majeure event and typically they are defined as some event or series of events that make it impossible to perform under the contract or impractical to perform under the contract. But a mere difficulty in performance would not likely be reason for a party to fail to perform under the contract. Parties to contracts in Texas must make all reasonable efforts to perform responsibly under their contracts. What constitutes reasonable efforts depends upon the nature of the contract because the scope of a force majeure clause in a contract depends upon the benefit of the bargain the parties negotiated within the four corners of their contract. Courts in Texas do not like to take the liberty of contract away from responsible contracting parties afforded to them by the Texas and United States Constitution. So, it follows that if the parties did not bargain for force majeure, it is highly unlikely that Texas Courts will recognize an event or series of events out of its own clothe that would excuse or release parties of contracts without the possibility of paying damages. In a nutshell, force majeure is a lawful bargained for excuse to not perform under the contract.

An unexcused failure to perform pursuant to the agreed upon bargain is called a breach of contract when a party’s failure to deliver what’s promised is material to the expectations of the parties from the start. In a nutshell, breach of contract damages could be a reasonable option or perhaps even the only option for a party if it becomes impossible or impractical to perform obligations of contracts entered into before the Covid-19 Pandemic sent the global economy to the dog pound.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432

Foreigners and Persons Purchasing and Selling United States Real Property Interests to and from Foreigners Must Consider U.S. Tax Consequences

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By: Coleman Jackson, Attorney, CPA
October 05, 2016

Here are realities effecting buying and selling United States Real Property Interests to or from Foreigners: Foreigners are subject to United States tax laws under certain circumstances. Resident and nonresident aliens (foreigners) are taxed differently under U.S. tax laws.

Resident aliens (Green Card Holders and foreigners meeting the substantial presence test) are taxed in the United States, generally speaking, the same way United States citizens are taxed under 26 United States Code. Resident’s are taxed on their worldwide income, from whatever source, the same as United States citizens regardless where they reside and regardless where the income is earned. Resident foreigners use the same tax tables as U.S. citizens.

Nonresident foreigners (foreigners who do not meet the substantial presence test or Green Card) are taxed based on the source of their income and whether or not their income is effectively connected with a United States trade or business. Nonresident foreigner’s income from sources within the U.S. is subject to U.S. income tax and must be separated into two pools as follows:

a) Income that is effectively connected with a trade or business in the United States, and
b) Income that is not effectively connected with a trade or business in the United States

Income in pool (a) is taxed at the same graduated tax rates as applied to U.S. citizens. Income in pool (b) is taxed at a flat thirty percent (30%) tax rate or lower tax treaty tax rate.

Special tax rules apply to nonresident foreigners purchasing or selling United States Real Property interest. Gains and losses from the sale or exchange of United States real property interests are taxed as if the foreigner is engaged in a trade or business in the United States.

Moreover, special tax withholding rules under 26 U.S.C. (Internal Revenue Code) requires under certain circumstances for buyers buying United States Real property from a foreigner to withhold taxes unless certain exemptions are applicable. United States real property interest is defined as real estate located inside the United States, and includes amongst other things, residential single family homes, multi-unit dwellings, commercial buildings and so forth. It is extremely important to consult legal counsel concerning tax law implications; and other not so obvious legal hazards, when buying United States real property interest from a foreigner. Your typical real estate agent or broker is not a lawyer and cannot lawfully advise parties in a real property transaction regarding tax implications and other legal jeopardy concerns associated with real property interest dispositions involving foreigners.

What exactly is the withholding requirement associated with buying United States real property interests from a foreigner? Internal Revenue Code Sec. 1445 (a) imposes a duty on buyers to withhold income tax on dispositions of U.S. real property interests involving nonresident foreigners. The law imposes legal liability on the buyer for the tax due on the transaction if the buyer fails to comply with IRC Sec. 1445 (a).

Any buyer or transferee purchasing or exchanging a United States real property interest with a nonresident foreigner before February 17, 2016 must withhold a tax equal to 10% of the amount realized on the disposition. For U.S. real property interests purchased or exchanged with a nonresident foreigner after February 16, 2016, the rate of withholding is generally 15% unless the property is going to be used by the buyer as a residence and the amount realized does not exceed $1,000,000. In that case, the withholding tax remains at 10%. These withholding obligations are the responsibility of the buyer of U.S. real property interests from nonresident foreigners; which means, buyers are exposed to potential tax liability or jeopardy if they fail to withhold the required tax in the correct amount at the time of closing the real property transaction. The withholding requirement is based on the gross amount realized; which means, real estate commissions are not subtracted in applying the correct withholding tax percentage.

This withholding provision potentially creates a genuine conflict of interest between a buyer and their realtor or broker. Likewise a conflict of interest could likely exist between a nonresident foreigner selling U.S. real property interests and their real estate agent or broker, especially involving the exemptions availability and selection of buyers . It is probably prudent for buyer and seller of real property interest involving nonresident foreigners to have their independent legal counsel separate and distinct from their respective real estate agents or brokers because tax laws are implicated with potential for substantial financial consequences could have impact on real estate selling decisions by buyers and sellers of U.S. real property interest involving nonresident foreigners. Also, nondiscrimination laws in sale and purchase of real estate in the United States could impact these transactions.

But as for the exemptions to the withholding requirement; the following are very broad generalizations concerning exemptions that could apply (depending on all the facts and circumstances) to the withholding requirements of IRC Sec. 1445:

The buyer is not required to withhold any amount under Sec. 1445 (a) if one or more of the following applies to the transaction:

The nonresident foreigner supplies an affidavit testifying that they are not a foreign person;
Private domestic corporation supplies an affidavit testifying that their interests in the corporation is not an United States real property interests;
IRS issues a qualifying statement to buyer (or seller) satisfying the requirements set forth in IRC Sec. 871(b)(1) or 882(a)(1);
The amount realized on the U.S. real property interests transaction does not exceed $300,000 and the buyer intends to use the real property as its residence; or
A wash sale is involved pursuant to IRC Sec. 8997(h) (5).

These exemptions have been abbreviated and only state the basic nature of the statutory exemption. As with any statute effected parties must consult the applicable Internal Revenue Code Section(s), Internal Revenue Regulation(s), Revenue Ruling(s), Tax Court Opinion(s) and decision(s) of other Courts having interpreted and established precedence regarding how and when these tax withholding exemptions might or might not apply to withholding of tax on dispositions of United States real property interests involving nonresident foreigners. Anyone buying or selling U.S. real property interest to a nonresident foreigner should perform their due diligence prior to entering an earnest money contract or any other kind of contract of purchase. Likewise foreigners should perform their due diligence regarding applicable tax laws and other U.S. laws before entering into U.S. real property interest transactions involving nonresident foreigners. Unintended tax consequences could lurk behind every U.S. real property interest transaction involving nonresident foreigners as well as exposure to unintended consequences of other state and federal laws governing disposition of real property interest.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432

When Are Lost Profits Recoverable in a Texas Breach of Agreement Case?

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By Coleman Jackson, Attorney & Counselor at Law
January 29, 2016

Lost Profits in a Texas breach of agreement case cannot be speculative; nor does an aggrieved party in Texas have to prove lost profits by exacting calculations or precise mathematical calibrations. In order to recover lost profits in a Texas breach of agreement case, Texas courts have repeatedly stated that an aggrieved party must bring forth sufficient competent evidence to give the trial jury the ability to determine the net amount of the lost profits with a reasonable degree of certainty.

Opinions and speculations by accountants, economists and others with respect to the amount of the lost profits are not sufficient. Expert opinions in Texas lost profit cases require that opinions, estimations and determinations of lost profits be based on objective facts, verifiable data and mathematical principles from which the net amount of lost profits can be reasonably ascertained.

Juries weigh the testimony, documents and other evidence and give it the credibility they deem appropriate. Therefore to the extent net profits are presented by competent, credible witnesses it improves the probability of an award of lost profits in a breach of agreement case. Furthermore, competent, credible corroborating evidence is essential in breach of agreement cases where the aggrieved party is seeking lost profits. Corroborating evidence is typically in the form of historical financial data which demonstrates past profitability; or futures contracts; such as, contracts that have already been executed which allows the computation of lost profits, or other credible hard evidence that the alleged lost profits are not merely speculations are absolutely necessary to prove lost profits in a Texas breach of agreement case.

Bottom line, when a Texas litigant is seeking lost profits in a breach of agreement case; they must not only plead lost profits, but also produce objective facts evidencing lost profits.

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This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader. You should consult with legal counsel with respect to any specific contract issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432