Government Contracts Legislative and Regulatory Update

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Our February edition of “Government Contracts Legislative and Regulatory Update” offers a summary of the relevant changes that took place during the month of January.

This update will also be available in Contract Management Magazine, which is published monthly by the National Contract Management Association (NCMA).

Regulations

Section 809 Panel Releases Final Report

On January 15, the Section 809 Panel (i.e., the independent commission charged by Congress with “streamlining and improving the efficiency and effectiveness of the defense acquisition process”) (the “Panel”) released its last of a three-volume report recommending broad and fundamental change to the Department of Defense’s (“DoD”) acquisition strategy.  The full report has been in the making since November 2015 and, in the assessment of one of its authors, is nothing short of “revolutionary.”1

This final installment (Volume Three) is comprised of over 1,100 pages, 7 appendices, and 2 parts, and it articulates 58 discrete recommendations for improvement of the DoD acquisition process.  The hallmark of the Panel’s recommendations is its reinvention of the industry’s current structure.  Rather than a single divide between commercial and non-commercial item product offerings, the Panel contemplates three fundamental product groupings, each based upon the items’ relative availability in the marketplace.  Building upon its idea of the “Dynamic Marketplace” introduced last year in Volume 1, the Panel would divide products into readily available, readily available with customization, and defense-unique goods and services.  Application of pricing, contract, and policy terms would be driven by product grouping.  Furthermore, the Panel envisions a contract-management framework that focuses on enterprise-wide capability portfolios, rather than the program-driven model in use today.  The Panel’s full report and a copy of its summarized recommendations can be found here.  Below, are some of the Panel’s more notable recommendations:

  • Rec. 35: Replace commercial buying and the existing simplified acquisition procedures and thresholds with simplified readily available procedures for procuring readily available products and services and readily available products and services with customization.
  • Rec. 37: Implement a defensewide capability portfolio framework that provides an enterprise view of existing and planned capability, to ensure delivery of integrated and innovative solutions to meet strategic objectives.
  • Rec. 42: Reduce budgetary uncertainty, increase funding flexibility, and enhance the ability to effectively execute sustainment plans and address emergent sustainment requirements.
  • Rec. 44: Exempt DoD from Clinger–Cohen Act Provisions in Title 40.
  • Recs. 50–51: Enact regular appropriations bills on time, and mitigate the negative effect of continuing resolutions by allowing congressional regular appropriations to remain available for a standardized duration from date of enactment.
  • Rec. 64: Update socioeconomic laws to encourage purchasing from nontraditional suppliers by (a) adopting exceptions for DoD to domestic purchasing preference requirements for commercial products, and (b) adopting a public interest exception and procedures for the Berry Amendment identical to the ones that exist for the Buy American Act.
  • Rec. 67: Reduce potential bid protest processing time by eliminating the opportunity to file a protest with the [Court of Federal Claims (“COFC”)] after filing at the [Government Accountability Office (“GAO”)] and require the COFC to issue a decision within 100 days of ordering a procurement be delayed.
  • Rec. 68: Limit the jurisdiction of GAO and COFC to only those protests of procurements with a value that exceeds, or are expected to exceed, $75,000.
  • Rec. 73: Revise the definition of business system deficiencies to more closely align with generally accepted auditing standards.
  • Rec. 81: Clarify and expand the authority to use Other Transaction agreements for production.
  • Rec. 84: Direct DoD to communicate with the marketplace concerning acquisition from development of the need/requirement through contract closeout, final payment, and disposal.
  • Rec. 92: Minimize the flowdown of government-unique terms in commercial buying by implementing the Section 809 Panel’s Recommendation 2 [i.e., “[m]inimize government-unique terms applicable to commercial buying.”].

Some of the recommended changes DoD can implement itself, and some of the recommended changes Congress must enact.  Contractors should keep a watchful eye for indications from both DoD and Congress regarding whether the Panel recommendations will be implemented.


1 Jared Serbu, Fed. News Network, Section 809 Panel’s Final Report Prescribes “Revolutionary” Changes to DoD Buying (Jan. 15, 2019, 10:01 AM), https://federalnewsnetwork.com/acquisition-policy/2019/01/section-809-panels-final-report-prescribes-revolutionary-changes-to-dod-buying/ (quoting Section 809 Panel commissioner, Charlie Williams). 

Increase in Minimum Wage for Contractors

In February 2014, President Obama signed Executive Order 13658 – Establishing a Minimum Wage for Contractors.  Pursuant to that Order, the U.S. Department of Labor issued notice in September 2018 that, beginning January 1, 2019, (a) the minimum wage rate that generally must be paid to workers performing work on or in connection with covered contracts would increase to $10.60 per hour, and (b) the required minimum cash wage for tipped employees performing work on or in connection with covered contracts will increase to $7.40 per hour.  (If a worker’s tips combined with the required cash wage do not equal the hourly minimum wage of $10.60, the contractor must increase the cash wage paid to make up the difference.)

Both wage rate increases took effect this month.  Contractors should review their payroll processes to ensure compliance with the wage change.  An updated poster (as required by 48 C.F.R. § 52.222-55(d)) can be found here.

Comment Period Extension for Proposed Revisions to Small Business HUBZone Program

Last October, the Small Business Administration (“SBA”) published a notice of proposed rulemaking to solicit comments on proposed comprehensive revisions to the regulations governing the Historically Underutilized Business Zone (“HUBZone”) Program.  Just before the New Year, on December 31, 2018, the SBA extended the comment period until February 14, 2019.

The proposed revisions are designed to improve the stability and predictability of HUBZone participation.  HUBZones often change at different times based on variable economic data.  Among other things, the proposed rules makes two notable suggestions.  First, the proposed rule would treat an individual as a HUBZone resident (for purposes of determining an employer’s Program eligibility) if that individual worked for the applicant firm and resided in a HUBZone at the time the firm was certified/recertified, even if the individual later moves or the area loses its HUBZone designation—the latter of which should be regarded as a Program success.  Second, acknowledging the sometimes transitory nature of both employees and HUBZone boundaries, the proposed rule would require only annual recertification rather than immediate recertification at the time of every offer for a HUBZone contract award.  This change is intended to reduce the burden on HUBZone small businesses by allowing a firm to remain eligible for future HUBZone contracts for an entire year, without requiring the firm to come into compliance with the 35% HUBZone residency requirement at the time of each offer submittal throughout the year.  See Small Business HUBZone Program: Government Contracting Programs, 83 Fed. Reg. 54812 (Oct. 31, 2018).

A copy of the proposed rule can be found here.

Missiles at the “Speed of Relevance”: The MDR’s Lofty Goals to Counter an Evolving Global Threat

Following more than a year of delay, the DoD finally made good on its delivery of the Congressionally mandated Missile Defense Review (“MDR”).  In his prefatory remarks, Acting Secretary of Defense Patrick Shanahan notes the “continuing proliferation” of offensive missile technology around the world and the “fleeting” nature of the country’s technological advantage.  To maintain its advantage, the Acting Secretary espouses DoD’s need for “capabilities with greater affordability at the speed of relevance.”

One of the most interesting features of the MDR is its discussion of DoD’s commitment to identify and evaluate a “possible space-based defensive layer” to the nation’s overall integrated missile defense system.  “The exploitation of space provides a missile defense posture that is more effective, resilient and adaptable to known and unanticipated threats,” the Review states.  The MDR highlighted the advantages of space-based assets, including sensor and boost-phase defense capabilities, over terrestrial-based assets.

Also important is the MDR’s explicit discussion of Chinese and Russian offensive missile and anti-satellite capabilities.  While the threats posed by Chinese and Russian missile capabilities have long been implied, the MDR clearly outlines the “imperative” for the U.S. to develop an effective response to these and other states’ emerging missile threats.

All of this suggests the need for DoD to “invest in advanced technologies” to meet the myriad and increasingly complex threats identified.  Particularly, the MDR advocates renewed “flexibility and adaptability” in the design, research, and acquisition of the next generation of missile defense systems.  The goal of such flexibility is to “prioritize speed” in the development, testing, and fielding of enhanced missile defense capabilities.  The review unequivocally stated:  “DoD cannot meet this goal by returning [the Missile Defense Agency] to the standard acquisition and requirements generation processes.”  Rather, the MDR embraced prototyping procedures “outside the standard acquisition process” and a “streamlin[ing]’” of the entire acquisition process.  Contractors operating in this space should be prepared to leverage less traditional procurement vehicles in pursuit of the MDR’s technological goals.

Legislations

Shutdown showdown--Congressional negotiators race against the clock to avert another partial federal government shutdown

On January 25, President Trump signed into law a stopgap appropriations measure to fund through February 15 the nine (out of 15) federal departments shuttered during the record-breaking, 35-day partial government shutdown. (Several agencies, including the Departments of Defense, Energy, and Veterans Affairs, are fully funded through the remainder of Fiscal Year (FY) 2019). The short-term funding bill restarted the across-the-board operations of the federal government while allowing a 17-member group of House and Senate conferees time to negotiate a border security package to be included in broader FY19 Department of Homeland Security appropriations legislation. Conferees have emphasized their consensus agreement on the need to increase spending on technology and personnel to improve border security. However, President Trump’s requested $5.7 billion in funding for new construction of a physical border wall and a cap on U.S. Immigration and Customs Enforcement detention beds proposed by Democratic negotiators are the key sticking point in ongoing negotiations.

According to the US Chamber of Commerce, the partial government shutdown cost federal government contractors an estimated $2.3 billion. Moreover, completion of the Administration’s FY20 Budget Request was delayed because approximately 800,000 federal government employees, many of whom bear some responsibility in drafting components of the budget request, were furloughed during the five-week shutdown. The annual budget request, which is required to be submitted to Congress on the first Monday of February without any penalty for late submission, is not likely to be sent to Capitol Hill until early-to-mid March as a result of the government shutdown. This in turn has implications for the timing of FY20 budget posture hearings on Capitol Hill and Congressional consideration of key FY20 authorization and appropriations legislation, including the National Defense Authorization Act. Further, certain federal agencies impacted by the shutdown have been forced to postpone their issuance of proposed rules.

Because of these ripple effects, lawmakers have lamented that the shutdown has cast a long shadow. So Congressional Republicans are loath to shoulder responsibility for another government shutdown. As a result, Senate Majority Leader Mitch McConnell (R-KY) has all but instructed Senate Republican conferees, led by Senate Appropriations Committee Chairman Richard Shelby (R-AL), to ensure that a deal is reached by February 15 to avert another partial government shutdown. Nevertheless, President Trump has not ruled out another shutdown if any border security deal developed by the conference committee does not fund border wall construction. This could prove problematic, as recently re-anointed Speaker of the House Nancy Pelosi (D-CA ) announced on January 31 that House Democrats would not assent to any deal that provides funding for the new construction of any physical barriers at the southern border. However, Pelosi and key House Democratic leaders have since drawn a distinction between that position and potential support for fencing in designated areas and the repairing of existing car blockades.

Last week, conferees received a briefing from homeland security experts on the types of security measures and capabilities that should be deployed to better secure the southern border. Following this briefing and a visit to the southern border by some members of the conference committee, conferees were optimistic about the prospects for a deal. This was despite the Pentagon’s recent deployment of an additional 3,750 troops to the southern border, which brought the total number of US military personnel deployed to support the border security mission to 4,350 and further enflamed tensions between the Administration and House Democrats. However, Congressional negotiators missed a self-imposed February 8 deadline to produce a compromise border security package, which would have afforded both chambers ample time to take the procedural steps required before they can vote on final passage of any compromise measure.

As of this writing, the top four members of the conference committee (representing both chambers and both parties) are set to meet in an attempt to reconcile differences and produce a border security deal. Meanwhile, President Trump has tasked White House staff with the preparation of a national emergency declaration that would allow the President to circumvent Congress and use unobligated federal funds to build his long-sought border wall. Such a move would be met with immediate legal challenges that many Constitutional law experts believe would be successful. McConnell has reportedly cautioned the President against this approach, warning that many Senate Republicans oppose the move, in large part because they believe it would set a dangerous precedent that could be leveraged by a Democratic president during a contentious policy fight in the future.

If negotiations between the top four conference committee members break down without a border security funding deal, despite little to no political appetite on Capitol Hill for another impasse, the prospects for averting another partial government shutdown could be bleak unless the President were to declare a national emergency in the face of widespread opposition from Congressional Democrats and many lawmakers in his own party.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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