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

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

Federal Government Contracting and the Subcontractor

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.

 Selling to the Federal Government 

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

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! 

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 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. 

 terminate the performance of work under a contract when it is in the Government's interest

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 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).”

 Become Familiar with the Federal Procurement Market Place &Know the Federal Acquisition Regulations

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

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. 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

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 in Government Contract

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

 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

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

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.

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 LAWYER’S OVERVIEW OF GOVERNMENT PROCUREMENT CONTRACTS

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By:  Coleman Jackson, Attorney & Certified Public Accountant
March 06, 2021

NOTE:  This is merely and overview of government procurement contracts and just scratch the surface of this complex and intricate area of contract law.  This area of law is also known as Public Contract Law.OVERVIEW OF GOVERNMENT PROCUREMENT CONTRACTS

General Concepts: Each year, the U.S. federal government and its various agencies procure more than $300 billion of everything in more than 4,000 categories, ranging from airplanes to zippers. For many products and services, the U.S. government is the biggest buyer on the planet.

In 2020, the federal government spent more than $6.5 trillion, that is, spending exceeded collections by about $3.3 trillion resulting in a deficit. If broken out in terms of minutes, it would mean that the government spent more than $9 million every minute. However, a more accurate realization is that Covid-19 impacted the 2020 budget; also, budgets and government spending is spread out throughout the year, and high spending periods will fluctuate between agencies and will be impacted by health factors and other unknowns. Typically speaking, one of the biggest spending periods is in the months of August and September, as government agencies that have extra funds available (through the allocation from Congress) need to spend the money or risk losing it. Any money not spent goes back to the U.S. Treasury. Note: The 2020 fiscal year ended on September 30, 2020, and the new fiscal year started on October 1, 2020.

Another important thing to consider is that the federal government is not just one buyer. It is a collection of tens of thousands of buyers that purchase everything from nuts and bolts, and paperclips, to aircraft carriers.

With so many needs – from the simple, to the complex, to the classified – government buyers will order things in bulk or small, one-offs. Other times buyers will say they know they need certain products or services, but they do not know how much, how often, or when their next order will come. This creates a unique feature within government contracting that is not present in the private sector resulting in the use of different contract types or contract vehicles to accomplish the governments requirement needs.

Contract vehicles are ways in which a government agency or department can buy what it needs. They all have different rules. Government agencies are often looking for contract vehicles that will get them what they need, as quickly as possible and at the best cost point as possible. One of the most commonly known to businesses is the General Services Administration (GSA) Schedule. The GSA Schedule is a listing of products and services with pricing. Government buyers use the GSA to buy a wide variety of things, and businesses work hard to get on the GSA Schedule to make sure their products and services are readily available at the fingertips of government buyers.

 

U.S. government contracts

U.S. government is also an attractive customer for a few other reasons:

  • The government makes its needs publicly known through such media as the Commerce Business Daily, a publication listing numerous public contracting opportunities. (You can find this publication at many large public libraries.) This is quite different from most markets, wheresuppliers have to thoroughly research to identify the purchasers needs.
  • Government sales are conducted in an open environment where there are many rules to ensure that the process is fair.
  • The government frequently buys in very large volumes and overlong periods of time. That kind of customer can provide a solid foundation for growing your company.
  • Laws set aside all or part of many contracts for women-owned businesses, small businesses, minority-owned businesses, and other firms the government identifies as disadvantaged historically and that the government desires to equalize, support and include in the economic growth of the country.

Having the U.S. government as a customer can give a business a stamp of approval. If you can meet the government’s standards for quality, price and service, odds are good you can meet other customers’ requirements as well.

But there are downsides to selling to the government. It can be hard to find the proper purchasing agent among the thousands employed by various branches and agencies of the federal government. In addition, the rules and paperwork are daunting. The good news is that there are many sources of help. The SBA’s website is one good place to start looking for help selling to the government. Agencies like the U.S. Postal Service, the Department of Interior and the Army, as well as many others, send out solicitations to businesses that are on their mailing lists. To find out how to get on the lists, contact the agency you’re interested in.

And don’t restrict yourself to selling to the federal government. State and local governmental entities, including cities, counties, school districts and others, actually purchase more goods and services than the federal government. There are more of them and they are smaller, but these government customers can provide alternative tracks to growth that are just as viable as the opportunities in Washington, DC.

You can sidestep many of the hassles of winning a government contract if you subcontract with the main or prime contractor. Prime contractors, ranging from large defense contractors to companies that may be smaller than yours, do most of the work to land the government job. Then they may hire you to fulfill all or part of it. Find prime contractors by perusing many of the same resources you would to sell directly to the government.  Many government contracts require small disadvantaged businesses based on race, gender, disabilities, veteran set-asides.

Definition: Agreements that outline business transactions between companies and government entities. Government contracting is the process where businesses provide products or services to federal, state, and local governmental agencies and entities.

 

An Overview of Government Contract Law

 An Overview of Government Contract Law:

The government of the United States buys more products and services than any other entity worldwide. The United States Department of Defense (DOD) makes up a large portion of the country’s purchases.

There are three main differences between government purchases and those of the private consumer:

  • Government contracts are highly regulated to ensure the most competition, guarantee proper use of government funds, and promote a healthy economy.
  • Government contracts include clauses, like the “changes” or “default” clauses, that allow the government to enact special rights within the contract like being able to change the terms of the contract or even end it.
  • Government contracts follow the procedures laid out in the Contract Disputes Act should there be any claims or legal action, because the government is a sovereign entity.

The Competition in Contracting Act and Federal Acquisition Streamlining Act are both important laws that regulate government contracts.

The Federal Acquisition Regulation (FAR) controls acquisitions made by the United States Executive Branch, and it is outlined in title 48 of chapter one in the Code of Federal Regulations parts 1 through 53.

Agencies like the DOD, NASA, and the General Services Administration (GSA) can create supplements to the Federal Acquisition Regulation. Those three specific agencies actually amended the FAR in pursuant to the Administrative Procedure Act.

The United States Government can only be contract-bound by an authorized contracting officer (or CO) who has been issued a warrant by the executive agency. These contract warrants (or certificates of appointment) can be held to a specific amount or allowed an unlimited amount of money.

A contract officer is authorized to grant, manage, or terminate a government contract.  CO’s play a pivoted and major role in government procurement law.

The Contract Disputes Act (CAS)govern legal issues regarding government procurement contract issues and disputes which must first be submitted to a contract officer for resolution.

Once the contract officer makes a decision regarding the legal claim, the complaining entity represented in the contract can appeal the decision with the United States Court of Federal Claims (CFC) or a board of contract appeals.  Note there must be privity of contract in government contract disputes.  Typically, subcontractors cannot file a complaint under CAS.

The claim can then move on to be appealed before the Court of Appeals of the United States for the Federal Circuit, and even eventually to the Supreme Court.

Any company that sells its products or services to other business entities or nonprofits could probably also sell to the government.

The United States Government can make a great customer or client because of the following:

  • Government needs are easy to see through publications like Commerce Business Daily.
  • Rules and regulations ensure fair trading practices.
  • Government purchases are usually large and long term, providing a reliable income for the business.
  • As I mentioned before, contracts are set aside for businesses owned by minorities and women, as well as small businesses.
  • Government business will give your company a good reputation as it means that your products or services meet high standards.

 An Overview of Some Difficulties of Government Contracting

 An Overview of Some Difficulties of Government Contracting:

Conducting business with the government can also be very difficult as it can be tough to find the right channels for marketing your company with so many employees throughout different branches. They also require certain standards in terms of bookkeeping, record keeping, cost accounting and overall compliance cost accounting standards and government accounting principles.

Moreover, government contracts are typically subject to review and exacting audit compliance procedures and examination.

Bottom line is government contracts are subject to detailed paperwork where government contractors must comply withdetailed regulations from the bid process through completion of the contract.  Invoices for payment must often be certified under the penalty of perjury. These requirements can also be a bit overwhelming as a business owner new to the government procurement procedures. Thankfully, there are lots of options for assistance.

If you’re interested in working with a particular federal government agency, like the Postal Service or the DOD, you can contact that particular agency and get your business on their mailing list.

The federal government isn’t the only option, state agencies and local entities, like school districts, also make great customers.

Smaller, non-federal agencies have more opportunities for trading and, even though they are smaller, they can offer just as much potential for growing your company as working with the federal government would.

  Overview of Some Benefits of Government Contracting

Overview of Some Benefits of Government Contracting

Government contracts are a tremendous financial opportunity for small businesses.

The U.S. government is the largest customer in the world. It buys all types of products and services — in both large and small quantities — and it’s required by law to consider buying from small businesses.

The government wants to buy from small businesses for several reasons, including:

  • To ensure that large businesses don’t “muscle out” small businesses
  • To gain access to the new ideas that small businesses provide
  • To support small businesses as engines of economic development and job creation
  • To offer opportunities to disadvantaged socio-economic groups

 How it all works:

The process of requesting proposals, evaluating bids, and awarding contracts should take place on a level playing field. The government should consider a bid from any qualified business.

Set-aside and sole-source contracts:

Federal agencies must publicly list their contract opportunities. Some of these contracts are set aside exclusively for small businesses and historically disadvantaged businesses based on race, gender, disabilities or other factors.

In some cases, these so-called set-aside contracts might consist of certain types of tasks on larger contracts. In others, entire contracts may be reserved for small businesses or historically disadvantaged businesses. When a contract is set-aside for one specific small business, it’s called a sole-source contract.

 

The Small Business Administration (SBA’s) role in Government Contracting 

 The Small Business Administration (SBA’s) role in Government Contracting:

The SBA works with federal agencies in order to award approximately 23 percent of prime government contract dollars to eligible small businesses. It also offers counseling and help to small business contractors.

The United States Government is the single largest procurer of goods and services in the world, and the Department of Defense (DOD) accounts for the lion’s share of federal acquisitions.  Three major characteristics distinguish Government acquisitions from private sector contracts.  First, Government contracts are subject to a myriad of statutes, regulations, and policies which encourage competition to the maximum extent practicable, ensure proper spending of taxpayer money, and advance socioeconomic goals.  Second, Government contracts contain mandatory clauses which afford the Government special contractual rights, including the right to unilaterally change contract terms and conditions or terminate the contract.  The most important clauses are the “Scope Clause, “Changes” clause, the “Termination for Convenience” clause, and the “Default” clause.  Third, due to the Government’s special status as a sovereign entity, claims and litigation follow the unique procedures of the Contract Disputes Act.   It is critical that Contractors; especially small businesses who are new in government procurement, to be fully knowledgeable of how the “Payment” clause works because long delays in payment could cause budgetary difficulties and performance issues to the naïve.

Government contracts are subject to several statutes, including the Competition in Contracting Act and the Federal Acquisition Streamlining Act.  In addition to statutes, there are a multitude of regulations which govern acquisitions by executive branch agencies.  Foremost among these is the Federal Acquisition Regulation (FAR), which is codified in Parts 1 through 53 of Title 48, Chapter 1 of the Code of Federal Regulations.  Executive branch agencies may issue their own regulatory supplements to the FAR, such as the Defense Federal Acquisition Regulation Supplement (DFARS).  The FAR is amended pursuant to the Administrative Procedure Act, with proposed changes issued jointly by the DOD, the General Services Administration (GSA), and the National Aeronautics and Space Administration (NASA), in coordination with the FAR Council.

Only Contracting Officers have the authority to contractually bind the United States Government.  This authority is vested in the executive agency, which then delegates this authority by issuing a certificate of appointment or “warrant.”  The warrant provides signature authority up to a specified amount of money, or it can be an unlimited warrant.  Contracting Officers have the authority to award, administer, and terminate Government contracts.

Overview of Government Contract Dispute Resolution”

Government contract claims are subject to the Contract Disputes Act, which requires the claim to be presented first to the Contracting Officer (“CO”).  After the Contracting Officer’s Final Decision or deemed denial, the claim may be appealed to either the United States Court of Federal Claims (CFC) or to the appropriate Board of Contract Appeals.  The forum to file the law suit challenging the CO’s decision is chosen by the contractor. Note that the contractor does not have file suit within the administrative process; but the Board Judges are government procurement experts who deal exclusively with government procurement contract disputes; whereas, the Judges on the Court of Federal Claims may not have government procurement experience and may handle all kinds of complaints filed against the federal government.   Resolution of federal procurement disputes by the Board process could likely be quicker as well. Numerous issues are involved in the contractor’s decision of which forum to choose to litigate their CAS claim.  Whether CAS litigation occur in the Court of Federal Claims or in one of the Boards of Appeal, after trial on the merits in either venue, the tribunal decision may be appealed to the United States Court of Appeals for the Federal Circuit, and finally to the Supreme Court.  It is very important to note that the Court of Federal Claims has the exclusive authority to hear bid protests, which are challenges to an award, proposed award, or terms of a solicitation of a federal contract.  The Boards do not have any authority to hear bid protest or any other none-CAS matters.


What are Some of the Different Types of Government Procurement Contracts

What are Some of the Different Types of Government Procurement Contracts?

Government contracts generally fall under a few different categories, each of which involves different requirements and varying risk to the contractor.  Understanding the type of government contract, you’re competing for can help give you a better sense of what to expect, the risk involved and how to put together and negotiate a more compelling and competitive proposal. To give a brief overview, we’ve laid out the top four most common types of government procurement contracts and what they entail below:

1. Fixed-Price Contracts

Fixed-price contracts are just that — they ask contractors to submit a bid to complete a project under a predetermined price (and often within the bounds of a target price). They are not subject to any type of adjustment unless certain provisions (such as changes in the contract, pricing, or defective pricing) are included in the original agreement. Contract price can sometimes be renegotiated through different contract clauses (depending on the variety of fixed-price contract in question), but these bids will be low-risk if the government and contractor carefully communicate on a reasonable price. The risk inherent to fixed-price contracts will increase if deliverables, standards and other measures are unclear or if the contractor must execute custom development with a yet-to-be completed solution. All federal agencies use fixed-price contracts and they’re the most common type of contract requested at a state and local level.

In Fixed-Price contracts, the contractor is paid a set fee for their goods or services, regardless of incurred costs. Accurately planning and forecasting your expenditure (in terms of time, available personnel, expertise and capital) is absolutely vital to ensuring that you see a positive return on your investment once you’ve won a bid. While some degree of risk may be present, these contracts provide great profit opportunities for successful contracts that are well executed.  These contracts can also be dangerous for the naïve or businesses who are new or unfamiliar with government procurement contract procedures, policies, regulations and so forth.  Silent clauses and provisions could be applicable to the contract.

2. Cost-Reimbursement and Cost-Plus Contracts

These types of contracts allow a contractor to seek reimbursement for incurred costs up to a prescribed allowance. Usually, costs will be estimated upfront to establish a ceiling that a contractor cannot exceed without first gaining approval. As long as incurred costs do not exceed the stipulated maximum, then a contractor can seek reimbursement for any justified expenses as they fulfill the contract.

This kind of contracts are typically used when there are uncertainties or contingencies involved in a proposal that cannot be estimated upfront with complete accuracy. Examples of agencies that use these types of government contracts include the Federal Transit Administration, National Weather Services and US Department of Defense.

Cost-plus contracts are often more concerned with the final quality of a project rather than cost (an example of this type of project would be ones executed in support of United States space and satellite programs). Because there is less built-in incentive to be efficient, these types of contracts usually require closer oversight to ensure maximum efficiency and thrift. The contract itself can be supplemented with additional award or incentive fees to help encourage efficiency, but designing and implementing these programs also requires additional contract administration. While these contracts are often lower risk than Fixed-Price contracts, the profit margins may also be lower and bidding requires that you offer competitive pricing (i.e. low rates) in order to win.  Contractors must be very careful when bidding on cost-reimbursement and cost-plus contracts because the potential to bid too low can be damaging.  This is particularly a danger that the naïve or unsophisticated small business could face.

3. Time-and-Materials Contracts (T&M)

Time-and-materials contracts are a cross between fixed-price and cost-reimbursement contracts and often require the government to shoulder more risk than the contractor (making them a less popular option for government agencies). Like cost-reimbursement and cost-plus contracts, T&M contracts are only used when it’s not possible to nail down an accurate cost or timeline estimate for a project at the time when a proposal is submitted. The government is basically paying for your services by the hour, including your fees and profit, so competitive pricing is key to winning and net profits are often (but not always) lower.

4. Indefinite Delivery/Indefinite Quantity (IDIQ) Contracts

IDIQ contracts are often used to supplement or amend fixed-price or cost-reimbursement contracts in order to provide flexibility with regard to specific supplies, services or aspects of a project required by the government. In contrast to other contract types, IDIQs allow the government contracting agency to “down select” multiple entities that will compete for future break-out contracts (often called “task orders”) under the umbrella of the main contract. This results in the contracting agency receiving bids from the pool of awardees for each follow-up task order, which theoretically provides them with the best possible value, flexibility and service. It also streamlines the process for issuing, awarding and executing task orders in the event of a national emergency.

The umbrella, or main contract, usually runs for a period of five to ten years, during which time the individual task orders are announced on an as-needed basis. Typical response times required for down selected entities range from a few days to a month or more, depending on the urgency of the requirement. In extreme cases, the government can ask for a response on the very same day a task order is issued. These responses are purely pricing requests for vendor equipment to aid first responders in a natural or man-made disaster, such as supplying temporary lighting and generators.

IDIQs often specify that a contractor supply a minimum quantity of suppliers and services and agree to a fixed timeline and maximum price ceiling for the contract tasks. They also ask contractors to identify a few different consultants and suppliers that they might leverage for a task and submit these names as part of the initial bid. This can help the government streamline the contracting process by limiting their decision process to a few pre-approved options for each task.

Awards are given out in base year period intervals for each task order (usually 1 to 5 years) and are eligible for renewal after the base period concludes. At the time of renewal, each task order can be “re-competed” for by the incumbent contractor and those previously down selected under the umbrella contract. For contract renewals, responding to specific task orders is not required.

This has been a general overview of government procurement procedures, practices and legal principles.  This is a complicated area of law and this brief presentation does not attempt to cover the breath of this legal area in any respect. Public Contract Law

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.

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