Welcome to Jenner & Block’s Government Contracts Legal Round‑Up, a biweekly update on important government contracts developments. This update offers brief summaries of key developments for government contracts legal, compliance, contracting, and business executives.

Bid Protest Update

Piedmont Propulsion, Sys., LLC v. United States, No. 23-330C (August 21, 2023)

• Court of Federal Claims Judge Somers issued an important decision regarding the standard of review applied when assessing the rationality of an agency’s decision to limit competition.
• Here, the Court found that the United States Coast Guard failed to rationally justify its decision to restrict competition for overhaul and repair work to companies that were licensed by the Original Equipment Manufacturer (OEM).
• The government argued that the protester needed to show that the OEM license requirement was “so plainly unjustified as to lack a rational basis.” Replying on peculiar language from a Federal Circuit opinion, the government seemed to argue that the Coast Guard’s determination was entitled to even more deference than the Court would typically owe under the rational basis standard.
• Judge Somers rejected the government’s heightened standard of review, explaining that “[a]lthough the Court does not believe that applying the government’s preferred standard would lead to a different result in this case, the Court will not deviate from the normal rational basis standard based on a few words of a concluding sentence pulled from one Federal Circuit opinion—words the circuit has never quoted again.”
• Applying the proper standard of review to the record, Judge Somers then determined that the OEM license requirement lacked a rational basis and therefore constituted an undue restriction on competition. Contemporaneous exchanges in the record between the Coast Guard and the OEM indicated that the Coast Guard never really understood the license requirement it was imposing, nor why such a license was necessary to meet the agency’s needs.

As a general rule, agencies have wide discretion to determine their own requirements. But OEM license requirements like the one at issue here inevitably create tension with CICA’s mandate for full and open competition. Decisions like Piedmont Propulsion are important reminders that the Court of Federal Claims will apply rational basis review with rigor—deference, but not blind deference—when an agency limits competition.

Claims Update

S. Texas Health Sys., Appellant, CBCA 6808 (August 23, 2023)

• The CBCA recently issued a decision reminding contractors that the six-year statute of limitations for claims under the Contract Disputes Act (CDA) starts to run upon claim accrual, and settlement negotiations with the government does not toll the statute of limitations.
• South Texas Health Systems involved a long-running dispute between the contractor and the VA over medical claims. The claims at issue here, submitted February 3, 2020, involved episodes of care that occurred between November 2009 and January 2014. The VA argued that each claim accrued within 72 hours of each episode of care when the VA provided the contractor with the authorization decision that allegedly breached the contract, and therefore these claims were untimely. The CBCA agreed that the CDA’s statute of limitations barred all claims based on episodes of care that occurred on or before February 3, 2014, 6-years before the contractor submitted the complaint.
• The Board further rejected the contractor’s contention that even if claims accrued more than six years before claim submission, they were all preserved through equitable tolling because it had been continuously negotiating with the government to resolve the disputes informally. Notably, the Board affirmed the principle that settlement negotiations do not toll the statute of limitations.

This case is an important reminder that contractors must be mindful both of when a claim accrues and triggers the statute of limitations and that the statute of limitations continues to run even during active settlement negotiations with the government.

Small Business Update

Since our last Roundup discussing a court decision requiring the SBA to immediately stop using the presumption of social disadvantage to administer the 8(a) program, the SBA has provided guidance for 8(a) program participants on how to proceed. Importantly, the SBA is now requiring all 8(a) participants whose program eligibility is based upon one or more individuals who relied upon the presumption of social disadvantage to establish their individual social disadvantage by completing a social disadvantage narrative. Current 8(a) participants are encouraged to submit their narratives as soon as possible; instructions on the mechanics for doing so is available here. However, 8(a) hopefuls will need to sit tight, as the SBA has temporarily suspended new 8(a) application submissions.

False Claims Act

Verizon Business Network Services resolved a False Claims Act investigation into its compliance with cybersecurity requirements by paying more than $4 million to the government. Interestingly, the press release detailed Verizon’s cooperation, noting “after learning of the issues, Verizon provided the government with a written self-disclosure, initiated an independent investigation and compliance review of the issues and provided the government with multiple detailed supplemental written disclosures. Verizon cooperated with the government’s investigation of the issues and took prompt and substantial remedial measures.”

Investigations and Enforcement

Jenner & Block co-chair David Robbins is quoted extensively by Law360 regarding the increasing risk of parallel civil and criminal enforcement actions against government contractors.

The Department of Justice has been aggressively pursuing criminal prosecutions for sanctions violations. DOJ recently announced its first criminal resolution involving the sale and transport of Iranian oil in violation of US sanctions. The seized 980,000 barrels of Iranian oil are also now the subject of a civil forfeiture proceeding in the District of Columbia. Companies should be prepared that this is the start of what is likely to be a significant uptick in sanctions enforcement as part of this Justice Department initiative.

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