December 05, 2011
Plagiarism and Formation in the Court of Federal Claims
The Department of Health and Human Services (HHS) provides training courses for its employees through HHS University (HHSU). In May 2007, HHS put out a request for quotations (RFQ) to provide grant management courses covering eight topics at HHSU. The Gonzales-McCaulley Investment Group, Inc. (GMIG). GMIG submitted a cover letter ad quote. It referenced "course book" binder that had apparently already been submitted to HHS.
The training program manager at HHS sent an e-mail to GMIG attaching "confirmation of selection to provide training in Grants Management to HHS University" and suggesting further contacts to discuss date for training sessions. Throughout June 2007, the parties exchanged communications setting up dates for the trainings. At that point, Kimberly Hill, HHSU's Manager of the Center for Administrative and Systems Training reviewed GMIG's submissions and compared them with the website of Management Concepts, the organization that had previously been providing services to HHSU, finding them virtually identical. On that basis, Ms. Hill concluded that GMIG had engaged in plagiarism, and she informed GMIG that HHSU would not be using its services. CMIG filed a pretest to the Government Accountability Office (GAO), arguing that GMIG never had an opportunity to defend itself against the charge of plagiarism. When HHS subsequently cancelled the original Request for Quotations (RFQ), the GAO dismissed the protest as "academic."
GMIG persisted, claiming that the decision to rescind the RFQ was pretextual. The GAO recommended that upon reinstating the RFQ, HHSU should give due consideration to all of the responding vendors. HHS instead decided to do all future HHSU training in-house. GMIG sued seeking $900,000 in general and consequential damages, and the suit, originally filed in California, was transferred to the Court of Federal Claims. After some procedural complexities, the Court of Federal Claims heard HHS's motion to dismiss or for summary judgment on the ground that there could be no breach of contract because there had never been a valid acceptance.
In a November 14, 2011 opinion and order, the Court of Federal Claims granted summary judgment to HHS. The court reviewed the elements of a breach of contract and concluded as follows:
“To prove the existence of a contract with the government, a plaintiff must prove four basic elements: (1) mutuality of intent to contract; (2) offer and acceptance; (3) consideration; and (4) a government representative having actual authority to bind the United States.” Hometown Fin., Inc. v. United States, 409 F.3d 1360, 1364 (Fed. Cir. 2005). Here, at a minimum, there was no offer and acceptance.
Since the federal rules do not consider a quotation to be an offer, the issuance by the government of an order in response to a quotation cannot establish a contract. But if GMIG's quotation was not the offer, perhaps the order was the offer, which was accepted through the exchange of e-mails. Unfortunately for GMIG, according to the court, the resulting e-mails merely discussed tentative dates and never amounted to an agreement. In the post-Iqbal and Twombly atmosphere, GMIG's inability to point to a "particular order and acceptance in its pleadings" is fatal to its claim.
November 29, 2011
Fourth Circuit Invalidates Fraudulently-Induced Settlement Agreement
On Novmeber 10, 2011, the Fourth Circuit issued its unpublished per curiam opinion in Paul Morrell, Inc. v. Kellogg, Brown & Root Services in which it affirmed a nearly $20 million fraudulent inducement judgment against Kellogg Brown & Root (KBR) and related entities. The judgment included prejudgment interest and $4 million in punitive damages.
The suit arose out of a contract dispute and settlement between KBR and Paul Morrell, which was doing business as The Event Source (TES) and was a sub-contractor on a contract in which KBR and TES provided dining services for US troops in Iraq. A government audit revealed that KBR was charging the government for more meals that were actually served and so the government decided to withhold nearly 20% of its payments to KBR. KBR passed this loss on to its subcontractors. For reasons that are unclear but were based on fraudulent misreprentations that KBR made to TES, TES agreed to payments of $24 million for its services under the contract when it was in fact entitled to $36 million.
The district court determined that KBR made material false statements in order to induce TES to accept a settlement payment that was approximately $12.4 million less than what KBR had previously acknowledged it owed TES. Applying Texas law in this diversity case, the Court of Appeals had to determine whether TES's reliance on KBR's fraudulent misrepresentations was reasonable. That issue raises a mixed question of fact and law, but in this case, the trial court's ruling turned on factual determinations that could only be not clearly erroneous.
The Fourth Circuit also rejected KBR's additional challenges to the District Court's judgment.
November 22, 2011
Court of Federal Claims Construes "Best Efforts" Clause
There are lots of interesting facts in The Marquardt Co. v. United States for those of us who are not experts in government contracts. The United States agreed to pay The Marquardt Company (TMC) nearly $1.5 million to settle the United States' obligations under 23 contracts with TMC. The agreement included (what to me at least seems) a very strange provision that, while the parties recognized that the Government did not at the time of the agreement have the funds available to pay the $1.5 million, it would use its "best efforts" to get the necessary funds in an expeditious manner. When the Government did not pay up, TMC sued to collect, but the Government moved to dismiss arguing that TMC "must be able to prove that it would have received more money but for the alleged breach of the Government’s best-efforts obligation” and that it could not do so.
The Court ruled that the government misunderstood the relevant burdens of proof in the circumstances. The proper burden on plaintiff here is that "it must show facts, by 'citing to particular parts of materials in the record,' RCFC 56(c)(1)(A), that tend to show that but-for the government’s breach, plaintiff could have been paid additional funds.” The Court therefore concluded as follows:
Making all reasonable inferences from the evidence proffered by TMC, the court concludes that, had the government sought funding from outside the buying commands, as was suggested by its own employees, . . . additional funds could have been made available to pay TMC. Plaintiff has therefore alleged sufficient specific facts to show that “defendant’s action materially increased the risk of the injury that occurred,” Corbin on Contracts § 55.7 n.10, and that but-for the government’s breach of its best efforts obligation, it could have secured additional funds. There is a genuine issue for trial, Celotex, 477 U.S. at 324, and accordingly, summary judgment for defendant is not appropriate at this time.
But what constitutes "best efforts"?
The Government claimed that it had to seek funds from the military agencies with which TMC had contracted, but the language of the agreement contained no such limitation on what constituted "best efforts." TMC contended that the Government was obligated to seek funds from other sources, including the Defense Finance and Accounting Service and the Pentagon. The Court determined that further development of the record was necessary as disputed issues of material fact prevented the Court from determining precisely what constituted "best efforts" in the circumstances.
In a careful and richly detailed exercise in contract interpretation, which we will not attempt to summarize here, the Court also concluded that the Government improperly withheld about $160,000 that had been taken into account when the parties agreed to the $1.5 million settlement.
November 10, 2011
GW Government Contracts Group Gets New Associate Dean
As announced in this GW Press Release and this White House (OMB) Press Release, parts of which are pasted below, Daniel Gordon (pictured) has been named Associate Dean for Government Procurement Law Studies :
From George Washington Univesrity:
GW Law is pleased to announce the appointment of Daniel I. Gordon, Administrator for Federal Procurement Policy in the Office of Management and Budget, as its new Associate Dean for Government Procurement Law Studies. He will assume the newly created position on January 1, 2012.
“Dan Gordon has long been one of the worldwide leaders in this important field, and he is that rare person who can translate his experience and knowledge into learning and action,” said Paul Schiff Berman, Dean and Robert Kramer Research Professor of Law. “Our students will greatly benefit from his ‘insider’ perspective and his practical know-how. I am confident that the creation of this position signals to Washington and the world that now more than ever, GW Law is the premier place to study government procurement law and policy.”
Mr. Gordon says he is looking forward to his new position, and shares Dean Berman’s enthusiasm for the groundbreaking role.
“While GW Law has a long history of excellence in the area of government contracts, adding the position of associate dean should provide opportunities for building on that history to take the Law School even further,” said Mr. Gordon. “Ultimately, we will want to find new ways to reach students, including potentially nontraditional frameworks, and new ways to explore connections between government contracts law and other disciplines, such as corporate, public international, and anti-trust law.”
Mr. Gordon added that his recent career experience will shape his approach to knowledge-sharing and program development at GW Law.
“Procurement policy is intertwined with procurement law, but seeing things from the policy side has enriched my understanding of the importance and the impact of procurement law,” said Mr. Gordon.
Mr. Gordon was confirmed as the Administrator for Federal Procurement Policy in November 2009. In that role, he developed and implemented acquisition policies supporting more than $500 billion of annual federal spending. Previously, he spent 17 years at the Government Accountability Office in various roles including managing associate general counsel in the Procurement Law Division, deputy general counsel and acting general counsel.
Today, Dan Gordon, the Administrator for Federal Procurement Policy, announced that later this year he will be leaving the post to serve as Associate Dean for Government Contracts Law at the George Washington University Law School.
President Obama appointed Dan Gordon as the Administrator for Federal Procurement Policy in 2009 in order to turn around the explosive contracting growth of the last decade and re-instill accountability, drive fiscal responsibility, strengthen the acquisition workforce, cut out waste and rebalance the relationship between the federal government and the contractors that support our agencies. In Dan, he selected someone with decades of experience working with the federal procurement system, in private practice and at the U.S. Government Accountability Office. When Dan began at the White House, he brought with him a commitment to openness and integrity, combined with a strong sense of what we needed to do to improve the federal acquisition system, after too many years of neglect.
[JT h/t Steven Schooner]
October 13, 2011
Federal Circuit Rejects $50 Million Claim for Breach of a Psychic Services Contract
Last week, the Federal Circuit affirmed the Court of Federal Claims dismissal of a $50 million law suit brought against various leading politicians and the U.S. government. The case is Bussie v. United States. Plaintiff alleged that he had not been compensated for psychic services he performed in assisting the government in its pursuit of "high value targets" including the "masterminds" behind 9/11. The suit named President Obama, former President George W. Bush and Fox News analyst Sarah Palin, among others as defendants. The Federal Circuit affirmed the Court of Federal Claims' finding that it had no jurisdiction under the Tucker Act to hear claims against individuals.
As plaintiff was proceeding pro se, the Federal Circuit construed his complaint generously as seeking damages from the United States. However, the court found that the Court of Federal Claims had correctly concluded that plaintiff had not alleged facts sufficient to sustain a claim for an implied-in-fact contract.
The Federal Circuit opinion is very short. Further details can be found in the Court of Federal Claims opinion here.
The complaint raises interesting possibilities. Has the government in fact been hiring psychics to try to track down terror suspects? Is that so implausible? After all, didn't Nancy Reagan consult an astrologer in order to make certain the heavens were aligned properly with President Reagan's schedule? If the government has not been hiring psychics, why not? They are likely at least as effective as waterboarding.
October 11, 2011
"Disappeared Contractors": David Isenberg on Steven Schooner on Contractor Deaths in Iraq & Afghanistan
David Isenberg, author of Shadow Force: Private Secuity Contractors in Iraq has a provocative new piece on HuffPo in which he argues that private military and security contractors (PMSCs) are like the "disappeared" victims of dictatorial rule. This is not of course literally true, in that the bodies of PMSCs who are killed abroad are returned so that families can mourn and bury their dead. However, Isenberg finds the analogy fitting because we do not recognize or track the extent to the which PMSCs are bearing the burden on the on-going War on Terror.
He relies on the scholarship and testimony of Geroge Washington University Law School Professor friend-of-the-blog Steven L. Schooner. Professor Schooner has written about this topic in an article co-authored with GWU law student Collin D. Swan, called "Dead Contractors: The Unexamined Effect of Surrogates on the Public's Casualty Sensitivity," about which we have previously blogged here.
The Isenberg piece provides extensive quotations from Professor Schooner's testimony before the congressionally mandated Commission on Wartime Contracting. The gist of the exerpted portions is that we now have more PMSC casualties than military casualties in Iraq and that trend is spreading to Afghanistan as well. These deaths are not reported in the way military deaths are. PMSC deaths thus impose a lower cost in terms of public tolerance for continued war than do military deaths. Professor Schooner also notes, without allocating blame, that the government does more to protect members of the military than it does for PMSCs.
October 10, 2011
Southern District of New York Rejects Monsanto's Government Contractor Defense in Agent Orange Case
On September 28, 2011, District Judge Paul Gardephe issued his opinion and order denying defendants' motion for partial summary judgment in Spaulding v. Monsanto Company. Plaintiffs alleged that Monsanto engaged in negligent waste disposal practices at its plant in Nitro, West Virginia between 1949 and 1970. The waste at issue were biproducts from the manufacture of a key component in Agent Orange.
In its motion, Monsanto attempted to rely on the govenrment contrator defense, since for part of the time that it was manufacturing the product in question, it was doing so, at least in part, for government use. The standard for determining the applicability of the defense comes form Boyle v. United Techs. Corp. 487 U.S. 500, 512 (1988), in which the court explained as follows:
Liability for design defects in military equipment cannot be imposed, pursuant to state law, when (1) the United States approved reasonably precise specifications; (2) the equipment conformed to those specifications; and (3) the supplier warned the United States about the dangers in the use of the equipment that were known to the supplier but not to the United States.
In this case, the Court concluded that Monsanto had not satisfied the requirements for the defense because the record did "not demonstrate . . . that U.S. Government representatives made an 'express determination' regarding Monsanto's alleged waste disposal practices." Nor was there any evidence that the Government had "exercised consistent oversight over Monstanto's waste disposal practices." The Court came to the same conclusion with respect to air pollution. Because the defendants had not demonstrated that the complained-of activity was conducted "pursuant to reasonably precise government specifications," the District Court denied their motion based on the government contractor defense.
September 16, 2011
Court of Federal Claims to RN Expertise: "Piss Off!"
Back in 2008, the Navy sought a new contractor to provide urine collection services for its federally-mandated rug testing program. RN Expertise, Inc. (RN) submitted a bid and was the prsumptive awardee of the contract. But before it finalized the award, the Navy determined that it could get the same services at a lower price through an interagency agreement (IAA) that the Department of Defense had with the Dpartment of the Interior. So, the Navy cancelled the solicitation and went with the IAA.
RN filed a bid protest, claiming that the Navy's cost analysis was flawed. In February 2011, the Court of Federal Claims granted the governments motion for judgment on the administrative record and dismissed RN's bid protest, RN Expertise, Inc. v. United States, 97 Fed. Cl. 460 (2011). In March, RN moved for reconsideration, claiming that the CoFC's decision did not account for key facts and thus resulted in a manifest injustice. On September 9th, the CoFC issued a new opinion, denying the motion and finding that RN simply sought to relitigate its case.
In its motion for reconsideration, RN argued that the CoFC erred in the way it tested the Navy's cost analysis and that the Navy failed to consider all of the costs associated with the IAA. The CoFC found both of these argument improper on a motion for reconsideration. In its first argument, RN merely raised facts and arguments that the CoFC previously addressed and rejected. In its second, RN raised arguments that could have been raised in its original briefs. Having failed to do so, it is not entitled to a second bite at the apple.
September 12, 2011
The New Yorker on Contracting Out for City Work
The September 5th edition of The New Yorker has a nifty article by Tad Friend about the budgetary problems cities are facing -- the article focuses on Costa Mesa, California, but notes that its problems are not unique. The story is a familiar one, but the reporting is great and the details are extreme.
The problem is a small city whose budget is tied up in personnel costs, including a 911 operator making $176,000 and a new mayor who decides to address a reported $5 million budget deficit by firing half the staff. The new mayor plans to give city workers their notice and then solicit bids to see which jobs can be more cheaply done by employing independent contractors. The mayor also seems to think that hiring such contractors will insulate the city from liability, although that wouldn't always be the case.
The flip side of the overpaid 911 operator is the dedicated maintenance worker who works for the city for four years and makes $45,600/year. He does for $26/hour what a contractor would charge $40/hour to do. Upon receiving his layoff notice, one such worker jumped off the roof of City Hall. An already bitter struggle now turned bloody. Moreover, the city has over $40 million in reserves. Some residents wondered why "Costa Mesa should be the petri dish for pension reform." An ally of the new mayor, who is a councilman and also the head of the local Pop Warner football league wasn't about to back down. Friend quotes him as follows:
Politics is very similiar to Pop Warner. People think they can bully you into making their son the quarterback, but once they realize their son's a lineman they stop bothering you.
Building to his conclusion, Friend makes the following observation about leadership:
Good leaders make unpopular decisions because they're necessary. But they also work to explain and build support for their initiatives, especially when those initiatives threaten a way of life.
This is an important insight, not only for political leaders but also for university leaders in times of shrinking budgets and rising costs.
September 09, 2011
WSJ on Global Business Norms and "Contracting" in China
The concept of contract law is often novel in developing economies, especially communist or formerly communist ones. Sparked by a dispute between Cosco, China's biggest state-owned shipping company, and foreign ship owners, the WSJ has an interesting discussion of business norms in China and a "Chinese corporate sector that doesn't always play by established global rules."
Apparently, Cosco has halted or delayed payments for vessels it leased in 2008, at the height of the shipping boom. Prices for these cargo ships have plunged since then. Naturally, Cosco wants to renegotiate these leases, but unilaterally reneging the contracts defies established global business norms.
The article explains:
Foreign companies that do business in China are routinely warned that contracts aren't viewed in China with the same sort of legal sanctity that they receive in most developed economies. Jingzhou Tao, a Beijing-based lawyer with Dechert LLP, says that withholding payments is a frequent tactic used in China to force price negotiations. "A contract is not an unchangeable bible for Chinese companies," Mr. Tao said.
* * *
Analysts and lawyers say big Chinese state-owned companies can be especially aggressive in dealing with foreign companies because of their government backing and the enormous clout they wield within China in industries that are often oligopolies.
"State-owned enterprises that are dominant in their own sector and in some cases more powerful than government departments are used to having things their way," said Lester Ross, a Beijing-based partner at law firm WilmerHale. Mr. Ross said that Chinese companies in the minerals and cotton industries have a history of walking away from deals when prices move against them, and that foreign companies sometimes charge a premium for services to Chinese government companies because of the contract risks.
"These companies are only partly companies. They are also political entities," said Carl Walter, a former Beijing-based banker for J.P. Morgan Chase & Co. who has co-authored two books about China's state-owned enterprises. That means political imperatives, such as concerns over the value of national assets, can sometimes drive decisions by company chief executives, who at Chinese state-owned enterprises are appointed by the Communist Party. "When you do business with these major SOEs, you better make sure you make enough money to cover," Mr. Walter said.
Arthur Bowring, managing director of the Hong Kong Shipowners Association, argues that while Cosco's moves are worrisome for the industry, they won't likely be that damaging to the company long term. He adds that in late 2008, Australian iron-ore producer Fortescue Metals Group Ltd. backed out of its obligations under some shipping contracts. After a period of arbitration, the company said in October that it had settled all disputes with shipping companies.
"People are now doing business with [Fortescue Chairman] Andrew Forrest again...and it's almost like it never happened," Mr. Bowring said.
Mr. Bowring said Cosco, which has been operating internationally for decades, is too experienced to think that it can apply Chinese rules to overseas deals. Still, he said that company relationships are viewed differently in China than in many other places. "Chinese culture will build a relationship before the contract," he said. "The relationship is always something that can be talked about. The contract is just a set of papers that you keep in your bottom drawer."
[Meredith R. Miller]
August 29, 2011
Court of Federal Claims Delivers Tongue-Lashing to the United States
Thanks to Steven L. Schooner and the Government Contracts at GW Law Facebook page, we have word of this juicy decision by Judge Sweeney of the Court of Federal Claims in Systems Applications and Technologies, Inc. v. United States. The opinion is long, but as Professor Schooner points out, the headings alone are enticing.
This basically a Fatal Attraction case. Michael Douglas's character, played by the United States Army Aviation and Missile Life Cycle Management Command Contracting Center (the Army), gets tired of its long-time partner, Anne Archer, played by Madison Research Corporation, a wholly owned subsidiary of Kratos Defense & Security Solutions, Inc. (Kratos). It takes up with Glenn Close's character, played by Systems Applications & Technologies, Inc. (SAT). In this version of the movie, which we admit is far less cinematic than a knife fight, the Army returns to its old partner after a brief dalliance with SAT. The return takes the form of a renewed solicitation of bids followed by a bid protest from the jilted suitor.
The facts go back to June 2010, when the Government issued a solicitation of bids for "aerial target flight operations and maintenance services in support of its subscale, ballistic, rotary wing, and ballistic missile target systems." The Army had to choose among three qualified offerors, and to cut to the chase, it chose SAT. Kratos immediately filed a bid protest, which the Government Accountability Office found had merits. The Arny thus proposed corrective action, including canceling the contract with SAT and reopening the bid process. SAT sued to enjoin the corrective action. On cross-motions to dismiss/for judgment on the adminsitrative record, the court ruled for SAT.
After 10 pages on jurisdiction and justiciability (i.e. non-contractual stuff = BORING), the court gets to the meat of its decision. The headers tell it all:
A. The Army’s Decision to Take Corrective Action Constitutes a Significant Error in the Procurement Process
1. The Army’s Reliance on the GAO Attorney’s April 20, 2011 Electronic-Mail Message Renders Its Decision to Take Corrective Action Irrational
2. The Army’s Decision to Take Corrective Action Is Irrational and Unlawful
a. The Army’s Decision to Take Corrective Action Lacks a Rational Basis
b. The Army’s Decision to Take Corrective Action Violates Procurement Statutes and Regulations
B. SA-TECH Is Prejudiced by the Army’s Decision to Take Corrective Action
The Army is thus enjoined from canceling its contarct with SAT and re-opening the bid process.
August 22, 2011
Local News: Fight Over A School Board's Decision to Buy a Scoreboard
This is the sort of mess that local governments deal with all the time, but this one hits home for those of us in the Valparaiso Community School District. As reported in the Northwest Indiana Times, the Valparaiso Community School Board held a special meeting on August 4th to approve a contract to erect a $250,000 scoreboard at the high school in time for the start of the football season. As public expenditures go, this one seems a no-brainer, as the Board apparently believed on August 4th that it could cover the cost of the new scoreboard with advertising revenues within five years.
Some Valparaisans were outraged, however, by the lack of public discussion and by the deficient notice prior to the special meeting held on August 4th. At a subsequent Board meeting on August 16th, public outrage was exacerbated by the revelation that the school had in fact secured only $54,000 in advertising revenues and there are divergent accounts of what information about advertising commitments was supplied to the Board at the time it approved the contract.
But here's where it gets interesting. The Board defended its hasty action on the ground that the $250,000 contract had already been entered into by unnamed "individuals who thought they had the authority" to enter into such a contract. This revelation by the Board was met with a smattering of laughter at the public meeting. Why were the outraged Valparaisans laughing? Because they know that, under agency law, thinking you have the authority to enter into a $250,000 contract is not the same thing as having such authority. And if residents find it laughable that some employee of the high school would claim to have such authority, the other party to the contract knew or should have known that such contracts require Board approval to be binding. In short, there was no need for the Board to rush to approve the contract, because the contract was never binding in the first place.
In addition, there is the separate, disputed issue of whether such a contract must be awarded only after a solicitation of competitive bids, which did not occur in this case.
Whether or not the contract was enforceable at the time it was signed, the Board has now adopted it, so it has become binding. That does not mean that it could not be challenged of course. Angry Valparaisans could run to court and seek to enjoin any further measures to install the new scoreboard. But doing so would cost taxpayers more money, and so citizens who would like to hold the allegdly unaccountable Board to account while also preventing improper expenditures of public funds are faced with a Hobson's choice.
August 19, 2011
Investigation into Conflicts of Interest at DARPA
According to this exclusive report from Wired.com, the Department of Defense's Inspector General is looking into $1.7 million in contracts between the Defense Advanced Research Projects Agency (DARPA), the Pentagon's top research division, and RedXDefense a corporation owned in part by DARPA's director, Regina Dugan. According to Wired, RedXDefense is indebted to Dugan to the tune of $250,000.
DARPA representatives claim that the investigation is routine and that RedXDefense won its contracts fair and square. Dugan reportedly recused herself from all deliberations that resulted in the award of contracts to RedXDefense. Still, Wired reports that the contracts were not reviewed by someone outside of DARPA so that decision-makers likely were still subject to Dugan's influence.
In other news, Pentagon officials are denying rumors of a merger between DARPA and the Dharma Initiative.
August 09, 2011
Government Contractors Immune from Suit in Afghan Copter Crash
Survivors of and heirs to those killed in the February 2007 crash of a Chinook helicopter in Afghanistan sued the defense contractors (Boeing, Honeywell, Goodrich, and AT Engine Controls), claiming that design and manufacture flaws caused the crash. The District Court dismissed the claims against AT Engine Controls, a British corporation, based on lack of personal jurisdiction. It also granted summary judgment to the U.S. based companies, finding that the federal government contractor defense preempted plaintiffs' claims.
In this opinion filed last week, the Ninth Circuit affirmed the District Court's rulings. According to the court, the government contractor defense "protects government contractors from tort liability that arises as a result of the contractor’s 'compli[ance] with the specifications of a federal government contract.'" In Boyle v. United Technologies Corp., the U.S. Supreme Court set out a three-part test for establishing the defense: “(1) the United States approved reasonably precise specifications; (2) the equipment conformed to those specifications; and (3) the supplier warned the United States about the dangers in the use of the equipment that were known to the supplier but not to the United States.” The Ninth Circuit provides a full analysis, especially of the first prong, and concludes that the test is satisfied in this case.
August 08, 2011
Court of Federal Claims Upholds Bid Protest Despite Completion of Challenged Contract
On July 13, 2011, the Court of Federal Claims released its opinion in California Industrial Facilities Resources, Inc. v. United States. California Industrial Facilities Resources (CIFR) challenged the award to Alaska Structures, Inc. (AKS) of a sole source contract to build large, tent-like structures used as living quarters for troops in Afghanistan. By the time CIFR's protest was filed, AKS had almost completed the work, and the court refused to enjoin it from completing its task. Nonetheless, the court accepted jurisdiction and ruled in CIFR's favor. The court summarized its reasoning as follows:
In brief summary, the Court finds that this case is not moot because the Government’s violation of statutory competition requirements for the war effort in Afghanistan is capable of repetition, and could again evade review. The challenged actions were too short in duration to be fully litigated prior to completion, and there is a reasonable expectation that the complaining party will be subject to the same actions in the future. Fed. Election Comm’n v. Wis. Right to Life, Inc., 551 U.S. 449, 462-63 (2007); Humane Soc’y v. Clinton, 236 F.3d 1320, 1331 (Fed. Cir. 2001); Ameron, Inc. v. U.S. Army Corps of Engineers, 787 F.2d 875, 880-81 (3d Cir. 1986). The Court has jurisdiction of this matter under 28 U.S.C. § 1491(b) (2006).
On the merits, the Court finds that the Government’s award of a sole source contract to AKS violated the competition requirements in 10 U.S.C. § 2304(e) (2006) and Federal Acquisition Regulation (FAR) 6.302-2(c)(2). Even when confronted with unusual and compelling urgency, the Government still must request offers from as many potential sources as is practicable. The Government was well aware that other sources would have been interested in competing for the contract, but the Government made no effort to contact any source other than AKS. The Government had 26 days between its awareness of the shelter system requirement (April 1, 2011) and the award of the contract to AKS (April 27, 2011), and it easily could have obtained competitive prices from other sources. The Government’s failure to do so was in violation of law.
July 13, 2011
A Contractual Protest: A Thread to A Can of Worms.
It is rare that a day passes without some headline or other about the affairs of the major players in the fields of information technology (IT), Internet Business (IB) or Social Networking (SN). The cast of players - a revolving door of usual suspects – includes Microsoft, Apple, Google, Facebook etc. The relative harmony that once derived from their clearly differentiated activities – e.g. personal computing, online searching or social networking – is now a thing of the past. Brittle harmony has given way to - shades of the 1990s - blow by blow accounts of smear tactics, strategic protests, general blogfare, and of course, court actions . Why? Because the players are slugging it out in the mush pit which the converging IT/IB/SN arena has become – all for a (bigger) piece of the pie.
The average observer might be daunted by the copious data and convoluted interrelationships typically involved. Close contemplation of contractual details, particularly those undergirding the relentless strategizing, negotiating, and (guarded) cooperation of such parties, is clearly something the average observer does not relish. Yet the nitty gritty of who is doing what to whom, and where, to get to the bottom of what is really going on in a dispute may not be that hard to find. Help is found in unexpected places – even in very contracts that are dauntingly associated with such transactions. Or more precisely, even from the angst created by such contracts.
There is a struggle, you see, between an industry giant, Microsoft, who is determined not to be past its prime, and an equally determined giant slayer, Google, a relative upstart that is notoriously hungry for power. Microsoft is determined to reinvent itself. It is trying to build on its dominant market position to expand beyond the dated server based computing approach. The aim is to become the leader of the emerging ‘cloud based enterprise solution revolution’. All very well. The thing is, however, that Google is eagerly developing competing products in the same field. And Google is striving, mightily, to market those products. So, here is the rub – Google has been having a hard time persuading potential customers, a significant percentage of whom are loyal customers of Microsoft’s email and other office offerings, to make the switch.
This is why Google cried foul, and loudly, when the U.S. govt., through the agency of the Department of the Interior (DoI), issued a request for quotations – an invitation for offers as we know – but allegedly indicated that it would not entertain offers from Google. The DoI subsequently awarded the contract to Microsoft.
Google objected to not being invited to the party by filing a bid protest in the U.S. Court of Federal Claims. In the filing, Google asserted infringements of the Competition in Contracting Act’s policy requirements which mandated that “technology vendor neutrality as far feasibly possible” must be maintained. Google has asked the court to enjoin the DoI from awarding the contract to Microsoft until competitive bidding has taken place.
This dispute between the parties has been anything but straightforward. The DoI has asserted that Google was ineligible for consideration because Google’s products were not certified under the Federal Information Security Management Act (FISMA) at the time. But here’s the thing - it now seems that Google had this certification – or at least for a related product, while Microsoft at the time of the award of the contract, allegedly did not. Microsoft reportedly received the certification after the award, but this disparity is a fierce point of contention.
Google clearly understands that it has a huge task to unseat the Microsoft behemoth. Its hopes of entering into what must be an accelerating volume of contracts required for market viability, if not market dominance, depends on a spreading domino effect. An increasing number of smaller users will need to take their cue (to contractually adopt Google products) from the bigger fish who adopt Google’s applications.
The bigger war for market dominance is not limited to Microsoft and Google, of course. When this slender threat of a bid protest is traced, it leads to a whole other can of worms: cut throat rivalry not only for cloud computing, but voice over IP, mobile tasking, and mobile payment also (to name a few). But that can of worms is for another day……
July 10, 2011
Second Circuit Issues Summary Order on Remand from SCOTUS in U.S. ex rel. Kirk
We have covered this case, United States ex rel. Kirk v. Schindler Elevator Corp., before, most recently here. Here's our recitation of the facts and history up to the Supreme Court's decision in May:
Daniel Kirk, a Vietnam War veteran, worked at Millar Elevator Industries beginning in the late 70s. In 2002, Millar's operations were integrated into those of the Schindler Elevator Company. In 2003, Millar was demoted and resigned. Eight months later, Kirk sued, alleging that he had been fired in violation of VEVRAA, the VIetnam Era Veterans Readjustment Assistance Act. That claim was dismissed and the dismissal was affirmed last year.
Meanwhile, Kirk brought suit under the False Claim Act in the name of the U.S. government. In 2007, the government elected not to intervene and Kirk pursued his claim as a relator. His suit alleged that Schindler had entered into hundreds of contracts subject to VEVRAA requirements but that Schindler had failed to comply with those requirements. Among other claims, Kirk alleged that Schindler failed to submit required VETS-100 reports in some years and had filed false VETS-100 forms in others. The district court dismissed the action finding, among other things, that the claim was bared under the FCA, 31 U.S.C. s. 3730(e)(4), which provides that information that has been publicly disclosed cannot be a basis for a FCA claim. The information at issue here related to the allegedly missing and/or falsified VETS-100 forms that Mr. Kirk had discovered through FOIA requests.
The relevant section of the FCA provides:
No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.
The Second Circuit vacated and remanded. There was no question that Mr. Kirk was not the original source of the information, so the only question whether a FOIA request counts as "public disclosure" for the purposes of the statute. The Third Circuit answered that question in the affirmative. The Ninth Circuit concluded that only a FOIA request that results in the production of an "enumerated source;" that is, one of the types of sources expressly named in the statute, creates a jurisdictional bar to an FCA claim. The Second CIrcuit followed the Ninth. It was supported in its position by the U.S. government as amicus curiae.
In the U.S. Supreme Court, the 5-3 majority (opinion by Justice Thomas) held that a government agency's response to a FOIA request constitutes a "report" and thus falls within the FCA's jurisdictional bar. Justice Ginsburg wrote a short dissent, basically endorsing the Second Circuit's approach. The opinion can be found here.
Last week, the Second Circuit Revisited the case. On its first pass on the case, the Second Circuit had left unresolved the following issues:
(1) whether the Department of Labor's FOIA responses indicating that reports were not found for certain years disclosed “allegations or transactions,” (2) whether Kirk’s failure-to-file claims were “based upon” any such disclosed “allegations or transactions,” or (3) whether Kirk qualifies as an “original source” of the relevant information underlying the failure-to-file claims.
The Second Circuit concluded that "Kirk’s failure-to-file claims were 'based upon' the 'allegations or transactions' disclosed in the FOIA responses and that Kirk does not qualify as an 'original source.'" The Second Circuit thus affirmed the District Court's dismissal of Kirk's failure-to-file claims. However, the Second Circuit left unchanged its earlier decision to vacate the District Court's dismissal of Kirks false reports claims, which were premised on Kirk's personal knowledge and thus did not run afoul of the FCA's jurisdictional bar.
The most recent Second Circuit order can be found here.
July 01, 2011
Protection of Domestic Industry UK Style
Today's Guardian has a story about two cabinet ministers who have sent a carefully worded letter of complaint to British Prime Minister David Cameron protesting the award of a £3 billion contract for the manufacture of train carriages (cars) to the German company, Siemens. The ministers are upset that the contract was not awarded to Bombardier, which employs 3,000 people in Derby and is the last remaining train factory in Britain.
The ministers apparently express concern that Britain EU partners do not play fair. After all, the German government recently awarded a £5.4 billion high-speed train contract to German-based Siemens. And just last year, the French government awarded a £540 million contract to Siemens rather than to Paris-based Alstom.
Wait a minute. Doesn't this suggest that Siemens always wins these big contracts rather than that member states of the EU engage in favoritism? Moreover, Bombardier is not even a UK company. It's Canadian! A union representative in Derby is quoted by the Guardian as expressing concern that Bombardier will shut down operations in England. After all, if it can't win a UK contract, what's the point of even having a factory there? Simple solution. Sell the factory to Siemens. They seem pretty busy.
June 29, 2011
Supreme Court to Decide Contractor Liability for Bivens Actions
Pollard was incarcerated at a federal prison that had, for several years by then, been operated by an independent contractor, now known as The GEO Group (GEO). Pollard alleges that he was mistreated by GEO personnel after he fell over a cart in the prison and may have fractured both his elbows. The GEO employees allegedly put Pollard in restraints that caused him great pain, did not get him the bilateral slings prescribed for his injuries, failed to properly attend to him while he was injured and forced him to return to work before his injuries had healed. He sued GEO, seven GEO employees, and a doctor employed by another entity, alleging violations of his 8th Amendment rights and seeking damages pursuant to Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics, 403 U.S. 388 (1971).
GEO was not subject to suit, due to a prior ruling that private entities that run prisons are not subject to Bivens actions. The District Court dismissed his action in its entirety. A divided panel of the 9th Circuit reversed. The majority ruled that: 1) private contractors running a federal prison act under color of federal law; and 2) the availability of state remedies does not foreclose Pollard's Bivens action. In so ruling, the 9th Circuit acknowledged that it was creating a split between its law and the laws of the 4th and 11th Circuits.
Over at SCOTUSblog, Lyle Denniston predicts that the Supreme Court granted the petition in order to curb any attempts by the lower courts to expand the availability of the Bivens action. I wouldn't wager against him.
June 17, 2011
CRS on Presidential Authority to Impose Requirements on Contractors
Thanks to the Federal of American Scientists' Secrecy News Blog, we are able to link to this new report form the Congressional Research Service, authored by Vanessa K. Burrows & Kate M. Manuel, "Presidential Authority to Impose Requirements on Federal Contractors."
Here is the executive summary:
Executive orders requiring agencies to impose certain conditions on federal contractors as terms of their contracts have raised questions about presidential authority to issue such orders. Recently, the Obama Administration circulated, but did not issue, a draft executive order directing “every contracting department and agency” to require contractors to “disclose certain political contributions and expenditures.” The draft order cites the President’s constitutional authority, as well as his authority pursuant to the Federal Property and Administrative Services Act of 1949 (FPASA), which authorizes the President to prescribe any policies or directives that he considers necessary to promote “economy” or “efficiency” in federal procurement. The draft executive order refers to FPASA’s goals in that it directs actions “to ensure the integrity of the federal contracting system in order to produce the most economical and efficient results for the American people.” The draft order has been characterized by some as an “abuse of executive branch authority” because it resembles the Democracy is Strengthened by Casting Light on Spending in Elections (DISCLOSE) Act that the 111th Congress considered, but did not pass. If issued, the draft order may face legal challenge.
The outcome of legal challenges to particular executive orders pertaining to federal contractors generally depends upon the authority under which the order was issued and whether the order is consistent with or conflicts with other statutes. Courts will generally uphold orders issued under the authority of FPASA so long as the requisite nexus exists between the challenged executive branch actions and FPASA’s goals of economy and efficiency in procurement. Such a nexus may be present when there is an “attenuated link” between the requirements and economy and efficiency, or when the President offers a “reasonable and rational” explanation for how the executive order at issue relates to economy and efficiency in procurement. However, particular applications of presidential authority under the FPASA have been found to be beyond what Congress contemplated when it granted the President authority to prescribe policies and directives that promote economy and efficiency in federal procurement.
Some courts and commentators also have suggested that Presidents have inherent constitutional authority over procurement. A President’s reliance on his constitutional authority, as opposed to the congressional grant of authority under the FPASA, is more likely to raise separation of powers questions.
In the event that Congress seeks to enlarge or cabin presidential exercises of authority over federal contractors, Congress could amend FPASA to clarify congressional intent to grant the President broader authority over procurement, or limit presidential authority to more narrow “housekeeping” aspects of procurement. Congress also could pass legislation directed at particular requirements of contracting executive orders. For example, in the 112th Congress, legislation has been introduced in response to the draft executive order (e.g., H.R. 1906; H.R. 1540, § 847; H.R. 2017, § 713).