Regulatory Updates

DoD Decreases Its Budget for Procurement Programs. The U.S. Department of Defense ("DoD") released its Fiscal Year 2020 Budget Request in March 2019. The Procurement Programs portion of the budget calls for approximately $143.1 billion in total obligational authority across DoD for procurement. As shown in Appendix A to DoD's Overview of the FY2020 Defense Budget, this represents a decrease of approximately $4.2 billion compared to the amount enacted in FY2019.

Rapid Acquisition Authority. On March 20, 2019, DoD's Office of the Under Secretary for Defense for Acquisition and Sustainment released DoD Manual 5000.78, "Rapid Acquisition Authority (RAA)," which describes processes available to expedite DoD acquisitions and rapidly fill urgent operational needs such as: elimination of deficiencies resulting in combat casualties, impacting contingency operations, or caused by a cyber-attack; compelling national security needs for rapid fielding or rapid prototyping; or where certain supplies or services are "urgently needed to react to an enemy threat or respond to significant and urgent safety situations." For example, upon an RAA determination, the agency may use any funds available to the DoD for such supplies or services (subject to certain limitations) upon a written determination that the funds are necessary.

Accounting Firms Contracting with DoD for Audits Must Reveal Disciplinary Proceedings. The U.S. Department of Defense's Office of the Under Secretary for Defense for Acquisition and Sustainment issued Class Deviation 2019-O0007 (and its Attachment), "Accounting Firms Used to Support Department of Defense Audits," on March 21, 2019, which requires the use of a contract clause to implement Section 1006 of the National Defense Authorization Act for Fiscal Year 2019. The clause requires accounting firms providing financial statement auditing or audit remediation services to DoD in support of the audits required under 31 U.S.C. § 3521 to provide to the Contracting Officer a statement setting forth the details of any disciplinary proceedings with respect to the accounting firm or its associated personnel before any entity with the authority to enforce compliance with rules or laws applying to audit services offered by accounting firms.

Ability One Procurement List—Additions & Deletions. On March 29, 2019, the Committee for Purchase from People Who Are Blind or Severely Disabled published an updated list of additions to and deletions from its Procurement List. The action "adds products and service to the Procurement List that will be furnished by nonprofit agencies employing persons who are blind or have other severe disabilities, and deletes products and services from the Procurement List previously furnished by such agencies." Comments on other proposed additions and deletionsmust be received by April 28, 2019.

Congressional Developments

Draft Legislation Eliminating Option Years in Sole Source Small Business Awards. On March 6, 2019, the Expanding Contracting Opportunities for Small Businesses Act of 2019 (S.673) was introduced in the U.S. Senate. The Bill would "amend the Small Business Act to eliminate the inclusion of option years in the award price for sole source contracts." It would also require the U.S. Comptroller General to evaluate the policies and practices used by the Small Business Administration and other federal agencies to provide assurances that (1) contracting officers are properly classifying sole source awards under those programs in the Federal Procurement Data System; and (2) sole source contracts awarded under those programs are being awarded to eligible concerns.

Draft Legislation Encouraging Cybersecurity for "Internet of Things Devices." On March 11, 2019, the Internet of Things Cybersecurity Improvement Act of 2019 (S.734) was introduced in the U.S. Senate. The Bill seeks to "leverage Federal Government procurement power to encourage increased cybersecurity for Internet of Things devices" by requiring the National Institute of Standards and Technology ("NIST") to publish "policies and procedures for a contractor or vendor providing a covered device to the Federal Government on (A) receiving information about a potential security vulnerability relating to the covered device; and (B) disseminating information about the resolution of a security vulnerability relating to the covered device." A "covered device" is "capable of connecting to and is in regular connection with the Internet" but is "not a general-purpose computing device, including personal computing systems, smart mobile communications devices, programmable logic controls, and mainframe computing systems." Under the Bill, NIST's guidance would prohibit agencies from acquiring or using any covered device from a contractor if the contractor failed to comply with the guidance. NIST has recognized a critical cybersecurity gap for such devices and in September 2018, drafted NISTIR 8228Considerations for Managing Internet of Things (IoT) Cybersecurity and Privacy Risks. The draft legislation directs NIST to complete its guidance no later than September 30, 2019.

Compliance and Oversight

GAO Reports that the Department of Energy ("DOE") Needs to Strengthen Subcontract Oversight. On March 12, 2019, the U.S. Government Accountability Office ("GAO") released Report No. GAO-19-107 ("Department of Energy Contracting: Actions Needed to Strengthen Subcontract Oversight") which "found more than $3.4 billion in subcontract costs that had not been audited as required—some of which was already past the 6-year statute of limitations to recover unallowable costs." GAO made six recommendations, "including that DOE develop procedures that require local offices to monitor contractors to ensure timely completion of required subcontract audits, and require local DOE officials to independently review subcontractor ownership information to identify potential conflicts of interest."

GAO Report on DoD Workforce, Organizational Structure, and Budgeting. The GAO also released Report No. GAO-19-209 ("Defense Acquisitions: Information on Workforce, Organizational Structure, and Budgeting for Selected Programs") on March 25, 2019, which identified several factors that influence the "workforce size, composition, and mix, as well as the organizational structure of the 11 Department of Defense (DOD) major defense acquisition programs." One such factor included GAO's finding that "program officials GAO met with stated that they generally prefer to use government personnel, but use contractor support when the number of government personnel allocated to the program is not sufficient to meet their needs, the technical skills are not available or are limited within the government, or to fulfill short-term tasks that are too brief to justify hiring government personnel." GAO also found that not all DoD programs segregate personnel costs from other acquisition costs. For example, it found that "personnel costs that are program-funded are included in individual program budget justification requests, whereas personnel costs that are centrally funded by the military departments are aggregated into one or more line items in the military department's specific appropriation request."

U.S. General Services Administration ("GSA") Inspector General ("IG") Report Regarding Information Technology Audit of Leasing Support Services. The GSA IG released a report on March 21, 2019, summarizing the results of its audit of Information Technology security requirements in GSA Leasing Support Services ("GLS") contracts. Not only did the audit find that GSA's award and administration of the GLS contracts failed to sufficiently protect government data, but "GSA's administration of the GLS contracts resulted in a violation of federal competition requirements" because GSA "significantly changed the contractors' IT security obligations subsequent to contract award."

Recent Court Cases

The Eighth Circuit Enforces Indefinite Federal Holdover Clause. In Prairie Land Holdings, L.L.C. v. Federal Aviation Administration, No. 18-2234 (8th Cir. 2018), the U.S. Court of Appeals for the Eighth Circuit upheld an administrative ruling in March by the U.S. Federal Aviation Administration's Office of Dispute Resolution for Acquisition ("ODRA") enforcing the holdover clause in the agency's lease agreement. The holdover clause at issue permitted the agency to remain on the premises past the expiration of the lease while paying the same rent amount until the Government and Lessor signed a new lease or the Government vacated or purchased the property. The Court noted that federal common law governs the interpretation of a contract between the United States and another party. It construed the plain language of the clause to give the FAA significant discretion to holdover after the expiration of the lease term, although it suggested that the Lessor might have other remedies if the holdover time was unreasonable. Specifically, the Court cautioned that it expressed "no opinion as to whether Prairie Land may have some other remedy in the event the FAA holds over for an unreasonable period of time, refuses to negotiate in good faith for a lease extension, or unreasonably delays commencement of condemnation proceedings." In upholding the holdover clause, the Court recognized that "[t]he FAA is no ordinary tenant, and the purpose of the lease is atypical. Instead of leasing the property for residential or commercial purposes, the FAA is leasing the property for long-term public safety reasons." Moreover, it noted that the Lessor had not retained any right to terminate. The case is a reminder that the government's status is different from that of private lessors, and parties must carefully read government contracts to ensure that the terms are fair over time, including after the end of the lease term.